United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year May 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transaction period from _________________ to
_________________
0-23293
(Commission File Number)
WARWICK COMMUNITY BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 06-1497903
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
18 Oakland Avenue, 10990-0591
Warwick, New York (Zip Code)
(Address of Principal Executive Offices)
(914) 986-2206
(Registrant's Telephone Number including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES _X_ NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. _X_
As of August 21, 1998, there were 6,606,548 shares of the Registrant's
common stock outstanding. The aggregate market value of the Registrant's common
stock (based on closing price quoted on August 21, 1998) held by non-affiliates
was approximately $87,262,611.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the year
ended May 31, 1998 are incorporated by reference into Items 1, 5, 6, 7, 7A
and 8 of Part II hereof and Item 14 of Part IV hereof.
(2) Portions of the definitive Proxy Statement for the Registrant's 1998 Annual
Meeting of Shareholders are incorporated by reference into Items 10, 11, 12
and 13 of Part III hereof.
<PAGE>
PART I
ITEM 1. Business
General
Warwick Community Bancorp, Inc. (the "Registrant") is a bank holding
company incorporated in September 1997 under the laws of the State of Delaware
and is registered under the Bank Holding Company Act of 1956, as amended
("BHCA"). The Registrant was organized for the purpose of owning all of the
outstanding capital stock of The Warwick Savings Bank (the "Bank"). On December
23, 1997, the Bank completed its conversion from a New York State chartered
mutual savings bank to a New York State chartered stock savings bank, the
Registrant completed the sale of 6,414,125 shares of common stock at $10.00 per
share and the Registrant made a charitable contribution of 192,423 shares of its
common stock to the Warwick Savings Foundation, a charitable foundation
organized by the Registrant and the Bank. The Registrant's operations commenced
on December 23, 1997 and consist principally of the operations of the Bank, the
Registrant's only direct subsidiary. The Registrant, the Bank and the Bank's
subsidiaries are sometimes collectively referred to herein as the "Company."
The Bank was organized in 1875 as a New York State chartered mutual savings
bank and became a New York State chartered stock savings bank on December 23,
1997. The Bank's deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC") up to the maximum amounts
permitted by law.
The Bank is a community-oriented savings bank whose 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
business 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
mortgage loans, 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 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.
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 town of
Wallkill, Orange County, New York. The Bank's primary deposit gathering areas
are currently
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<PAGE>
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 its mortgage banking subsidiary, WSB Mortgage
Company of New Jersey, Inc. ("WSB Mortgage"), and its attendant loan production
office in West Milford, Passaic County, New Jersey, the Bank has expanded its
mortgage banking operations 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.
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. 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.
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<PAGE>
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, 1998, the Bank had total gross loans outstanding of $214.5 million
(before deducting the allowance for loan losses and net deferred loan fees), of
which $129.9 million, or 60.6%, were one- to four-family, owner-occupied
residential first mortgage loans. The remainder consisted of $34.1 million of
commercial business and commercial real estate loans, or 16.0% of total loans,
$15.9 million in home equity loans, or 7.4% of total loans, $2.8 million in
residential construction mortgage loans (net of undisbursed portion), or 1.3% of
total loans, and $14.0 million in consumer loans, or 6.5% of total loans.
Additionally, the Bank originates Veterans Administration ("VA") guaranteed
loans and Federal Housing Authority ("FHA") insured loans. For the fiscal year
ended May 31, 1998, the Bank originated $3.6 million of such loans. The Bank is
active in the origination of State of New York Mortgage Association ("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,
1998, the Bank originated $8.6 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 Board of Governors of the Federal Reserve
System ("FRB"), and legislative tax policies.
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<PAGE>
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,
----------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
--------- ----- --------- ----- --------- -----
(Dollars in thousands)
Mortgage loans:
Conventional one-
to-four-family
loans ........................... $ 129,915 60.57% $ 81,803 58.56% $ 61,936 56.18%
Mortgage loans held for sale ...... 17,237 8.04 4,832 3.46 5,054 4.59
VA or FHA loans ................... 595 0.28 749 0.54 376 0.34
Home equity loans ................. 15,876 7.40 13,449 9.63 11,040 10.02
Residential construction loans .... 6,703 3.13 4,110 2.94 961 0.87
Undisbursed portion of
construction loans .............. (3,939) (1.84) (2,118) (1.52) (1,838) (1.67)
--------- ------- --------- ------ --------- ------
Total mortgage loans ......... 166,387 77.58 102,825 73.61 77,529 70.33
--------- ------- --------- ------ --------- ------
Consumer and other loans:
Commercial ........................ 34,114 15.91 23,418 16.76 19,385 17.59
Automobile ........................ 8,352 3.89 7,738 5.54 7,496 6.80
Student ........................... 1,353 0.63 1,332 0.95 1,533 1.39
Credit card ....................... 1,239 0.58 1,334 0.95 1,195 1.08
Other consumer loans .............. 3,026 1.41 3,054 2.19 3,102 2.81
--------- ------- --------- ------ --------- ------
Total consumer and other loans 48,084 22.42 36,876 26.39 32,711 29.67
--------- ------- --------- ------ --------- ------
Total loans .................. 214,471 100.00% 139,701 100.00% 110,240 100.00%
======= ====== ======
Discounts, premiums and
deferred loan fees, net ......... (293) (146) (38)
Allowance for loan losses ......... (1,513) (1,232) (1,305)
--------- --------- ------
Total loans, net .................. $ 212,665 $ 138,323 $ 108,897
========= ========= =========
<CAPTION>
At May 31,
-----------------------------------------------------
1995 1994
------------------------ ------------------------
Percent Percent
of of
Amount Total Amount Total
--------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Conventional one-
to-four-family
loans ........................... $ 78,562 63.34% $ 71,762 65.42%
Mortgage loans held for sale ...... 2,968 2.39 -- --
VA or FHA loans ................... 182 0.15 211 0.19
Home equity loans ................. 9,714 7.83 10,051 9.16
Residential construction loans .... 2,901 2.34 1,613 1.47
Undisbursed portion of
construction loans .............. (1,307) (1.05) (1,169) (1.06)
--------- ------ --------- ------
Total mortgage loans ......... 93,020 75.00 82,468 75.18
--------- ------ --------- ------
Consumer and other loans:
Commercial ........................ 17,772 14.33 15,472 14.10
Automobile ........................ 7,483 6.03 6,621 6.04
Student ........................... 1,732 1.40 1,438 1.31
Credit card ....................... 1,165 0.94 1,285 1.17
Other consumer loans .............. 2,855 2.30 2,410 2.20
--------- ------ --------- ------
Total consumer and other loans 31,007 25.00 27,226 24.82
--------- ------ --------- ------
Total loans .................. 124,027 100.00% 109,694 100.00%
====== ======
Discounts, premiums and
deferred loan fees, net ......... (158) (187)
Allowance for loan losses ......... (1,206) (909)
--------- ---------
Total loans, net .................. $ 122,663 $ 108,598
========= =========
</TABLE>
Loan Maturity. The following table shows the contractual maturity of the
Bank's loans at May 31, 1998. 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 $11.5 million, $18.4
million and $23.4 million for the fiscal years ended May 31, 1998, 1997 and
1996, respectively. Additionally, since the Bank regularly sells and securitizes
residential mortgage loans as part of its mortgage banking operations, these
activities have resulted in $12.2 million and $30.7 million in loan sales and
securitizations, respectively, for the fiscal year ended in 1998 and $6.2
million and $21.6 million, respectively, for the fiscal year ended in 1997.
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<PAGE>
<TABLE>
<CAPTION>
May 31, 1998
------------------------------------------------------------------------------------
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 .............................. $ 2,414 $ -- $ 7,279 $ -- $ 1,356 $ -- $ 11,049
--------- --------- --------- --------- --------- --------- ---------
After one year:
One to three years ........................ 312 -- 5,126 -- 4,963 1,429 11,830
Three to five years ....................... 709 27 12,033 -- 6,257 -- 19,026
Five to 10 years .......................... 24,691 2,444 4,881 1,610 9,038 -- 42,664
Over 10 years ............................. 71,514 48,400 4,795 3,546 237 1,410 129,902
--------- --------- --------- --------- --------- --------- ---------
Total due after one year ............. 97,226 50,871 26,835 5,156 20,495 2,839 203,422
--------- --------- --------- --------- --------- --------- ---------
Total amounts due ......................... $ 99,640 $ 50,871 $ 34,114 $ 5,156 $ 21,851 $ 2,839 214,471
========= ========= ========= ========= ========= =========
Discounts, premiums and deferred
loan fees, net .............................. (293)
Allowance for loan losses .................... (1,513)
---------
Loans receivable, net ........................ $ 212,665
=========
</TABLE>
The following table sets forth the dollar amounts in each loan category at
May 31, 1998 that are contractually due after May 31, 1999, and whether such
loans have fixed interest rates or adjustable interest rates.
Due After May 31, 1999
------------------------------------
Fixed Adjustable Total
-------- ---------- --------
(In thousands)
Mortgage loans ....................... $ 97,226 $ 50,871 $148,097
Commercial loans ..................... 16,136 10,699 26,835
Home equity lines of credit .......... -- 5,156 5,156
Consumer loans ....................... 20,223 272 20,495
Other loans .......................... 2,839 -- 2,839
-------- -------- --------
Total loans .......................... $136,424 $ 66,998 $203,422
======== ======== ========
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 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, 1998, the Bank experienced an increase in both fixed-rate and
adjustable-rate mortgage loan originations. This was attributable to the
increased refinancing
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<PAGE>
activity that occurred during the 1998 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 the Federal National Mortgage
Association ("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 origination and the ultimate disposition or sale of such
loans. At May 31, 1998, the Bank had $7.9 million of forward sale commitments
representing approximately 25% of closed loans and 30-year and 15-year
fixed-rate conforming loan commitments, at specified interest rates at such
date.
Currently, the Bank services all of its one- to four-family loans,
commercial business 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 to
private investors. At May 31, 1998, the Bank was servicing $144.2 million of
residential mortgage loans for others. For the fiscal years ended May 31, 1998,
1997 and 1996, loan servicing fees totaled $368 thousand, $335 thousand and $158
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.
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<PAGE>
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,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Mortgage loans (gross):
At beginning of period ........... $ 89,376 $ 66,489 $ 83,306
Mortgage loans originated:
Fixed-rate mortgages ............. 100,612 50,250 69,928
Adjustable-rate mortgages ........ 14,879 18,776 15,133
--------- --------- ---------
Total mortgage loans originated 115,491 69,026 85,061
Principal repayments ............. (11,457) (18,375) (23,403)
Sale of loans .................... (12,214) (6,172) (3,731)
Securitizations .................. (30,685) (21,592) (74,744)
--------- --------- ---------
At end of period ................. $ 150,511 $ 89,376 $ 66,489
========= ========= =========
Other loans (gross):
At beginning of period ........... $ 50,325 $ 43,751 $ 40,721
Commercial loans originated ...... 26,628 14,966 12,326
Consumer loans originated ........ 13,409 16,774 10,936
Commercial repayments ............ (15,933) (10,933) (10,573)
Consumer repayments .............. (10,470) (9,038) (9,659)
Other loans sold ................. -- (5,195) --
--------- --------- ---------
At end of period ................. $ 69,959 $ 50,325 $ 43,571
========= ========= =========
</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.
At May 31, 1998, the Bank's total gross loans outstanding were $214.5
million, of which $129.9 million, or 60.6%, were one- to four-family residential
mortgage loans. Of the one- to four-family residential mortgage loans
outstanding at that date, 66.2%, or $99.6 million, were fixed-rate loans and
33.8%, or $50.9 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
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<PAGE>
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.
<TABLE>
<CAPTION>
At May 31,
-------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- --------------- --------------- --------------- --------------
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
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans
by type:
Non-farm and non- ................... $16,862 7.86% $10,372 7.42% $ 8,288 7.52% $ 6,749 5.44% $ 5,046 4.60%
residential
One- to four-family ................. 3,094 1.44 1,157 0.83 1,161 1.05 1,387 1.12 1,593 1.45
Multi-family ........................ 3,759 1.75 3,022 2.16 1,565 1.42 501 0.41 390 0.36
Farm ................................ 404 0.19 318 0.23 156 0.14 471 0.38 491 0.45
Acquisition, development ............ 3,791 1.77 2,781 1.99 2,414 2.19 2,819 2.27 2,393 2.18
& construction
Term loans .......................... 367 0.17 258 0.18 108 0.10 188 0.15 494 0.45
Installment loans ................... 2,176 1.02 1,796 1.29 1,617 1.47 1,542 1.24 1,920 1.75
Demand loans ........................ 608 0.28 498 0.36 444 0.40 456 0.37 627 0.57
Time loans .......................... 224 0.10 300 0.21 174 0.16 150 0.12 306 0.28
S.B.A. loans ........................ 526 0.25 636 0.46 546 0.50 657 0.53 223 0.20
Lines of credit ..................... 2,164 1.01 2,166 1.55 2,861 2.60 2,763 2.23 1,922 1.75
Loans and draws disbursed ........... -- -- 88 0.06 -- -- -- -- -- --
Non-accrual ......................... 139 0.06 26 0.02 51 0.04 89 0.07 67 0.06
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total ............................. $34,114 15.90% $23,418 16.76% $19,385 17.59% $17,772 14.33% $15,472 14.10%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</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. 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
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<PAGE>
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.
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, 1998, the Bank's commercial
business loan portfolio amounted to $6.5 million, or 3.0% of total gross loans
outstanding. The largest commercial business loan outstanding at May 31, 1998
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,
1998, $700 thousand of such line was outstanding.
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. 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 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 credit 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 a commercial business loan the Bank will consider the
borrower's sources of cash flow to repay the loan, a secondary source of
repayment and the borrower's 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
property, (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 property, (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 property and (iv)
60% of the lesser of the appraised value or purchase price of the property in
the case of raw land. In
-10-
<PAGE>
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 area. 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,
1998, the Bank had $3.8 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, 1998 was a $2.4 million loan secured by a golf
course known as Hudson National Golf Club in Croton-on-Hudson, 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 of 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, 1998, the Bank had
$2.8 million of residential construction loans (net of undisbursed portion),
which amounted to 1.3% 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 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.
-11-
<PAGE>
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, 1998,
$15.9 million, or 7.4%, 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, 1998, the Bank's
consumer loan portfolio totaled $14.0 million, or 6.5% of the total gross loans
outstanding.
Loan Approval Procedures and Authority. The Bank's Board of Directors
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 Directors 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 $50 thousand; (iii) certain officers
have joint authority up to $100 thousand; and (iv) 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 Directors. Loans in excess of $500 thousand but not more than $1
million must be approved by the Executive Committee of the Board of Directors,
which meets on a bi-weekly basis. Loans in excess of $1 million must be approved
by the full Board of Directors of the Bank, which meets on a bi-weekly basis.
The approval of consumer loans generally requires the dual authorization of two
lending officers for loans over certain amounts ($5 thousand for unsecured loans
and $10 thousand for secured loans). Likewise, home equity loans or lines of
credit also require dual authorizations. The foregoing lending limits are
reviewed and reaffirmed annually by the Board of Directors.
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 currently is performed by an independent appraiser designated
and approved by the Bank. The Board of Directors 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
-12-
<PAGE>
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., the
Commercial Loan Committee, Executive Committee or Board of Directors) prior to
closing if a condition of the original approval is not met.
Asset Quality
Non-Performing Loans. The Bank's management and Board of Directors 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 90 days, they are classified as nonaccrual. 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.
-13-
<PAGE>
The following table sets forth information regarding non-accrual loans,
other past due loans and other real estate owned ("OREO'). There were no
troubled debt restructurings within the meaning of Statement of Financial
Accounting Standards ("SFAS") No. 15 at any of the dates presented below.
<TABLE>
<CAPTION>
At May 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual mortgage loans delinquent
more than 90 days .............................. $ 699 $1,111 $ 582 $1,093 $1,217
Non-accrual other loans delinquent
more than 90 days .............................. 186 83 82 131 69
------ ------ ------ ------ ------
Total non-accrual loans ................................. 885 1,194 664 1,224 1,286
Total 90 days or more delinquent
and still accruing interest .................... 133 237 199 978 928
------ ------ ------ ------ ------
Total non-performing loans .............................. 1,018 1,431 863 2,202 2,214
Total foreclosed real estate, net of related
allowance for losses ................................. 409 224 330 493 306
------ ------ ------ ------ ------
Total non-performing assets ............................. $1,427 $1,655 $1,193 $2,695 $2,520
====== ====== ====== ====== ======
Non-performing loans to total loans ..................... 0.47% 1.02% 0.78% 1.78% 2.02%
Total non-performing assets to total assets ............. 0.35% 0.58% 0.44% 1.04% 1.08%
</TABLE>
Interest income that would have been recorded if the non-accrual mortgage
loans had been performing in accordance with their original terms aggregated
approximately $100,000, $93,000 and $54,000 for the years ended May 31, 1998,
1997 and 1996, respectively.
Other Real Estate Owned. At May 31, 1998, the Bank's OREO, net, which
consisted of five single family residential properties, totaled $409 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 business and commercial real estate loans,
commercial loans greater than $25,000 and jumbo residential mortgage loans.
At each regularly scheduled Board of Directors 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 include 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
-14-
<PAGE>
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 portions 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
Banking Department of the State of New York ("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 Directors 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, 1998, the Bank had $631 thousand of assets classified as
Substandard and $563 thousand of assets classified as Special Mention. There
were no assets classified as Doubtful or Loss as of May 31, 1998. The $631
thousand of loans classified as Substandard 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.
-15-
<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
At May 31, 1998 At May 31, 1997
------------------------------------------- --------------------------------------------
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 ................ 12 $ 952 12 $ 764 7 $ 475 16 $1,214
Multi-family ....................... -- -- -- -- -- -- -- --
Commercial loans ................... 4 533 4 211 5 724 5 121
Home equity lines of
credit .......................... -- -- 1 16 -- -- 2 57
Other loans ........................ 13 26 11 27 8 16 17 39
------ ------ ------ ------ ------ ------ ------ ------
Total loans ................... 29 $1,511 28 $1,018 20 $1,215 40 $1,431
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
At May 31, 1996
----------------------------------------
60-89 Days 90 Days or More
------------------ -------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family ................ 11 $ 792 11 $ 692
Multi-family ....................... -- -- -- --
Commercial loans ................... 7 710 4 58
Home equity lines of credit ........ 1 11 2 57
Other loans ........................ 9 33 28 56
------ ------ ------ ------
Total loans ................... 28 $1,546 45 $ 863
====== ====== ====== ======
</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, 1998, the Bank's allowance for loan and lease losses was $1.5 million, or
0.71% of total loans, as compared to $1.2 million, or 0.88%, at May 31, 1997.
The Bank had non-performing loans of $1.2 million and $1.4 million at May 31,
1998 and May 31, 1997, 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.
-16-
<PAGE>
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,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of period ...... $ 1,232 $ 1,305 $ 1,206 $ 909 $ 808
Charge-offs:
Real estate mortgage loans .......... (151) (119) (24) (61) (195)
Commercial loans .................... (52) -- -- -- (126)
Consumer loans ...................... (122) (94) (125) (47) (58)
------- ------- ------- ------- -------
Total charge-offs .......... (325) (213) (149) (108) (379)
Recoveries:
Real estate mortgage loans .......... -- -- 18 123 8
Commercial loans .................... -- -- 74 13 33
Consumer loans ...................... 14 10 16 8 24
------- ------- ------- ------- -------
Total recoveries ........... 14 10 108 144 65
Provision for loan losses ........... 592 130 140 261 415
------- ------- ------- ------- -------
Balance at end of period ............ $ 1,513 $ 1,232 $ 1,305 $ 1,206 $ 909
======= ======= ======= ======= =======
Ratio of net charge-offs during the
period to average loans outstanding 0.18% 0.16% 0.03% N/A 0.29%
Ratio of allowance for loan losses to
total loans at end of period ...... 0.71% 0.88% 1.18% 0.97% 0.83%
Ratio of allowance for loan losses to
non-performing loans .............. 123.61% 86.09% 151.22% 54.77% 41.06%
</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,
-------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- --------------- --------------- --------------- ---------------
% 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 .............. $ 372 77.58% $ 224 73.60% $ 393 70.33% $ 403 75.00% $ 288 75.18%
Allowance for consumer
loan loss .............. 406 6.51 436 9.64 310 12.09 311 10.67 258 10.72
Allowance for commercial
loan loss .............. 735 15.91 572 16.76 602 17.58 492 14.33 363 14.10
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowances
for loan loss .......... $1,513 100.00% $1,232 100.00% $1,305 100.00% $1,206 100.00% $ 909 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
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<PAGE>
Environmental Issues
The Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for costs
of cleaning up hazardous materials found on 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 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, 1998, 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 Directors, 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. 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, 1998
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, 1998, 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, 1998, the amortized cost of mortgage-backed securities totaled $81.1
million, or 19.8% of total assets. The market value of all mortgage-backed
securities totaled $91.1 million at May 31, 1998. 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 $19.6 million and a market value of $19.6 million at May 31, 1998. A CMO
is a special type of debt security in which the stream of principal
-18-
<PAGE>
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, 1998, 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 7.30% at May 31, 1998.
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.
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.
-19-
<PAGE>
The following table sets forth activity in the Bank's securities portfolio
for the periods indicated.
<TABLE>
<CAPTION>
For the Year
Ended May 31,
----------------------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Beginning Balance ........................................................... $ 126,393 $ 144,284 $ 110,333
--------- --------- ---------
Debt securities purchased-- held-to-maturity ................................ 5,560 200 526
Debt securities purchased-- available-for-sale .............................. 44,558 23,687 18,723
Equity securities purchased-- available-for-sale ............................ 14,963 2,277 4,723
Mortgage-backed securities purchased-- held-to-maturity ..................... -- -- --
Mortgage-backed securities purchased-- available-for-sale ................... 59,644 23,221 12,101
Mortgage-backed securities formed by securitizing
originated mortgage loans .......................................... 30,347 21,358 72,325
Less:
Sale of debt securities -- available-for-sale ............................... 9,284 18,199 7,184
Sale of equity securities-- available-for-sale .............................. 5,466 5,317 1,876
Sale of mortgage-backed securities available-for-sale ....................... 25,764 25,375 --
Sale of mortgage-backed securities formed by securitizing
originated mortgage loans-- trading ................................ 22,604 17,486 22,668
Principal repayments on mortgage-backed securities
and debt securities ................................................ 16,447 10,469 3,637
Maturities and called debt securities ....................................... 32,800 12,425 39,576
Accretion of discount/amortization of (premium) ............................. 809 (83) 75
Change in gross unrealized gains (losses) on available-for-sale
securities ......................................................... 840 720 419
--------- --------- ---------
Ending Balance .............................................................. $ 170,749 $ 126,393 $ 144,284
========= ========= =========
</TABLE>
-20-
<PAGE>
The following table sets forth the amortized cost and market value of the
Bank's securities by accounting classification category and by type of security,
at the dates indicated:
<TABLE>
<CAPTION>
At May 31,
----------------------------------------------------------------------
1998 1997 1996
--------------------- ---------------------- ---------------------
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 ...................... $ -- $ -- $ 720 $ 725 $ 717 $ 658
Agency securities ................................ 6,659 6,610 4,965 4,981 5,887 5,910
Municipal bonds .................................. 665 667 407 410 432 437
Other debt obligations ........................... -- -- -- -- 82 83
--------- --------- --------- --------- --------- ---------
Total debt securities held-to-
maturity ........................ 7,324 7,277 6,092 6,116 7,118 7,088
--------- --------- --------- --------- --------- ---------
Debt securities available-for-sale:
U.S. Government obligations ...................... 4,047 4,163 9,079 9,165 21,684 21,716
Agency securities ................................ 40,418 40,071 20,822 20,856 15,328 15,206
Other debt obligations ........................... 822 851 7,991 8,029 16,203 16,256
--------- --------- --------- --------- --------- ---------
Total debt securities available-
for-sale ........................ 45,287 45,085 37,892 38,050 53,215 53,178
--------- --------- --------- --------- --------- ---------
Equity securities available-for-sale:
Preferred stock .................................. 1,102 1,122 204 204 305 277
Common stock ..................................... 582 576 -- -- -- --
Mutual funds ..................................... 13,823 14,931 5,597 6,091 8,636 8,821
--------- --------- --------- --------- --------- ---------
Total equity securities available-
for-sale ........................ 15,507 16,629 5,801 6,295 8,941 9,098
--------- --------- --------- --------- --------- ---------
Total debt and equity
securities ...................... 68,118 68,991 49,785 50,461 69,274 69,364
--------- --------- --------- --------- --------- ---------
Mortgage-backed securities trading:
FNMA ............................................. -- -- -- -- 1,992 1,934
--------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities trading .............. -- -- -- -- 1,992 1,934
--------- --------- --------- --------- --------- ---------
Mortgage-backed securities available-for-sale:
FHLMC ............................................ 9,720 9,872 11,062 11,029 10,395 10,322
GNMA ............................................. 49,164 49,307 29,230 29,190 4,396 4,348
FNMA ............................................. 22,213 22,973 32,519 33,052 52,871 53,336
CMOs ............................................. 19,593 19,559 2,696 2,685 4,973 4,950
--------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities available-for-sale ... 100,690 101,711 75,507 75,956 72,635 72,956
--------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities ...................... 100,690 101,711 75,507 75,956 74,627 74,890
--------- --------- --------- --------- --------- ---------
Net unrealized (losses) gains on trading
securities ...................... -- -- (58)
Net unrealized (losses) gains on available-
for-sale and trading securities .................. 1,941 1,101 441
--------- --------- ---------
Total securities .............. $ 170,749 $ 170,702 $ 126,393 $ 126,417 $ 144,284 $ 144,254
========= ========= ========= ========= ========= =========
</TABLE>
-21-
<PAGE>
The following table sets forth the composition of the Bank's securities
portfolio at the dates indicated.
<TABLE>
<CAPTION>
At May 31,
------------------------------------------------------------------
1998 1997 1996
-------------------- -------------------- --------------------
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 ...................... $ 4,822 2.82% $ 9,885 7.82% $ 22,433 15.55%
Agency securities ................................ 46,071 26.98 25,821 20.43 21,093 14.62
Municipal bonds .................................. 665 0.39 407 0.32 432 0.30
Other debt obligations ........................... 851 0.50 8,029 6.35 16,338 11.32
-------- -------- -------- -------- -------- --------
Total debt securities ................... 52,409 30.69 44,142 34.92 60,296 41.79
-------- -------- -------- -------- -------- --------
Equity securities:
Preferred stock .................................. 1,122 0.66 204 0.16 277 0.19
Common stock ..................................... 576 0.34 -- -- -- --
Mutual funds ..................................... 14,931 8.74 6,091 4.82 8,821 6.12
-------- -------- -------- -------- -------- --------
Total equity securities ................. 16,629 9.74 6,295 4.98 9,098 6.31
-------- -------- -------- -------- -------- --------
Mortgage-backed securities
FHLMC ............................................ 9,872 5.78 11,029 8.73 10,322 7.15
GNMA ............................................. 49,307 28.88 29,190 23.09 4,348 3.01
FNMA ............................................. 22,973 13.46 33,052 26.15 55,270 38.31
CMOs ............................................. 19,559 11.45 2,685 2.13 4,950 3.43
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities ........ 101,711 59.57 75,956 60.10 74,890 51.90
-------- -------- -------- -------- -------- --------
Total securities ........................ $170,749 100.00% $126,393 100.00% $144,284 100.00%
======== ======== ======== ======== ======== ========
Debt and equity securities available-
for-sale ............................ $ 61,714 36.14% $ 44,345 35.08% $ 62,276 43.16%
Debt and equity securities held-to-
maturity ............................ 7,324 4.29 6,092 4.82 7,118 4.94
-------- -------- -------- -------- -------- --------
Total debt and equity
securities .......................... 69,038 40.43 50,437 39.90 69,394 48.10
-------- -------- -------- -------- -------- --------
Mortgage-backed securities trading ............... -- -- -- -- 1,934 1.34
Mortgage-backed securities available-
for-sale ................................ 101,711 59.57 75,956 60.10 72,956 50.56
Mortgage-backed securities held-to-
maturity ................................ -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities ........ 101,711 59.57 75,956 60.10 74,890 51.90
-------- -------- -------- -------- -------- --------
Total securities ............... $170,749 100.00% $126,393 100.00% $144,284 100.00%
======== ======== ======== ======== ======== ========
</TABLE>
-22-
<PAGE>
The following table sets forth certain information regarding the carrying
value and weighted average yield of the Bank's securities at May 31, 1998, 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, 1998
----------------------------------------------------------------------------------------------
More than One Year More than Five More Than
One Year or Less to Five Years 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 ................. $ 560 3.78% $ 105 6.96% $ -- --% $ -- -- % $ 665 4.28%
U.S. Government obligations ..... 309 4.76 350 7.01 -- -- -- -- 659 5.95
Agency securities ............... -- -- 1,000 5.90 5,000 7.00 -- -- 6,000 6.82
-------- -------- -------- -------- --------
Total held-to-maturity . 869 4.13 1,455 6.24 5,000 7.00 -- -- 7.324 6.51
-------- -------- -------- -------- --------
Available-for-sale:
Mortgage backed securities:
Variable Rate:
FHLMC .................. -- -- -- -- -- -- 813 7.28 813 7.28
GNMA ................... -- -- -- -- -- -- 756 6.83 756 6.83
FNMA ................... -- -- -- -- -- -- 1,988 7.61 1,988 7.61
Fixed Rate:
FHLMC .................. -- -- 1,021 5.59 539 7.08 7,499 7.18 9,059 6.99
GNMA ................... -- -- 4 8.00 43 7.71 48,504 7.58 48,551 7.58
FNMA ................... -- -- -- -- 671 8.25 20,314 7.34 20,985 7.37
CMOs ................... -- -- -- -- -- -- 19,559 6.65 19,559 6.65
-------- -------- -------- -------- --------
Total mortgage-backed
securities .......... -- -- 1,025 5.60 1,253 7.73 99,433 7.31 101,711 7. 30
-------- -------- -------- -------- --------
Debt securities:
U.S. Government obligations ... 2,037 8.71 2,126 7.06 -- -- -- -- 4,163 7.87
Agency securities ............. -- -- -- -- 19,814 7.49 20,257 6.92 40,071 7.20
Other debt obligations ........ 20 4.66 831 6.70 -- -- -- -- 851 6.65
-------- -------- -------- -------- --------
Total debt securities .. 2,057 8.67 2,957 6.96 19,814 7.49 20,257 6.92 45,085 7.25
-------- -------- -------- -------- --------
Equity Securities:
Preferred stock ............... -- -- -- -- -- -- 1,122 6.63 1,122 6.63
Common stock .................. -- -- -- -- -- -- 576 -- 576 --
Mutual funds .................. -- -- -- -- -- -- 14,931 11.52 14,931 11.52
-------- -------- -------- -------- --------
Total equity securities -- -- -- -- -- -- 16,629 10.79 16,629 10.79
-------- -------- -------- -------- --------
Total available-for-sale 2,057 8.67 3,982 6.61 21,067 7.50 136,319 7.68 163,425 7.64
-------- -------- -------- -------- --------
Total securities ....... $ 2,926 7.32 $ 5,437 6.51 $ 26,067 7.41 $136,319 7.68 $170,749 7.59
======== ======== ======== ======== ========
</TABLE>
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 Federal Home Loan Bank of New York ("FHLBNY") advances and other
sources, depending upon market conditions.
-23-
<PAGE>
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, 1998, 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 68.2% 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 thousand 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.
For the Years Ended May 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(In thousands)
Deposits .......................... $ 1,140,993 $ 777,214 $ 817,610
Withdrawals ....................... (1,146,633) (796,578) (822,470)
----------- ----------- -----------
(Withdrawals) in excess of deposits (5,640) (19,364) (4,860)
Interest credited on deposits ..... 7,150 7,610 8,814
----------- ----------- -----------
Net increase (decrease) in deposits $ 1,510 $ (11,754) $ 3,954
=========== =========== ===========
At May 31, 1998 the Bank had $6.1 million in certificate of deposit
accounts in amounts of $100 thousand or more, maturing as follows:
Weighted
Average
Amount Rate
------ ----
(Dollars in thousands)
Maturity Period:
Three months or less ....................... $2,684 4.83%
Over 3 through 6 months .................... 1,574 4.92
Over 6 through 12 months ................... 1,004 4.92
Over 12 months ............................. 845 5.46
------ ----
Total .................................... $6,107 4.96%
====== ====
-24-
<PAGE>
The following table sets forth the distribution of the Bank's deposit
accounts and the related weighted average interest rates for the periods
indicated.
<TABLE>
<CAPTION>
For the Years Ended May 31,
---------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Percent Weighted Percent Weighted Percent Weighted
of Average of Average of Average
Average Total Nominal Average Total Nominal Average 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 ....................... $ 19,302 9.00% -- $ 18,629 8.54% -- $ 18,834 8.18% --
Passbook accounts ....................... 77,999 36.35 2.95% 78,132 35.83 3.00% 77,868 33.83 3.00%
NOW accounts ............................ 7,498 3.50 2.23 7,040 3.23 2.25 7,095 3.08 2.25
Interest-on-checking accounts ........... 7,886 3.68 1.00 7,077 3.24 1.00 5,543 2.41 1.00
-------- ------ -------- ------ -------- ------
Total passbook, NOW and interest-on-
checking accounts ....................... 93,383 43. 53 2.73 92,249 42.30 2.79 90,506 39.32 2.82
-------- ------ -------- ------ -------- ------
Money market accounts ................... 25,827 12.04 3.29 27,017 12.39 3.27 28,674 12.46 3.26
-------- ------ -------- ------ -------- ------
Certificate accounts:
Certificates of deposit-- one year
and less ..................... 55,906 26.06 5.11 59,118 27.11 4.98 69,453 30.17 5.74
IRA Certificates of deposit--
one year and less ............ 8,062 3.76 5.11 7,330 3.36 5.13 7,200 3.12 5.83
Certificates of deposit-- more
than one year ................ 6,533 3.04 5.16 7,603 3.49 5.16 7,595 3.30 5.17
IRA Certificates of deposit--
more than one year ........... 4,119 1.92 5.21 5,104 2.34 5.35 5,584 2.43 5.53
-------- ------ -------- ------ -------- ------
Total certificates ...................... 74,620 34.78 5.12 79,155 36.30 5.03 89,832 39.02 5.69
-------- ------ -------- ------ -------- ------
Escrow deposits ......................... 1,422 0.66 2.00 1,020 0.47 2.00 2,346 1.02 2.00
-------- ------ -------- ------ -------- ------
Total deposits .......................... $214,554 100.00% 3.98% $218,070 100.00% 3.42% $230,192 100.00% 3.76%
======== ====== ======== ====== ======== ======
</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, 1998.
<TABLE>
<CAPTION>
Period to Maturity from May 31, 1998 At May 31,
-------------------------------------------- -------------------------------
Over
Less Than One to Two to Three
One Year Two Years Three Years Years 1998 1997 1996
--------- --------- ----------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
3.99% or less ....................... $ 3 $ 1 $ 1 $ -- $ 5 $ -- $ --
4.00% to 4.99% ...................... 28,768 941 -- -- 29,709 8,505 34,167
5.00% to 5.99% ...................... 35,829 1,429 1,626 2,309 41,193 65,816 47,516
6.00% to 6.99% ...................... -- -- -- -- -- 717 3,091
7.00% to 7.99% ...................... -- -- -- -- -- -- 776
8.00% to 8.99% ...................... -- -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Total ................ $ 64,600 $ 2,371 $ 1,627 $ 2,309 $70,907 $75,038 $85,550
======== ======= ======= ======= ======= ======= =======
</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 then. 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
-25-
<PAGE>
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
a 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. FHLBNY advances are to be 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. 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, 1998, the Bank had
$62.9 million in FHLBNY advances and the capability to borrow additional funds
of $34.0 million from the FHLBNY upon complying with the FHLBNY collateral
requirements.
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 $27.2 million, $23.1
million and $4.7 of securities sold under repurchase agreements outstanding at
May 31, 1998, 1997 and 1996, 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,
-----------------------------------
1998 1997 1996
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
FHLBNY Advances:
Average balance outstanding .................... $20,381 $11,563 $ 388
Maximum amount outstanding at any month-end
during the period ............ 62,850 17,450 3,600
Balance outstanding at end of period ........... 62,850 5,250 3,600
Weighted-average interest rate during the period 5.54% 5.53% 5.41%
Weighted-average interest rate at end of period 5.05% 5.71% 6.00%
Other Borrowings:
Average balance outstanding .................... $24,056 $19,685 $ 101
Maximum amount outstanding at any month-end
during the period ............ 27,500 23,300 4,700
Balance outstanding at end of period ........... 27,190 23,090 4,700
Weighted-average interest rate during the period 6.18% 6.20% 6.32%
Weighted-average interest rate at end of period 6.39% 6.50% 6.32%
Total Borrowings:
Average balance outstanding .................... $44,437 $31,249 $ 489
Maximum amount outstanding at any month-end
during the period ............................ 90,350 38,850 8,300
Balance outstanding at end of period ........... 90,040 28,340 8,300
Weighted-average interest rate during the period 5.98% 6.10% 5.60%
Weighted-average interest rate at end of period 5.45% 6.30% 6.18%
</TABLE>
-26-
<PAGE>
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 $112 thousand, $92 thousand and $90
thousand in net income, before taxes, to the Bank's net income in the fiscal
years ended May 31, 1998, 1997 and 1996, respectively.
Warsave was formed to acquire and hold real estate. Its single asset as of
May 31, 1998 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 formed in New Jersey in 1997 for the purpose of engaging
in mortgage banking operations in New Jersey.
Personnel
As of May 31, 1998, the Bank had 99 full-time and 38 part-time employees.
The Bank has experienced a very low turnover rate among its employees and, as of
May 31, 1998, 52 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.
Federal And State Taxation
Federal Taxation
General. The following is intended only as 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 Registrant. The Bank has
been audited by the IRS for the tax years ending December 31, 1993 and December
31, 1995. For federal income tax purposes, the Registrant and the Bank file
consolidated income tax returns and report their income on a calendar year basis
using the accrual method of accounting and will be subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's tax reserve for bad debts, discussed below.
Bad Debt Reserves. The Bank, as a "small bank" (one with assets having an
adjusted tax basis of $500 million or less) is permitted to maintain a reserve
for bad debts with respect to "qualifying loans," which, in general, are loans
secured by certain interests in real property, and to make, within specified
formula limits, annual additions to the reserve which are deductible for
purposes of computing the Bank's taxable income. Pursuant to the Small Business
Job Protection Act of 1996, the Bank is now recapturing (taking into income)
over a multi-year period a portion of the balance of its bad debt reserve as of
December 31, 1996.
Distributions. To that the extent that the Bank makes "non-dividend
distributions" to the Registrant, , such distributions will be considered to
have been made from the Bank's "base year reserve," i.e., its reserve as of July
31, 1988, 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
-27-
<PAGE>
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 the Bank makes a
non-dividend distribution to the Registrant, 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" herein 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.
Although the corporate environmental tax of 0.12% of the excess of AMTI (with
certain modifications) over $2.0 million has expired, under current
Administration proposals, such tax will be retroactively reinstated for taxable
years beginning after December 31, 1997 and before January 2009.
Elimination of Dividends; Dividends Received Deduction. The Registrant 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 that 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 changes in federal law and to continue to utilize either
the federal method or a method based on a percentage of its
-28-
<PAGE>
taxable income for computing its additions to bad debt reserve. 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. 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, 1998 the surcharge rate is 17%.
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, the Registrant 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 State chartered stock 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 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 fund 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 Registrant and the Bank and their operations and stockholders. The
Registrant is also required to file certain reports with, and otherwise comply
with, the rules and regulations of the FRB and the NYSBD and the rules and
regulations of the Securities and Exchange Commission ("SEC") under the federal
securities laws.
Certain of the laws and regulations applicable to the Bank and to the
Registrant 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 the New York Banking
Law ("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
-29-
<PAGE>
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 NYSBD. The exercise of these lending,
investment and activity powers are limited by federal law and the regulations
thereunder.
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, and the New York Banking Board adopted new regulations,
effective December 10, 1997, to implement the NYCRA, which regulations were
consistent with the federal regulations implementing the CRA. The New York
Banking Board replaced its prior process-focused regulations with
performance-focused regulations that were intended to parallel the CRA
regulations of the federal banking agencies and to promote consistency in CRA
evaluations by considering more objective criteria. The new regulations require
a biennial assessment of a bank's compliance with the NYCRA, utilizing a
four-tiered rating system, and require the NYBD to make available to the public
such rating and a written summary of the assessment results. Pursuant to the
NYCRA, a bank must file with the NYSBD an annual NYCRA report and copies of all
federal CRA reports. The Bank's latest NYCRA rating, received by letter dated
April 27, 1998 from the Banking Department, was a rating of "Satisfactory." The
NYCRA also requires the Superintendent of Banks of the State of New York
("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.
Dividends. Under the Banking Law, the Bank may declare and pay dividends
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
the 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
preferred stock. In addition, dividends may not 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.
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
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violation that might lead to any proceeding by the Superintendent or the Banking
Department against the Bank or any of its directors 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 rating of 1 (the highest examination rating of the FDIC for banks) under the
Uniform Financial Institutions Rating System. For all other banks, the minimum
leverage capital requirement is 3% plus an additional cushion of at least 100 to
200 basis points. The FDIC and the other federal banking regulators have
proposed amendments to their minimum capital regulations to provide that the
minimum leverage capital ratio for a depository institution that has been
assigned the highest composite rating of 1 under the Uniform Financial
Institutions Rating System will be 3% and that the minimum leverage capital
ratio for any other depository institution will be 4%, unless a higher leverage
capital ratio is warranted by the particular circumstances or risk profile of
the depository institution. 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
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issued proposal to develop a supervisory framework for measuring interest rate
risk and an explicit capital component for interest rate risk.
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, 1998:
At May 31, 1998
------------------------------------------------
Percent of Capital Percent of
Capital Assets(1) Requirement Assets(1)
------- --------- ----------- ---------
(Dollars in thousands)
Regulatory Tier 1
leverage capital $53,397 13.91% $15,352 4.0%
Tier 1 risk-based capital 53,397 25.55 8,360 4.0
Total risk-based capital 54,910 26.27 16,721 8.0
- ----------
(1) For purpose of calculating Regulatory Tier 1 leverage capital, assets are
adjusted total average assets. In calculating Tier 1 risked-based capital
and total risk-based capital, assets are total risk-weighted assets.
As the preceding table shows, the Bank exceeded the minimum capital adequacy
requirements at the date indicated.
The following table shows the Registrant's leverage ratio, its Tier 1
risk-based capital ratio, and its total risk-based capital ratio, at May 31,
1998:
At May 31, 1998
------------------------------------------------
Percent of Capital Percent of
Capital Assets(1) Requirement Assets(1)
------- --------- ----------- ---------
(Dollars in thousands)
Regulatory Tier 1
leverage capital $84,985 21.44% $15,855 4.0%
Tier 1 risk-based capital 84,985 40.07 8,484 4.0
Total risk-based capital 86,498 40.78 16,968 8.0
- ----------
(1) For purpose of calculating Regulatory Tier 1 leverage capital, assets are
adjusted total average assets. In calculating Tier 1 risked-based capital
and total risk-based capital, assets are total risk-weighted assets.
As the preceding table shows, the Registrant 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 the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("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
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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%. 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 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
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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 1980s 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 July 1, 1997 was 0.0126% for BIF-assessable
deposits and 0.0630% for SAIF-assessable deposits and was 0.0122% for
BIF-assessable deposits and 0.0610% for SAIF-assessable deposits for the period
beginning on July 1, 1998.
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 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
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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. ss. 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.
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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
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 February 20, 1996, 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 under
the Uniform Financial Institutions Rating System) and it is not a
well-capitalized institution. An institution that has total risk-based capital
of less than 8%,
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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
Uniform Financial Institutions 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 (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.
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. With
certain exceptions, 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
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$25,000 or 2.5% of the bank's 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. Generally, 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. An
exception is made for extensions of credit made pursuant to a benefit or
compensation plan of a bank that is widely available to employees of the bank
and that does not give any preference to insiders of the bank over other
employees of the bank.
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. For example, the New York law does not affect loans to shareholders
owning 10% or more of the savings bank's stock.
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 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, 1998, of
$3.4 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
$47.8 million or less (subject to adjustment by the FRB) and an initial reserve
of
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$1,434,000 plus 10% (subject to adjustment by the FRB between 8% and 14%)
against that portion of total transaction accounts in excess of $47.8 million.
The first $4.47 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. The Registrant is 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. As of May 31,
1998, the Registrant's total capital and Tier 1 capital ratios exceed these
minimum capital requirements.
The Registrant is 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 is required for the Registrant 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.
A bank holding company, such as the Registrant, is 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 Registrant'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 Registrant 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 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.
-39-
<PAGE>
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 Registrant ever acquired as a separate subsidiary a depository
institution in addition to the Bank.
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, purchase of assets from or issuance of 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
Registrant, any subsidiary of the Registrant 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 Registrant is not a bank holding company for
purposes of the Banking Law, 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.
-40-
<PAGE>
Acquisition of the Registrant
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
Registrant's shares of Common Stock outstanding, unless the FRB has found that
the acquisition will not result in a change in control of the Registrant. 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
Registrant 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 Registrant 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 Registrant or the ability to control in
any manner the election of a majority of the Registrant's directors.
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 was 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
-41-
<PAGE>
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. 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.
ITEM 2. Properties
The Bank conducts its business through its main office in Warwick, New York
and its three branch offices located in Monroe, Woodbury and Wallkill, New York.
Management believes that the Bank's current facilities are adequate to meet the
present and immediately foreseeable needs of the Bank and the Registrant.
The following sets forth the Bank's branches and loan production offices at
May 31, 1998.
<TABLE>
<CAPTION>
Leased Date Lease
or Leased or Expiration
Owned Acquired Date
----- -------- ----
<S> <C> <C> <C>
Main Office:
18 Oakland Avenue
Warwick, New York 10990 Owned 1972 N/A
Branches:
591 Route 17M
Monroe, New York 10950 Owned 1976 N/A
556 Route 32
Highland Mills, New York 10930 Owned 1979 N/A
1 Industrial Avenue
Walkill, New York 10940 Owned 1998 N/A
Loan Production Offices:
Taconic Plaza Shopping Center,
Store #10
Route 52
East Fishkill, New York Leased 1997 01/31/99
151 South Main Street, Suite 104
New City, New York Leased 1997 04/30/99
1435 Union Valley Road, 1st Floor
West Milford, New Jersey Leased 1997 04/30/99
45 Whitney Road
Mahwah, New Jersey Leased 1998 05/01/99
</TABLE>
-42-
<PAGE>
ITEM 3. Legal Proceedings
The Registrant is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business, which in
the aggregate involve amounts which management believes to be immaterial to the
financial condition and results of operations of the Registrant.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholders'
Matters
The information required by this item appears under the caption "Market for
Common Stock" on page 21 of the Registrant's Annual Report to Shareholders for
the year ended May 31, 1998 and is incorporated herein by reference.
ITEM 6. Selected Financial Data
The information required by this item appears on pages 8 through 9,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
May 31, 1998 and is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item appears on pages 10 through 21,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
May 31, 1998 and is incorporated herein by reference.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item appears on pages 11 through 13,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
May 31, 1998 and is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information required by this item appears on pages 22 through 44,
inclusive, of the Registrant's Annual Report to Shareholders for the year ended
May 31, 1998 and is incorporated herein by reference.
-43-
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
ITEM 10. Directors and Officers of the Registrant
The information required by this item appears under the caption "Election
of Directors" on pages 5 through 9, inclusive, and under the caption "Compliance
with Section 16(a) of the Exchange Act" on page 19 of the Registrant's Proxy
Statement ("Proxy Statement") for its 1998 Annual Meeting of Shareholders to be
held on September 22, 1998 and is incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by this item appears on pages 13 through 19,
inclusive, of the Registrant's Proxy Statement and is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears under the captions "Stock
Ownership of Certain Beneficial Owners" on page 3 and "Stock Ownership of
Management" on pages 4 and 5, inclusive, of the Registrant's Proxy Statement and
is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
The information required by this item appears under the caption "Certain
Relationships and Related Transactions" on page 19 of the Registrant's Proxy
Statement and is incorporated herein by reference.
-44-
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as a part of this report:
1. The following consolidated financial statements of the Registrant and
its subsidiaries, and the independent auditors' report thereon,
included on pages 22 through 44 of the Registrant's Annual Report to
Shareholders for the fiscal year ended May 31, 1998, are incorporated
herein by reference:
Consolidated Statements of Financial Condition as of May 31,
1998 and 1997;
Consolidated Statements of Income for Each of the Years in
the Three-Year Period Ended May 31, 1998;
Consolidated Statements of Changes in Stockholders' Equity
for Each of the Years in the Three-Year Period Ended May 31,
1998;
Consolidated Statements of Cash Flows for Each of the Years
in the Three-Year Period Ended May 31, 1998;
Notes to Consolidated Financial Statements
The remaining information appearing in the Registrant's Annual Report
to Shareholders is not deemed to be filed as part of this report,
except as expressly provided herein.
2. All schedules are omitted because they are not required or applicable,
or the required information is shown in the consolidated financial
statements or the notes thereto.
3. Exhibits
(a) The following exhibits are filed as part of this report, except as
otherwise indicated.
3.1 Certificate of Incorporation of Warwick Community Bancorp, Inc.
(1)
3.2 Bylaws of Warwick Community Bancorp, Inc. (1)
4.1 Certificate of Incorporation of Warwick Community Bancorp, Inc.
(See Exhibit 3.1 hereto)
4.2 Bylaws of Warwick Community Bancorp, Inc. (See Exhibit 3.2
hereto)
4.3 Restated Organization Certificate of The Warwick Savings Bank (1)
4.4 Bylaws of The Warwick Savings Bank, as amended (1)
-45-
<PAGE>
4.5 Stock Certificate of Warwick Community Bancorp, Inc. (1)
10.1 Employment Agreement by and between Warwick Community Bancorp,
Inc. and Timothy A. Dempsey
10.2 Employment Agreement by and between Warwick Community Bancorp,
Inc. and Ronald J. Gentile
10.3 Employment Agreement by and between Warwick Community Bancorp,
Inc. and Arthur W. Budich
10.4 Employment Agreement by and between Warwick Community Bancorp,
Inc. and Nancy L. Sobotor-Littell
10.5 Employee Retention Agreement by and between The Warwick Savings
Bank and Laurence D. Haggerty
10.6 Employee Retention Agreement by and between The Warwick Savings
Bank and Donna M. Lyons
10.7 Employee Retention Agreement by and between The Warwick Savings
Bank and Barbara A. Rudy
10.8 Employee Retention Agreement by and between The Warwick Savings
Bank and Arthur S. Anderson
10.9 Recognition and Retention Plan of Warwick Community Bancorp, Inc.
(2)
10.10 Trust Agreement between Warwick Community Bancorp, Inc. and
Orange County Trust Company for the Recognition and Retention
Plan of Warwick Community Bancorp, Inc.
10.11 Stock Option Plan of Warwick Community Bancorp, Inc.(2)
10.12 Warwick Community Bancorp, Inc. Employee Stock Ownership Plan
(1)
10.13 Trust Agreement between Warwick Community Bancorp, Inc. and
Marine Midland Bank for the Warwick Community Bancorp, Inc.
Employee Stock Ownership Plan
10.14 Loan Agreement by and between the Warwick Community Bancorp,
Inc. Employee Stock Ownership Trust and Warwick Community
Bancorp, Inc.
10.15 Benefit Restoration Plan of The Warwick Savings Bank (1)
10.16 Grantor Trust Agreement by and between The Warwick Savings Bank
and Marine Midland Bank for the Benefit Restoration Plan of The
Warwick Savings Bank
10.17 The Warwick Savings Bank 401(k) Savings Plan (1)
-46-
<PAGE>
10.18 Trust Agreement between The Warwick Savings Bank and Marine
Midland Bank for The Warwick Savings Bank 401(k) Savings Plan
Employer Stock Fund
11.1 Statement re: Computation of per share earnings
13.1 1998 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (EDGAR filing only)
99.1 Proxy Statement for the 1998 Annual Meeting of Shareholders
- ----------
(1) Incorporated herein by reference to the Exhibits to the Registrant's
Registration Statement on Form S-1, filed on September 19, 1997,
Registration No. 333-36021.
(2) Incorporated herein by reference to the Registrant's definitive Proxy
Statement for the Special Meeting of Stockholders held on June 24, 1998.
(b) No reports on Form 8-K have been filed during the last quarter of the period
covered by this report.
-47-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WARWICK COMMUNITY BANCORP, INC.
Dated: August 31, 1998 BY: /s/ Timothy A. Dempsey
------------------------------------
Timothy A. Dempsey
President and Chief Executive Officer
BY: /s/ Arthur W. Budich
------------------------------------
Arthur W. Budich
Senior Vice President, Treasurer
and Chief Financial Officer
-48-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Timothy A. Dempsey President and Chief Executive Officer and August 31, 1998
- ---------------------------- Director
Timothy A. Dempsey
/s/ Ronald J. Gentile Executive Vice President and Chief August 31, 1998
- ---------------------------- Operating Officer and Director
Ronald J. Gentile
/s/ Frances M. Gorish Director August 31, 1998
- ----------------------------
Frances M. Gorish
/s/ R. Michael Kennedy Director August 31, 1998
- ----------------------------
R. Michael Kennedy
/s/ Fred M. Knipp Director August 31, 1998
- ----------------------------
Fred M. Knipp
/s/ Emil R. Krahulik Director August 31, 1998
- ----------------------------
Emil R. Krahulik
/s/ Thomas F. Lawrence, Jr. Director August 31, 1998
- ----------------------------
Thomas F. Lawrence, Jr.
/s/ Henry L. Nielsen, Jr. Director August 31, 1998
- ----------------------------
Henry L. Nielsen, Jr.
/s/ John W. Sanford III Director August 31, 1998
- ----------------------------
John W. Sanford III
/s/ Robert N. Smith Director August 31, 1998
- ----------------------------
Robert N. Smith
</TABLE>
-49-
EXHIBIT 10.1
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 23, 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 TIMOTHY A. DEMPSEY, an individual residing at 36 Waterbury Road,
Warwick, New York 10990 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the President and
Chief Executive Officer of the Company and as the President and Chief Executive
Officer of The Warwick Savings Bank ("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) and subject to section
11(b), beginning on the date of this Agreement, the Employment Period shall
automatically be extended for one
<PAGE>
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 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 President and Chief Executive
Officer of the Company and as President and Chief Executive Officer 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 two hundred thousand dollars ($200,000), 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,
-2-
<PAGE>
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, 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.
-3-
<PAGE>
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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(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.
(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, 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
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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 dis count 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 prescr ibed 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
Executive's termination of employment occurs ("Applicable PBGC Rate");
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(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 em ployee 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 or stock 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:
(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
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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:
(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 willfully and
intentionally failed to perform his assigned duties under
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this Agreement (including for these purposes, the Executive's inability
to perform such duties as a result of drug or alcohol dependency); (ii)
has willfully and 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 willfully and intentionally breached the
material terms of this Agreement; PROVIDED, HOWEVER, that, if the
Executive engages in any of the acts described in section 10(a)(i) or
(a)(iv) above, the Company shall provide the Executive with written
notice of its intent to discharge the Executive for cause, and the
Executive shall have 30 days from the date on which the Executive
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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 pro posed 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
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is given an opportunity, together with counsel, to be heard before the Board and
the Bank Board), 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) the reorganization, merger or consolidation of the Company
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;
(iii) a complete liquidation or dissolution of the Company;
(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:
(A) individuals who were members of the Board on the
date of this Agreement; or
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(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; PROVIDED, HOWEVER, that the term
"Remaining Unexpired Employment Period" shall mean three years beginning on the
effective date of the Change of Control, even if such three-year period extends
beyond the date the Executive attains age 68.
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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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:
X = E x P
------------------------------------
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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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 com pany, 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 proceed ing 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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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 dis ability 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 statu tory
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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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:
Timothy A. Dempsey
36 Waterbury Road
Warwick, New York 10990
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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(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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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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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 rep resentations 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
employer 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. ss.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.
/s/ Timothy A. Dempsey
------------------------------------
TIMOTHY A. DEMPSEY
WARWICK COMMUNITY BANCORP, INC.
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
-------------------------------- ---------------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December 1997, before me personally came
Timothy A. Dempsey, 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.
/s/ Lisette D. Cuba
----------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
----------------------------
Notary Public
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Exhibit 10.2
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 23, 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 RONALD J. GENTILE, an individual residing at 30 Newport Bridge
Road, Warwick, New York 10990 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Executive Vice
President and Chief Operating Officer of the Company and as the Executive Vice
President and Chief Operating Officer of The Warwick Savings Bank ("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) and subject to section
11(b), 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
<PAGE>
Agreement further by giving written notice thereof to the other party, in which
case the Employment Period shall end on the third 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 Executive Vice President and
Chief Operating Officer of the Company and as Executive Vice President and Chief
Operating Officer 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 one hundred twenty-five thousand dollars ($125,000), 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
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compensation plans (including, but not limited to, any incentive compensation
plans or programs, 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>
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>
(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.
(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, 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
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<PAGE>
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 dis count 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 prescr ibed 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
Executive's termination of employment occurs ("Applicable PBGC Rate");
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<PAGE>
(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 em ployee 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 or stock 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:
(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
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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:
(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 willfully and
intentionally failed to perform his assigned duties under
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this Agreement (including for these purposes, the Executive's inability
to perform such duties as a result of drug or alcohol dependency); (ii)
has willfully and 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 willfully and intentionally breached the
material terms of this Agreement; PROVIDED, HOWEVER, that, if the
Executive engages in any of the acts described in section 10(a)(i) or
(a)(iv) above, the Company shall provide the Executive with written
notice of its intent to discharge the Executive for cause, and the
Executive shall have 30 days from the date on which the Executive
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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 pro posed 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
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<PAGE>
is given an opportunity, together with counsel, to be heard before the Board and
the Bank Board), 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) the reorganization, merger or consolidation of the Company
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;
(iii) a complete liquidation or dissolution of the Company;
(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:
(A) individuals who were members of the Board on
the date of this Agreement; or
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(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; PROVIDED, HOWEVER, that the term
"Remaining Unexpired Employment Period" shall mean three years beginning on the
effective date of the Change of Control, even if such three-year period extends
beyond the date the Executive attains age 68.
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>
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:
X = E x P
------------------------------------------------
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
-12-
<PAGE>
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 com pany, 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 proceed ing 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>
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 dis ability 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 statu tory
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>
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:
Ronald J. Gentile
30 Newport Bridge Road
Warwick, New York 10990
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.
-15-
<PAGE>
(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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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>
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 rep resentations 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
employer 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. ss.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.
/s/Ronald J. Gentile
--------------------------------------
RONALD J. GENTILE
WARWICK COMMUNITY BANCORP, INC.
Attest:
By /s/Nancy L. Sobotor-Littell By /s/Thomas F. Lawrence, Jr.
- -------------------------------------- --------------------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Ronald J. Gentile, 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.
/s/Lisette D. Cuba
--------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/Lisette D. Cuba
--------------------------------------
Notary Public
-18-
Exhibit 10.3
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 23, 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 ARTHUR W. BUDICH, an individual residing at 34 Post Road,
Monroe, New York 10950 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Senior Vice
President, Treasurer and Chief Financial Officer of the Company and as the
Senior Vice President, Treasurer and Chief Financial Officer of The Warwick
Savings Bank ("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) and subject to section
11(b), 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
<PAGE>
Agreement further by giving written notice thereof to the other party, in which
case the Employment Period shall end on the third 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 Senior Vice President, Treasurer
and Chief Financial Officer of the Company and as Senior Vice President,
Treasurer and Chief Financial Officer 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 eighty-five thousand dollars ($85,000), 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,
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<PAGE>
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, 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>
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>
(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.
(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, 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
-5-
<PAGE>
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 dis count 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 prescr ibed 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
Executive's termination of employment occurs ("Applicable PBGC Rate");
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<PAGE>
(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 em ployee 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 or stock 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:
(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
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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:
(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 willfully and
intentionally failed to perform his assigned duties under
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this Agreement (including for these purposes, the Executive's inability
to perform such duties as a result of drug or alcohol dependency); (ii)
has willfully and 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 willfully and intentionally breached the
material terms of this Agreement; PROVIDED, HOWEVER, that, if the
Executive engages in any of the acts described in section 10(a)(i) or
(a)(iv) above, the Company shall provide the Executive with written
notice of its intent to discharge the Executive for cause, and the
Executive shall have 30 days from the date on which the Executive
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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 pro posed 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
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is given an opportunity, together with counsel, to be heard before the Board and
the Bank Board), 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) the reorganization, merger or consolidation of the Company
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;
(iii) a complete liquidation or dissolution of the Company;
(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:
(A) individuals who were members of the Board on
the date of this Agreement; or
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(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; PROVIDED, HOWEVER, that the term
"Remaining Unexpired Employment Period" shall mean three years beginning on the
effective date of the Change of Control, even if such three-year period extends
beyond the date the Executive attains age 68.
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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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:
X = E x P
------------------------------------
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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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 com pany, 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 proceed ing 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>
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 dis ability 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 statu tory
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>
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:
Arthur W. Budich
34 Post Road
Monroe, New York 10950
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>
(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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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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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 rep resentations 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
employer 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. ss.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.
/s/Arthur W. Budich
----------------------------------------
ARTHUR W. BUDICH
WARWICK COMMUNITY BANCORP, INC.
Attest:
By/s/Nancy L. Sobotor-littell By/s/Thomas F. Lawrence, Jr.
- ---------------------------------- ----------------------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Arthur W. Budich, 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.
/s/Lisette D. Cuba
----------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/Lisette D. Cuba
----------------------------------------
Notary Public
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EXHIBIT 10.4
------------
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 23, 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 NANCY L. SOBOTOR- LITTELL, an individual residing at 76 Maple
Avenue, Warwick, New York 10990 ("Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Corporate
Secretary and Director of Human Resources of the Company and as the Corporate
Secretary and Director of Human Resources of The Warwick Savings Bank ("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) and subject to section
11(b), 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
<PAGE>
Agreement further by giving written notice thereof to the other party, in which
case the Employment Period shall end on the third 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 Corporate Secretary and Director
of Human Resources of the Company and as Corporate Secretary and Director of
Human Resources 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
her 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 her 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 her a salary at an initial annual
rate of sixty-three thousand dollars ($63,000), 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
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compensation plans (including, but not limited to, any incentive compensation
plans or programs, 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 her 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 her 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 her duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of her 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 her 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, her 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>
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 her principal place of employment with a private office,
secretarial services and other support services and facilities suitable to her
position with the Company and the Bank and necessary or appropriate in
connection with the performance of her assigned duties under this Agreement. The
Company shall reimburse the Executive for her ordinary and necessary business
expenses, including, without limitation, the Executive's travel and entertain
ment expenses incurred in connection with the performance of her 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) her 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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(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 her 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.
(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 her death, to her estate):
(i) her 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 her 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 her 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, coverage
equivalent to the coverage to which her would have been entitled under
such plans (as in effect on the date of her termination of employment,
or, if her termination of employment occurs after a Change of Control,
on the date of such
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<PAGE>
Change of Control, whichever benefits are greater), if her 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 her 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 dis count 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 her 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 her were 100% vested thereunder
and had con tinued 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 her is
actually entitled under such defined benefit pension plans as
of the date of her termination;
where such present values are to be determined using the mortality
tables prescr ibed 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
Executive's termination of employment occurs ("Applicable PBGC Rate");
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(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 her 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 her 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 em ployee 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 or stock bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Company
or the Bank if her 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:
(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
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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 her 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 her 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 her 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:
(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 willfully and
intentionally failed to perform her assigned duties under
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this Agreement (including for these purposes, the Executive's inability
to perform such duties as a result of drug or alcohol dependency); (ii)
has willfully and intentionally engaged in dishonest or illegal conduct
in connection with her 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 her performance of
services for the Company or the Bank, as determined by the Board and
the Bank Board; or (iv) has willfully and intentionally breached the
material terms of this Agreement; PROVIDED, HOWEVER, that, if the
Executive engages in any of the acts described in section 10(a)(i) or
(a)(iv) above, the Company shall provide the Executive with written
notice of its intent to discharge the Executive for cause, and the
Executive shall have 30 days from the date on which the Executive
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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 her 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 her legal counsel at such
presentations, to refute the grounds for the pro posed 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 her earned but unpaid salary as of the date
of the termination of her employment and the provision of such other benefits,
if any, to which her 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
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is given an opportunity, together with counsel, to be heard before the Board and
the Bank Board), 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) the reorganization, merger or consolidation of the Company
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;
(iii) a complete liquidation or dissolution of the Company;
(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:
(A) individuals who were members of the Board on the
date of this Agreement; or
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(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 her employment terminates; PROVIDED, HOWEVER, that the term
"Remaining Unexpired Employment Period" shall mean three years beginning on the
effective date of the Change of Control, even if such three-year period extends
beyond the date the Executive attains age 68.
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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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:
X = E x P
------------------------------------
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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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 her termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of her
termination of employment with the Company or the Bank (or, if less, for the
Remaining Unexpired Employment Period), her 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 com pany, 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 her obtains the prior written consent of the Company,
the Executive shall keep confidential and shall refrain from using for the
benefit of herself, 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 her 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 her 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 proceed ing 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 her termination of employment with the Company or the
Bank, her 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 her 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>
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 her 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 dis ability 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, her 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 statu tory
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>
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:
Nancy L. Sobotor-Littell
76 Maple Avenue
Warwick, New York 10990
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 her in connection with or arising out of any action, suit or proceeding in
which her may be involved, as a result of her 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>
(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 her 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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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>
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 rep resentations 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
employer 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. ss.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 her hand, all as of the day and
year first above written.
/s/ Nancy L. Sobotor-Littell
----------------------------
NANCY L. SOBOTOR-LITTELL
WARWICK COMMUNITY BANCORP, INC.
Attest:
By /s/ Lois E. Ulatowski By /s/ Henry L. Nielsen, Jr.
------------------------- -------------------------
Lois E. Ulatowski Henry L. Nielsen, Jr.
Assistant Secretary Director
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Nancy L. Sobotor- -Littell, 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 she resides at the address set forth in said instrument, and that
her signed her name to the foregoing instrument.
/s/ Lisette D. Cuba
--------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Henry L. Nielsen, Jr., to me known, who, being by me duly sworn, did depose and
say that he resides at 85 Kings Highway, P.O. Box 848, Warwick, New York 10990,
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.
/s/ Lisette D. Cuba
--------------------------
Notary Public
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EXHIBIT 10.5
------------
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of December 23, 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 LAURENCE D. HAGGERTY, an individual residing at 198 West Shore
Trail, Sparta, New Jersey 07871 ("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 Senior Vice
President 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 minium 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>
(b) Except as provided in section 1(c) and subject to section
10(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 per iods, 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>
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 re ceive 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>
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 oth er support services and facilities suitable to his
position with the Bank and necessary or appropri ate 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 perfor mance 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>
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>
(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 de termined 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>
(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 prescr ibed 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>
(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 exer cise 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) consti tute 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>
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 willfully and 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 willfully and
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 willfully and intentionally
breached the material terms of this Agreement; PROVIDED, HOWEVER, that,
if the Officer engages in any of the acts described in section 9(a)(i)
or (a)(iv) above, the Bank shall provide the Officer with written
notice of its intent to discharge the Officer for cause, and the
Executive shall have 30 days from the date on which the Officer
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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
proposed 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
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<PAGE>
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 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) the reorganization, merger or consolidation of the Bank
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
(iii) a complete liquidation or dissolution of the Bank;
(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>
(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.
(c) In the event of a Change of Control, the term "remaining
unexpired Assurance Period" shall mean one year beginning on the effective date
of such Change of Control, even if such one-year period extends beyond the date
the Officer attains age 68.
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<PAGE>
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 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 statu tory
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:
Laurence D. Haggerty
198 West Shore Trail
Sparta, New Jersey 07871
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<PAGE>
If to the Bank or the Company:
The Warwick Savings Bank
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: DOUGALS J. MCCLINTOCK, ESQ.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) To the extent permitted by the Banking Law of the State of
New York, 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 proceed ing 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
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<PAGE>
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.
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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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 rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
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<PAGE>
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 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. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. ss.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.
ss.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. ss.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
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<PAGE>
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. ss.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.
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.
/s/ Laurence D. Haggerty
-------------------------------
LAURENCE D. HAGGERTY
THE WARWICK SAVINGS BANK
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- ---------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
WARWICK COMMUNITY BANCORP, INC..
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, JR.
---------------------------- ------------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Laurence D. Haggerty, 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.
/s/ Lisette D. Cuba
--------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
--------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
--------------------------
Notary Public
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EXHIBIT 10.6
------------
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of December 23, 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 DONNA M. LYONS, an individual residing at 2353 Route 44-55,
P.O. Box 16, Gardiner, New York 12525 ("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 Senior Vice
President and Auditor 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 minium 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>
(b) Except as provided in section 1(c) and subject to section
10(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 her full business time and attention
(other than during weekends, holidays, vacation per iods, and periods of
illness, disability or approved leave of absence) to the business and affairs of
the Bank and use her best efforts to advance the Bank's interests; (b) serve in
the position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he may
subsequently be appointed; and (c) subject to the direction of the Board
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<PAGE>
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
her services to the Bank, or additional compensation for her 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 re ceive 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 she 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 her duties under this Agreement. The Officer may also
engage in personal business and investment activities which do not materially
interfere with the performance of her duties hereunder; PROVIDED, HOWEVER, that
such activities are
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<PAGE>
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 her principal place of employment, with a private office,
stenographic services and other support services and facilities suitable to her
position with the Bank and necessary or appropriate in connection with the
performance of her assigned duties under this Agreement. The Bank shall
reimburse the Officer for her ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the performance of the Officer's duties under this
Agreement, upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH 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>
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 her actual
termination of service) and had not terminated employment with the Bank until
the date on which the Officer's Assurance Period would have commenced.
(b) 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>
(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 her termination
of employment, or, if her 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 de termined 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 she 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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(B) the present value of the benefits to which she is
actually entitled under such defined benefit pension plans as
of the date of her termination;
where such present values are to be determined using the mortality
tables prescr ibed 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 she
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 she 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
she 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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(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 exer cise 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 she 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 she 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) consti tute 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 she 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>
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 willfully and intentionally failed
to perform her 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 willfully and
intentionally engaged in dishonest or illegal conduct in connection
with her 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 her performance of services for the Bank, as
determined by the Board; or (iv) has willfully and intentionally
breached the material terms of this Agreement; PROVIDED, HOWEVER, that,
if the Officer engages in any of the acts described in section 9(a)(i)
or (a)(iv) above, the Bank shall provide the Officer with written
notice of its intent to discharge the Officer for cause, and the
Executive shall have 30 days from the date on which the Officer
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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 her 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 her
legal counsel at such presentations, to refute the grounds for the
proposed 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 her earned but unpaid salary as of the date of the
termination of her employment and the provision of such other benefits, if any,
to which she 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
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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 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) the reorganization, merger or consolidation of the Bank
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
(iii) a complete liquidation or dissolution of the Bank;
(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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(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.
(c) In the event of a Change of Control, the term "remaining
unexpired Assurance Period" shall mean one year beginning on the effective date
of such Change of Control, even if such one-year period extends beyond the date
the Officer attains age 68.
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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 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, her 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 statu tory
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:
Donna M. Lyons
P.O. Box 16
Gardiner, New York 12525
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If to the Bank or the Company:
The Warwick Savings Bank
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 14. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) To the extent permitted by the Banking Law of the State of
New York, 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 proceed ing 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 her 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
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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.
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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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 rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
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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 her termination of employment with the Bank (or for her entire
period of employment with the Bank if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
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. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. ss.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.
ss.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. ss.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
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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. ss.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.
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 her hand, all as of
the day and year first above written.
/s/ Donna M. Lyons
-------------------------------
DONNA M. LYONS
THE WARWICK SAVINGS BANK
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- ----------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
WARWICK COMMUNITY BANCORP, INC.
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- ----------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Donna M. Lyons, 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
she resides at the address set forth in said instrument, and that she signed her
name to the foregoing instrument.
/s/ Lisette D. Cuba
----------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr. to me known, who, being by me duly sworn, did depose and
say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
----------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
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Notary Public
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EXHIBIT 10.7
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EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of December 23, 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 BARBARA A. RUDY, an individual residing at 23 Olde Wagon Road,
Warwick, New York 10990 ("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 Senior Vice
President 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 minium 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.
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(b) Except as provided in section 1(c) and subject to section
10(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 her full business time and attention
(other than during weekends, holidays, vacation per iods, and periods of
illness, disability or approved leave of absence) to the business and affairs of
the Bank and use her best efforts to advance the Bank's interests; (b) serve in
the position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which she may
subsequently be appointed; and (c) subject to the direction of the Board
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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
her services to the Bank, or additional compensation for her 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 re ceive 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 she 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 her duties under this Agreement. The Officer may also
engage in personal business and investment activities which do not materially
interfere with the performance of her duties hereunder; PROVIDED, HOWEVER, that
such activities are
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<PAGE>
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 her principal place of employment, with a private office,
stenographic services and oth er support services and facilities suitable to her
position with the Bank and necessary or appropri ate in connection with the
performance of her assigned duties under this Agreement. The Bank shall
reimburse the Officer for her ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the perfor mance 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>
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 her actual
termination of service) and had not terminated employment with the Bank until
the date on which the Officer's Assurance Period would have commenced.
(b) 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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(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 her termination
of employment, or, if her 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 de termined 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 she 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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(B) the present value of the benefits to which she's
actually entitled under such defined benefit pension plans as
of the date of her termination;
where such present values are to be determined using the mortality
tables prescr ibed 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 she
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 she 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
she 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>
(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 exer cise 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 she's 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 she's 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) consti tute 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 she 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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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 willfully and intentionally failed
to perform her 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 willfully and
intentionally engaged in dishonest or illegal conduct in connection
with her 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 her performance of services for the Bank, as
determined by the Board; or (iv) has willfully and intentionally
breached the material terms of this Agreement; PROVIDED, HOWEVER, that,
if the Officer engages in any of the acts described in section 9(a)(i)
or (a)(iv) above, the Bank shall provide the Officer with written
notice of its intent to discharge the Officer for cause, and the
Executive shall have 30 days from the date on which the Officer
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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 her 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 her
legal counsel at such presentations, to refute the grounds for the
proposed 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 her earned but unpaid salary as of the date of the
termination of her employment and the provision of such other benefits, if any,
to which she's 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
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<PAGE>
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 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) the reorganization, merger or consolidation of the Bank
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
(iii) a complete liquidation or dissolution of the Bank;
(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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(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.
(c) In the event of a Change of Control, the term "remaining
unexpired Assurance Period" shall mean one year beginning on the effective date
of such Change of Control, even if such one-year period extends beyond the date
the Officer attains age 68.
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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 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, her 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 statu tory
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:
Barbara A. Rudy
23 Olde Wagon Road
Warwick, New York 10990
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If to the Bank or the Company:
The Warwick Savings Bank
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: DOUGALS J. MCCLINTOCK, ESQ.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) To the extent permitted by the Banking Law of the State of
New York, 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 proceed ing 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 her 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
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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.
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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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 rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
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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 her termination of employment with the Bank (or for her entire
period of employment with the Bank if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
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. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. ss.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.
ss.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. ss.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
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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. ss.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.
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 her hand, all as of
the day and year first above written.
/s/ Barbara A. Rudy
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BARBARA A. RUDY
THE WARWICK SAVINGS BANK
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- ---------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
WARWICK COMMUNITY BANCORP, INC..
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- ---------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Barbara A. Rudy, 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
she resides at the address set forth in said instrument, and that she signed her
name to the foregoing instrument.
/s/ Lisette D. Cuba
-------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
-------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
-------------------------
Notary Public
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EXHIBIT 10.8
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EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of December 23, 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 ARTHUR S. ANDERSON, an individual residing at 3 Lester Road,
Newburgh, New York 12550 ("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 Executive
Director, Mortgage Department 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 minium 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.
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(b) Except as provided in section 1(c) and subject to section
10(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 per iods, 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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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 re ceive 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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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 oth er support services and facilities suitable to his
position with the Bank and necessary or appropri ate 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 perfor mance 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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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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(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 de termined 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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(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 prescr ibed 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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(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 exer cise 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) consti tute 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.
-8-
<PAGE>
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 willfully and 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 willfully and
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 willfully and intentionally
breached the material terms of this Agreement; PROVIDED, HOWEVER, that,
if the Officer engages in any of the acts described in section 9(a)(i)
or (a)(iv) above, the Bank shall provide the Officer with written
notice of its intent to discharge the Officer for cause, and the
Executive shall have 30 days from the date on which the Officer
receives such notice to cure any such acts; AND PROVIDED, FURTHER, 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
proposed 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
-9-
<PAGE>
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 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) the reorganization, merger or consolidation of the Bank
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
(iii) a complete liquidation or dissolution of the Bank;
(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:
-10-
<PAGE>
(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.
(c) In the event of a Change of Control, the term "remaining
unexpired Assurance Period" shall mean one year beginning on the effective date
of such Change of Control, even if such one-year period extends beyond the date
the Officer attains age 68.
-11-
<PAGE>
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 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 statu tory
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:
Arthur S. Anderson
3 Lester Road
Newburgh, New York 12550
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<PAGE>
If to the Bank or the Company:
The Warwick Savings Bank
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: DOUGALS J. MCCLINTOCK, ESQ.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
(a) To the extent permitted by the Banking Law of the State of
New York, 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 proceed ing 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
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<PAGE>
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.
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.
Except to the extent preempted by federal law, this Agreement
shall be governed by and construed and enforced 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 rep resentations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
-14-
<PAGE>
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 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. ss.1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. ss.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.
ss.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. ss.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
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<PAGE>
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. ss.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.
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.
/s/ Arthur S. Anderson
--------------------------------
ARTHUR S. ANDERSON
THE WARWICK SAVINGS BANK
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- -----------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
WARWICK COMMUNITY BANCORP, INC..
Attest:
By /s/ Nancy L. Sobotor-Littell By /s/ Thomas F. Lawrence, Jr.
---------------------------- -----------------------------
Nancy L. Sobotor-Littell Thomas F. Lawrence, Jr.
Corporate Secretary Director
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Arthur S. Anderson 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.
/s/ Lisette D. Cuba
---------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., to me known, who, being by me duly sworn, did depose
and say that he resides at 82 Maple Avenue, Warwick, New York 10990, 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.
/s/ Lisette D. Cuba
---------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 22nd day of December, 1997, before me personally came
Thomas F. Lawrence, Jr., by me duly sworn, did depose and say that he resides at
82 Maple Avenue, Warwick, New York 10990, 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 corpora tion; and that he
signed his name thereto by like order.
/s/ Lisette D. Cuba
---------------------------
Notary Public
-17-
TRUST AGREEMENT
BETWEEN
WARWICK COMMUNITY BANCORP, INC.
AND
ORANGE COUNTY TRUST COMPANY
FOR THE
RECOGNITION AND RETENTION PLAN
OF WARWICK COMMUNITY BANCORP, INC.
--------------------------------------
ENTERED INTO AS OF JUNE 24, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
TRUST FUND
SECTION 1.1 TRUST FUND.............................................1
SECTION 1.2 COLLECTION OF CONTRIBUTIONS............................2
SECTION 1.3 NON-DIVERSION OF FUNDS.................................2
ARTICLE II
INVESTMENT AND ADMINISTRATION
SECTION 2.1 IN GENERAL.............................................2
SECTION 2.2 LIQUIDITY..............................................2
SECTION 2.3 TRUSTEE'S ADMINISTRATIVE AUTHORITY.....................3
SECTION 2.4 INVESTMENT DECISIONS...................................4
SECTION 2.5 EXERCISE OF VOTING RIGHTS WITH RESPECT TO SHARES.......5
SECTION 2.6 RESPONSE TO TENDER OFFERS AND SIMILAR EVENTS...........5
ARTICLE III
TRUSTEE AND COMMITTEE
SECTION 3.1 COMMITTEE..............................................6
SECTION 3.2 TRUSTEE'S RELIANCE.....................................6
SECTION 3.3 LEGAL COUNSEL..........................................6
SECTION 3.4 LIABILITY UNDER THE PLAN...............................7
SECTION 3.5 INDEMNIFICATION........................................7
ARTICLE IV
DISTRIBUTIONS FROM THE TRUST FUND
SECTION 4.1 IN GENERAL.............................................7
SECTION 4.2 DIRECTION BY THE COMMITTEE.............................7
SECTION 4.3 METHOD OF PAYMENT......................................8
ARTICLE V
TRUSTEE'S ACCOUNTS
SECTION 5.1 ACCOUNTS...............................................8
(i)
<PAGE>
Page
----
SECTION 5.2 VALUATION OF TRUST FUND................................8
SECTION 5.3 REPORTS TO THE COMMITTEE...............................8
SECTION 5.4 RIGHT OF JUDICIAL SETTLEMENT...........................9
SECTION 5.5 ENFORCEMENT OF AGREEMENT...............................9
ARTICLE VI
TAXES; COMPENSATION OF TRUSTEE
SECTION 6.1 TAXES.................................................10
SECTION 6.2 COMPENSATION OF TRUSTEE; EXPENSES.....................10
ARTICLE VII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 7.1 RESIGNATION OR REMOVAL OF TRUSTEE.....................10
SECTION 7.2 APPOINTMENT OF SUCCESSOR..............................10
SECTION 7.3 SUCCESSION............................................11
SECTION 7.4 SUCCESSOR BOUND BY AGREEMENT..........................11
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.1 AMENDMENT AND TERMINATION.............................11
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 BINDING EFFECT; ASSIGNABILITY.........................12
SECTION 9.2 GOVERNING LAW.........................................12
SECTION 9.3 NOTICES...............................................12
SECTION 9.4 SEVERABILITY..........................................13
SECTION 9.5 WAIVER................................................13
SECTION 9.6 NON-ALIENATION........................................13
SECTION 9.7 COMPLIANCE WITH SECURITIES LAWS.......................13
SECTION 9.8 HEADINGS..............................................14
SECTION 9.9 CONSTRUCTION OF LANGUAGE..............................14
SECTION 9.10 COUNTERPARTS..........................................14
(ii)
<PAGE>
TRUST AGREEMENT
FOR THE
RECOGNITION AND RETENTION PLAN
OF WARWICK COMMUNITY BANCORP, INC.
This TRUST AGREEMENT ("Agreement") is made as of June 24,
1998, by and between WARWICK COMMUNITY BANCORP, INC., a business corporation
organized under the laws of the State of Delaware and having its executive
offices at 18 Oakland Avenue, Warwick, New York 10991-0591 ("Company"), and
ORANGE COUNTY TRUST COMPANY, a New York chartered banking corporation with a
principal place of business at 75 North Street, Middletown, New York 10940
("Trustee").
W I T N E S S E T H :
WHEREAS, the Company has, by action of its Board of Directors,
adopted the Recognition and Retention Plan of Warwick Community Bancorp, Inc.
(the "Plan") to promote the growth and profitability of the Company and to
provide certain key executives and directors ("Participants") of the Company
with an incentive to achieve corporate objectives, to attract and retain key
executives and directors of outstanding competence and to provide such
executives and directors with an equity interest in the Company; and
WHEREAS, the Company has, in accordance with the terms of the
Plan, appointed a Compensation Committee ("Committee") to administer the Plan;
and
WHEREAS, the Plan contemplates the establishment and
continuance of a trust so long as the Plan remains in effect, to which
contributions will be made from time to time, to be accepted, invested and
maintained in accordance with this Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company and the Trustee hereby agree as
follows:
ARTICLE I
TRUST FUND
SECTION 1.1 TRUST FUND.
The Company hereby establishes with the Trustee a trust,
pursuant to the Plan, in which shall be deposited such common stock, par value
$0.01 per share, of Warwick Community Bancorp, Inc. ("Shares") and such sums of
money as shall from time to time be paid or delivered to or deposited with the
Trustee by or with the approval of the Company in accordance with terms of the
Plan. All such Shares and all such sums of money, all investments and
reinvestments
<PAGE>
-2-
thereof and all earnings, appreciation and additions allocable thereto, less
losses, depreciation and expenses allocable thereto and any payments made
therefrom as authorized under the Plan or this Agreement shall constitute the
"Trust Fund." The Trust Fund shall be held, managed and admini stered by the
Trustee, IN TRUST, and dealt with in accordance with the provisions of this
Agree ment and in accordance with any funding policy or guidelines established
under the Plan that are communicated in writing to the Trustee.
SECTION 1.2 COLLECTION OF CONTRIBUTIONS.
The Trustee shall have no authority over and shall have no
responsibility for the administration of the Plan or for the collection of any
contributions to the Trust Fund required under the Plan, nor shall it have any
authority to bring any action or proceeding to enforce the collection of any
such amount or to make inquiry as to whether any such contributions received by
it were properly collected or computed in accordance with the terms of the Plan.
SECTION 1.3 NON-DIVERSION OF FUNDS.
Notwithstanding anything to the contrary contained in this
Agreement or any amendment hereto, no part of the Trust Fund other than such
part as may be used to defray expenses and taxes properly charged to the Trust
Fund under the Plan or this Agreement shall be used for or diverted to purposes
other than for the exclusive benefit of Participants and their beneficiaries
prior to the satisfaction of all of the Company's liabilities under the Plan.
ARTICLE II
INVESTMENT AND ADMINISTRATION
SECTION 2.1 IN GENERAL.
The Trust Fund shall be held by the Trustee and shall be
invested and reinvested as hereinafter provided in this Article II, without
distinction between principal and income and without regard to the restrictions
of the laws of the State of New York, or of any other jurisdiction, relating to
the investment of trust funds. The Trust Fund shall be invested pursuant to
directions given in accordance with section 2.4.
SECTION 2.2 LIQUIDITY.
Notwithstanding any provisions of this Article II to the
contrary, the Trustee, in its sole discretion or as the Committee shall request,
may retain uninvested cash or cash balances, and sell, to provide cash or cash
balances, such investments in whatever portion of the Trust Fund that it may
deem advisable, without being required to pay interest thereon. Pending
investment, the Trustee, in its sole discretion, may temporarily invest any
funds held or received by it for invest ment in investment grade commercial
paper rated A-1 or P-1 or in obligations of, or guaranteed by, the United States
government or any of its agencies.
<PAGE>
-3-
SECTION 2.3 TRUSTEE'S ADMINISTRATIVE AUTHORITY.
(a) In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or by other provisions of this
Agreement, but subject to the provisions of section 1.3 and this
Article II, the Trustee is authorized and empowered:
(i) to sell, exchange, convey, transfer or dispose of
and also to grant options with respect to any property,
whether real or personal, at any time held by it, and any sale
may be made by private contract or by public auction, and for
cash or upon credit, or partly for cash and partly upon
credit, and no person dealing with the Trustee shall be bound
to see to the application of the purchase money or to inquire
into the validity, expediency or propriety of any such sale or
other disposition;
(ii) to retain, manage, operate, repair and
rehabilitate and to mortgage or lease for any period any real
estate held by it and, in its discretion, cause to be formed
any corporation or trust to hold title to any such real
property;
(iii) unless otherwise agreed to and subject to
section 2.5, to vote in person or by proxy on any stocks,
bonds, or other securities held by it, to exercise any options
appurtenant to any stocks, bonds or other securities for the
conversion thereof into other stocks, bonds or securities, or
to exercise any rights to subscribe for additional stocks,
bonds or other securities and to make any and all necessary
payment therefor and to enter into any voting trust;
(iv) with respect to any investment, to join in,
dissent from, or oppose any action or inaction of any
corporation, or of the directors, officers or stockholders of
any corporation, including, without limitation, any
reorganization, recapitalization, consolidation, liquidation,
sale or merger;
(v) to settle, adjust, compromise, or submit to
arbitration any claims, debts or damages due or owing to or
from the Trust Fund; and
(vi) to deposit any property with any protective,
reorganization or similar committee, to delegate power thereto
and to pay and agree to pay part of its expenses and
compensation and any assessments levied with respect to any
property so deposited.
In exercising such powers with respect to any portion of the Trust Fund that is
invested in the discretion of the Trustee pursuant to section 2.2, the Trustee
shall act in its discretion.
<PAGE>
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(b) In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or other provisions of this
Agreement, but subject to section 1.3 and this Article II, the Trustee
is authorized and empowered, in its discretion:
(i) to commence or defend suits or legal proceedings,
and to represent the Trust Fund in all suits or legal
proceedings in any court or before any other body or tribunal;
(ii) to register securities in its name or in the
name of any nominee or nominees with or without indication of
the capacity in which the securities shall be held, or to hold
securities in bearer form, but the books and records of the
Trustee shall at all times show that such investments are part
of the Trust Fund;
(iii) to borrow or raise moneys for the purposes of
the Trust Fund from any lender, except the Trustee in its
individual capacity, and for any sum so borrowed to issue its
promissory note as Trustee and to secure the repayment thereof
by pledging all or any part of the Trust Fund, and no person
lending money to the Trustee shall be bound to see the
application of the money loaned or to inquire into the
validity, expediency or propriety of any such borrowing;
(iv) to make distributions in cash or in Shares upon
the direction of the Committee;
(v) to employ such agents, counsel and accountants as
the Trustee shall deem advisable and to pay their reasonable
expenses and compensation;
(vi) to make, execute, acknowledge, and deliver any
and all deeds, leases, assignments and instruments; and
(vii) generally to do all acts which the Trustee may
deem necessary or desirable for the administration and
protection of the Trust Fund.
SECTION 2.4 INVESTMENT DECISIONS.
The Trustee shall invest and reinvest the Trust Fund in
accordance with the directions of the Committee. The Trustee shall be under no
duty or obligation to review any investment to be acquired, held or disposed of
pursuant to directions of the Committee nor to make any recommendation with
respect to the disposition or continued retention of any such investment. The
Trustee shall have no liability or responsibility for its actions or inaction
pursuant to the direction of, or its failure to act in the absence of directions
from, the Committee. The Company hereby agrees to indemnify the Trustee and hold
it harmless from and defend it against any claim
<PAGE>
-5-
or liability which may be asserted against the Trustee by reason of any action
or inaction by it pursuant to a direction by the Committee or failing to act in
the absence of any such direction. To the extent that the Committee does not
furnish directions as to the investment of any portion of the Trust Fund that is
subject to its direction, the Trustee shall invest and reinvest the Trust Fund
(a) in Shares and (b) to the extent that it is not practicable to invest and
reinvest the Trust Fund in Shares, in any savings account, time or other
interest bearing deposit or in any other interest bearing obligation of any one
or more savings banks, savings and loan associations, banks and other financial
institutions, or any of them, including the Trustee and any subsidiary of the
Company.
SECTION 2.5 EXERCISE OF VOTING RIGHTS WITH RESPECT TO
SHARES.
(a) Except to the extent provided in section 2.5(b), the
Committee shall direct the Trustee as to the manner of exercise of
voting rights appurtenant to Shares held in the Trust Fund. The Trustee
shall act in accordance with the directions that it receives from the
Committee for each matter as to which voting rights are to be exercised
and shall refrain from exercising the voting rights appurtenant to
Shares held in the Trust Fund in the absence of such directions. The
Trustee shall have no discretion over or responsibility or liability
for its actions taken in accordance with such directions, or for its
failure to exercise such voting rights in the absence of such
directions.
(b) Notwithstanding section 2.5(a), if and to the extent
requested in writing by the Committee, the Trustee shall solicit and
accept directly from Participants directions as to the manner of
exercise of any voting rights in connection with Shares held in the
Trust Fund. In such event, the Trustee shall act in accordance with the
directions that it receives from each Participant for each matter as to
which voting rights are to be exercised and shall refrain from
exercising such voting rights in the absence of directions as to how to
exercise such voting rights. The Trustee shall have no discretion over
or responsibility or liability for its actions taken in accordance with
such directions, or for its failure to exercise such voting rights in
the absence of such directions.
SECTION 2.6 RESPONSE TO TENDER OFFERS AND SIMILAR EVENTS.
(a) Except to the extent provided in section 2.6(b), the
Committee shall direct the Trustee as to the manner of exercise of any
rights to tender Shares held in the Trust Fund or otherwise act in
response to any tender offer with respect to Shares or any other offer
to purchase, exchange, redeem or otherwise transfer such Shares. The
Trustee shall act in accordance with the directions that it receives
from the Committee for each matter as to which such rights are to be
exercised and shall refrain from taking any action in response to such
an offer in the absence of such directions. The Trustee shall have no
discretion over or responsibility or liability for its actions taken in
accordance with such directions, or for its failure to exercise such
rights in the absence of such directions.
(b) Notwithstanding section 2.6(a), if and to the extent
requested in writing by the Committee, the Trustee shall solicit and accept
directly from Participants directions as to the
<PAGE>
-6-
manner of exercise of any rights to tender Shares held in the Trust Fund or
otherwise act in response to any tender offer with respect to such Shares or any
other offer to purchase, exchange, redeem or otherwise transfer such Shares. In
such event, the Trustee shall act in accordance with the directions that it
receives from each Participant for each matter as to which rights are to be
exercised and shall refrain from taking any actions in response to such an offer
in the absence of such directions. The Trustee shall have no discretion over or
responsibility or liability for its actions taken in accordance with such
directions, or for its failure to exercise such rights in the absence of such
directions.
ARTICLE III
TRUSTEE AND COMMITTEE
SECTION 3.1 COMMITTEE.
The Company shall certify to the Trustee the names and
specimen signatures of the members of the Committee appointed by the Company to
administer the Plan and give directions to the Trustee. Such certification shall
include directions as to the number of signatures required for any communication
or direction to the Trustee. The Company shall promptly give notice to the
Trustee of changes in the identity of the membership of the Committee. The
Committee may also certify to the Trustee the name of any person, together with
a specimen signature of any such person, authorized to act for it in relation to
the Trustee. The Committee shall promptly give notice to the Trustee of any
change in any person authorized to act on behalf of it. For all purposes under
this Agreement, until any such notice is received by the Trustee, the Trustee
shall be fully protected in assuming that the membership of the Committee and
the authority of any person certified to act in its behalf remain unchanged.
SECTION 3.2 TRUSTEE'S RELIANCE.
The Trustee may rely and act upon any certificate, notice or
direction of the Committee, or of a person authorized to act on its behalf, or
of the Company which the Trustee believes to be genuine and to have been signed
by the person or persons duly authorized to sign such certificate, notice, or
direction.
SECTION 3.3 LEGAL COUNSEL.
The Trustee may consult with legal counsel (who may be counsel
to the Company) concerning any question which may arise under this Agreement,
and the opinion of such counsel shall be full and complete protection with
respect to any action taken, or omitted, by the Trustee hereunder in good faith
in accordance with the opinion of such counsel.
<PAGE>
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SECTION 3.4 LIABILITY UNDER THE PLAN.
The duties and obligations of the Trustee shall be limited to
those expressly set forth in this Agreement, notwithstanding any reference
herein to the Plan. The Trustee shall not be obliged to take or defend any
action or participate in or proceed with any suit or legal or administrative
proceeding which might subject it to substantial cost or expense or liability
unless first indemnified by the Company in an amount and by security
satisfactory to it against all losses, costs, damages and expenses which may
result therefrom or be occasioned thereby.
SECTION 3.5 INDEMNIFICATION.
The Company shall pay and shall protect, indemnify and save
harmless the Trustee and its officers, employees and agents from and against any
and all losses, liabilities (including liabilities for penalties), actions,
suits, judgments, demands, damages, costs and expenses (including reasonable
attorneys' fees and expenses) of any nature arising from or relating to any
action or any failure to act by the Trustee, its officers, employees and agents
with respect to the transactions contemplated by this Trust Agreement, including
any claim made by the Company or its successors that this Trust Agreement is
invalid or ultra vires, except to the extent that any such loss, liability,
action, suit, judgment, demand, damage, cost or expense is the result of the
gross negligence of the Trustee (determined by reference to customary trust
company standards) or willful misconduct of the Trustee, its officers, employees
or agents. The Trust assumes no obligation or responsibility with respect to any
action required by this Trust Agreement on the part of the Company.
ARTICLE IV
DISTRIBUTIONS FROM THE TRUST FUND
SECTION 4.1 IN GENERAL.
The Trustee shall make distributions from the Trust Fund in
such amounts, at such times, and to such persons as the Committee may, from time
to time, direct.
SECTION 4.2 DIRECTION BY THE COMMITTEE.
(a) A direction by the Committee to make a distribution from
the Trust Fund shall:
(i) be made in writing;
(ii) specify the amount of the payment or the number
of Shares to be distributed, the date such payment is to be
made, the person to whom payment is to be made, and the
address to which the payment is to be sent; and
<PAGE>
-8-
(iii) be deemed to certify to the Trustee that such
direction and any payment pursuant thereto are authorized
under the terms of the Plan.
(b) The Trustee shall be entitled to rely conclusively on the
Committee's certification of its authority to direct a payment without
independent investigation. The Trustee shall have no liability to any
person with respect to payments made in accordance with the provisions
of this Article IV.
SECTION 4.3 METHOD OF PAYMENT.
Payments of money by the Trustee may be made by its check
payable to the order of the payee designated by the Committee and mailed to the
payee in care of the Company. Distributions of Shares shall be made by causing
the Company, or its transfer agent, to issue to the distributee a stock
certificate evidencing ownership of the designated number of Shares. To the
extent that any distribution of Shares to any person requires the registration
of such Shares under the securities or blue sky laws of the United States or any
state, or otherwise requires any governmental approvals, the Company shall
undertake to complete such registration or obtain such approvals at its sole
expense.
ARTICLE V
TRUSTEE'S ACCOUNTS
SECTION 5.1 ACCOUNTS.
The Trustee shall keep accurate and detailed accounts of all
investments, reinvestments, receipts and disbursements, and other transactions
hereunder, and all such accounts and the books and records relating thereto
shall be open to inspection at all reasonable times by the Company or the
Committee or persons designated by them. The Trustee may rely and act upon any
direction by the Committee with respect to the allocation of Shares in
accordance with section 3.2.
SECTION 5.2 VALUATION OF TRUST FUND.
The Trustee shall value or cause to be valued the Trust Fund
as of the last business day of each fiscal year of the Company ("Valuation
Date"), and shall report to the Committee the value of the Trust Fund as of such
date, within a reasonable time after the first day of the month next succeeding
each Valuation Date.
SECTION 5.3 REPORTS TO THE COMMITTEE.
(a) Within seventy-five (75) days following the last day of
each fiscal year of the trust, and within seventy-five (75) days
following the effective date of the resignation or removal of the
Trustee as provided in section 8.1, the Trustee shall render to the
<PAGE>
-9-
Committee a written account setting forth all investments, receipts,
disbursements and other transactions affecting the Trust Fund, which
account shall be signed by the Trustee and mailed to the Committee.
(b) The Committee shall notify the Trustee in writing of any
objection or exception to an account so rendered not later than sixty
(60) days following the date on which the Account was mailed to the
Committee, whereupon the Committee and the Trustee shall cooperate in
resolving such objection or exception.
(c) If the Committee has not communicated in writing to the
Trustee within sixty (60) days following the mailing of the account to
the Committee any exception or objection to the account, the account
shall become an account stated at the end of such sixty (60) day
period. If the Committee does communicate such an exception or
objection, as to which it later becomes satisfied, the Committee shall
thereupon indicate in writing its approval of the account, or of the
account as amended, and the account shall thereupon become an account
stated.
(d) Whenever an account shall have become an account stated as
aforesaid, such account shall be deemed to be finally settled and shall
be conclusive upon the Trustee, the Company and all persons having or
claiming to have any interest in the Trust Fund or under the Plan, and
the Trustee shall be fully and completely discharged and released to
the same extent as if the account had been settled and allowed by a
judgment or decree of a court of competent jurisdiction in an action or
proceeding in which the Trustee, the Company, and all persons having or
claiming to have any interest in the Trust Fund or under the Plan were
parties.
SECTION 5.4 RIGHT OF JUDICIAL SETTLEMENT.
Notwithstanding the provisions of section 5.3, the Trustee,
the Committee, and the Company, or any of them, shall have the right to apply at
any time to a court of competent jurisdiction for the judicial settlement of the
Trustee's account. In any such case, it shall be necessary to join as parties
thereto only the Trustee, the Committee and the Company; and any judgment or
decree which may be entered therein shall be conclusive upon all persons having
or claiming to have any interest in the Trust Fund or under the Plan.
SECTION 5.5 ENFORCEMENT OF AGREEMENT.
To protect the Trust Fund from expenses which might otherwise
be incurred, the Company and the Committee shall have authority, either jointly
or severally, to enforce this Agreement on behalf of all persons claiming any
interest in the Trust Fund or under the Plan, and no other person may institute
or maintain any action or proceeding against the Trustee or the Trust Fund in
the absence of written authority from the Committee or a judgment of a court of
competent jurisdiction that in refusing authority the Committee acted
fraudulently or in bad faith.
<PAGE>
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ARTICLE VI
TAXES; COMPENSATION OF TRUSTEE
SECTION 6.1 TAXES.
Any taxes that may be imposed upon the Trust Fund or the
income therefrom shall be deducted from and charged against the Trust Fund.
SECTION 6.2 COMPENSATION OF TRUSTEE; EXPENSES.
The Trustee shall receive for its services hereunder such
compensation as may be agreed upon in writing from time to time by the Company
and the Trustee and shall be reimbursed for its reasonable expenses, including
counsel fees, incurred in the performance of its duties hereunder. The Trustee
shall deduct from and charge against the Trust Fund such compensation and all
such expenses unless previously paid by the Company. Any such deduction and
charge shall be applied first to any assets of the Trust Fund that have not been
allocated to any employee under the terms of the Plan, and second, if and to the
extent necessary proportionately to the assets allocated to employees under the
terms of the Plan.
ARTICLE VII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 7.1 RESIGNATION OR REMOVAL OF TRUSTEE.
The Trustee may resign as trustee hereunder at any time by
giving sixty (60) days prior written notice to the Company. The Company may
remove the Trustee as trustee hereunder at any time by giving the Trustee prior
written notice of such removal, which shall include notice of the appointment of
a successor trustee. Such removal shall take effect not earlier than sixty (60)
days following receipt of such notice by the Trustee unless otherwise agreed
upon by the Trustee and the Company.
SECTION 7.2 APPOINTMENT OF SUCCESSOR.
In the event of the resignation or removal of the Trustee, a
successor trustee shall be appointed by the Company. Except as is otherwise
provided in section 8.l, such appointment shall take effect upon delivery to the
Trustee of an instrument so appointing the successor and an instrument of
acceptance executed by such successor, both of which instruments shall be duly
acknowledged before a notary public. If within sixty (60) days after notice of
resignation shall have been given by the Trustee a successor shall not have been
appointed as aforesaid, the Trustee may apply to any court of competent
jurisdiction for the appointment of such successor.
<PAGE>
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SECTION 7.3 SUCCESSION.
(a) Upon the appointment of a successor, the Trustee shall
transfer and deliver the Trust Fund to such successor; provided,
however, that the Trustee may reserve such sum of money as it shall in
its sole discretion deem advisable for payment of its fees and all
expenses in connection with the settlement of its account, and any
balance of such reserve remaining after the payment of such charges
shall be paid over to the successor trustee. If such reserve shall be
insufficient to pay such charges, the Trustee shall be entitled to
recover the amount of any deficiency from the Company, from the
successor trustee, or from both.
(b) Upon the completion of the succession and the rendering of
its final accounts, the Trustee shall have no further responsibilities
whatsoever under this Agreement.
SECTION 7.4 SUCCESSOR BOUND BY AGREEMENT.
All the provisions of this Agreement shall apply to any
successor trustee with the same force and effect as if such successor had been
originally named herein as the trustee hereun der.
ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.1 AMENDMENT AND TERMINATION.
(a) The Company may, at any time and from time to time, by
instrument in writing executed pursuant to authorization of its Board
of Directors, (i) amend in whole or in part any or all of the
provisions of this Agreement, or (ii) terminate this Agreement and the
trust created hereby; provided, however, that no amendment which
affects the rights, duties or responsibilities of the Trustee may be
made without the Trustee's consent.
(b) Any such amendment shall become effective upon receipt by
the Trustee of the instrument of amendment and endorsement thereon by
the Trustee of its consent thereto, if such consent is required. Any
such termination shall become effective upon the receipt by the Trustee
of the instrument of termination; thereafter the Trustee, upon the
direction of the Committee, shall liquidate the Trust Fund to the
extent required for distri bution and, after the final account of the
Trustee has been approved or settled, shall distribute any Shares (and
any related dividends or other related proceeds) allocated to
Participants to such Participants and shall distribute the remaining
balance of the Trust Fund in its hands to the Company.
<PAGE>
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ARTICLE IX
MISCELLANEOUS
SECTION 9.1 BINDING EFFECT; ASSIGNABILITY.
This Agreement shall be binding upon, and the powers granted
to the Company and the Trustee, respectively, shall be exercisable by the
respective successors and assigns of the Company and the Trustee. Any
corporation which shall, by merger, consolidation, purchase, or otherwise,
succeed to substantially all the trust business of the Trustee shall, upon such
succession and without any appointment or other action by the Company, be and
become successor trustee hereunder.
SECTION 9.2 GOVERNING LAW.
Except to the extent that the federal law of the United States
of America is applicable, this Agreement and the trust created and the Trust
Fund held hereunder shall be inter preted, construed and administered in
accordance with the law of the State of New York without giving effect to the
conflict of law provisions thereof. All contributions to the Trust Fund shall be
deemed to take place in the State of New York.
SECTION 9.3 NOTICES.
Any communication requested or permitted to be given under
this Agreement, including any notice, direction, designation, certification,
order, instruction, or objection shall be in writing and signed by the person
authorized under the Plan to give the communication. The person receiving such a
communication shall be fully protected in acting in accordance therewith. Any
notice required or permitted to be given to a party hereunder shall be deemed
given if in writing and hand delivered or mailed, postage prepaid, certified
mail, return receipt requested, to such party at the following address or at
such other address as such party may by notice specify:
If to the Company:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: Timothy A. Dempsey
President and Chief Executive Officer
<PAGE>
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If to the Trustee:
Orange County Trust Company
212 Dolson Avenue
Middletown, New York 10940
Attention: Thomas A. Varley
Vice President and Senior Trust Officer
SECTION 9.4 SEVERABILITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
provisions.
SECTION 9.5 WAIVER.
Failure of any party to insist at any time or times upon
strict compliance with any provision of this Agreement shall not be a waiver of
such provision at such time or any later time unless in a writing designated as
a waiver and signed by or on behalf of the party against whom enforcement of the
waiver is sought.
SECTION 9.6 NON-ALIENATION.
No interest, right or claim in or to any part of the Trust
Fund or any payment therefrom shall be assignable, transferable or subject to
sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment,
attachment, execution, or levy of any kind, and the Trustee and the Committee
shall not recognize any attempt to assign, transfer, sell, mortgage, pledge,
hypothecate, commute, or anticipate the same, except to the extent required by
law.
SECTION 9.7 COMPLIANCE WITH SECURITIES LAWS.
In the event that the Plan or any portion thereof, or any
interest therein, by virtue of investments made in Shares, shall be deemed to be
a "security" for purposes of the Securities Act of 1933, the Securities Exchange
Act of 1934 or any other federal or state law, for which there is no exemption
from the registration, reporting, blue sky or other requirements applicable to
securities under such laws, the Company shall, at its sole cost and expense,
take all such actions as are necessary or appropriate to comply with the
requirements of such laws. The Company hereby agrees to indemnify the Trustee
and hold it harmless from and against any claim or liability, including any and
all fees, costs and expenses arising from the registration and continuing
registration of the Plan, any portion thereof or any interest therein, which may
be asserted against the Trustee by reason of any determination that the Plan or
any portion thereof, or any interest therein, constitutes such a security.
<PAGE>
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SECTION 9.8 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 9.9 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in this Agreement, 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 shall be deemed equally to
refer to the female gender or the neuter. Any reference to a section number
shall refer to a section of this Agreement, unless otherwise indicated.
SECTION 9.10 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Trustee, respectively,
have caused this Agreement to be executed in their corporate names and their
corporate seals to be hereunto affixed and duly attested, all as of the date
first above written.
WARWICK COMMUNITY BANCORP, INC.
By /s/ Ronald J. Gentile
---------------------------------------
Ronald J. Gentile
Executive Vice President and
Chief Operating Officer
Attest:
/s/ Nancy L. Sobotor-Littell
- -----------------------------
Secretary
[Seal]
ORANGE COUNTY TRUST COMPANY
By /s/ Thomas A. Varley
---------------------------------------
Thomas A. Varley
Vice President and Senior
Attest: Trust Officer
- ----------------------------
Secretary
[Seal]
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 16th day of June, 1998, before me personally came
RONALD J. GENTILE, to me known, who, being by me duly sworn, did depose and say
that he resides at 30 Newport Bridge Road, Warwick, New York 10990; that he is
the Executive Vice President and Chief Operating Officer of WARWICK COMMUNITY
BANCORP, INC., the business corporation described in and which executed the
foregoing instrument; that he knows the seal of said business corporation; that
the seal affixed to said instrument is such business corporation's seal; that it
was so affixed by order of the Board of Directors of said business corporation;
and that he signed his name thereto by like order.
/s/ Mary K. Serringer
---------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 23rd day of June, 1998, before me personally came
THOMAS A. VARLEY, to me known, who, being by me duly sworn, did depose and say
that he resides at 38 Mill Pond Road, Otisville, New York 10963, that he is a
Vice President and Senior Trust Officer of ORANGE COUNTY TRUST COMPANY, the
banking corporation described in and which executed the foregoing instrument;
that he knows the seal of said banking 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 banking corporation; and that he signed his name thereto by
like order.
/s/ Jean M. Hoag
---------------------------------------
Notary Public
Exhibit 10.13
-------------
TRUST AGREEMENT
BETWEEN
WARWICK COMMUNITY BANCORP, INC.
AND
MARINE MIDLAND BANK
FOR THE
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
----------------------------------
Entered into as of December 9, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
TRUST FUND
SECTION 1.1 TRUST FUND.............................................2
SECTION 1.2 COLLECTION OF CONTRIBUTIONS............................2
SECTION 1.3 NON-DIVERSION OF FUNDS.................................2
ARTICLE II
INVESTMENT AND ADMINISTRATION
SECTION 2.1 IN GENERAL.............................................2
SECTION 2.2 INVESTMENT FUNDS.......................................3
SECTION 2.3 APPOINTMENT OF INVESTMENT MANAGER......................3
SECTION 2.4 INVESTMENT DECISIONS...................................4
SECTION 2.5 INVESTMENT IN COMMINGLED FUNDS.........................5
SECTION 2.6 LIQUIDITY..............................................5
SECTION 2.7 INVESTMENT DIRECTIONS BY PARTICIPANTS..................6
SECTION 2.8 TRUSTEE'S ADMINISTRATIVE AUTHORITY.....................6
SECTION 2.9 EXERCISE OF VOTING RIGHTS WITH RESPECT TO SHARES.......8
SECTION 2.10 RESPONSE TO TENDER OFFERS AND SIMILAR EVENTS...........8
SECTION 2.11 DISSENT AND APPRAISAL RIGHTS...........................8
SECTION 2.12 SHARE ACQUISITION LOANS................................9
ARTICLE III
TRUSTEE, PLAN ADMINISTRATOR AND COMMITTEE
SECTION 3.1 COMMITTEE AND PLAN ADMINISTRATOR......................10
SECTION 3.2 TRUSTEE'S RELIANCE....................................10
SECTION 3.3 RETENTION OF ADVISORS.................................11
SECTION 3.4 LIABILITY UNDER THE PLAN..............................11
SECTION 3.5 INDEMNIFICATION.......................................11
SECTION 3.6 BENEFIT CLAIMS LIMITED TO THE TRUST FUND..............11
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<PAGE>
ARTICLE IV
DISTRIBUTIONS FROM THE TRUST FUND
SECTION 4.1 IN GENERAL............................................12
SECTION 4.2 DIRECTION BY THE PLAN ADMINISTRATOR...................12
SECTION 4.3 METHOD OF PAYMENT.....................................12
SECTION 4.4 DISPUTES..............................................13
ARTICLE V
RESPONSIBILITIES
SECTION 5.2 NO LIABILITY FOR ACTS OF OTHERS.......................13
SECTION 5.3 COMPLIANCE WITH ERISA.................................14
ARTICLE VI
TRUSTEE'S ACCOUNTS
SECTION 6.1 ACCOUNTS..............................................14
SECTION 6.2 VALUATION OF TRUST FUND...............................15
SECTION 6.3 REPORTS TO THE PLAN ADMINISTRATOR.....................15
SECTION 6.4 RIGHT OF JUDICIAL SETTLEMENT..........................15
SECTION 6.5 ENFORCEMENT OF AGREEMENT..............................16
ARTICLE VII
TAXES; COMPENSATION OF TRUSTEE
SECTION 7.1 TAXES.................................................16
SECTION 7.2 COMPENSATION OF TRUSTEE; EXPENSES.....................16
ARTICLE VIII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 8.1 RESIGNATION OR REMOVAL OF TRUSTEE.....................17
SECTION 8.2 APPOINTMENT OF SUCCESSOR..............................17
SECTION 8.3 SUCCESSION............................................17
SECTION 8.4 SUCCESSOR BOUND BY AGREEMENT..........................18
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<PAGE>
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1 AMENDMENT AND TERMINATION.............................18
ARTICLE X
MISCELLANEOUS
SECTION 10.1 BINDING EFFECT; ASSIGNABILITY.........................19
SECTION 10.2 GOVERNING LAW.........................................19
SECTION 10.3 NOTICES...............................................19
SECTION 10.4 SEVERABILITY..........................................20
SECTION 10.5 WAIVER................................................20
SECTION 10.6 NON-ALIENATION........................................20
SECTION 10.7 QUALIFIED PLAN AND TRUST..............................21
SECTION 10.8 RETURN OF CONTRIBUTIONS...............................21
SECTION 10.9 COMPLIANCE WITH SECURITIES LAWS.......................21
SECTION 10.10 HEADINGS..............................................22
SECTION 10.11 PARTY IN INTEREST INFORMATION.........................22
SECTION 10.12 CONSTRUCTION OF LANGUAGE..............................22
SECTION 10.13 COUNTERPARTS..........................................22
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<PAGE>
TRUST AGREEMENT
FOR THE
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
This AGREEMENT ("Agreement") is made as of December 9, 1997,
by and between WARWICK COMMUNITY BANCORP, INC., a corporation organized under
the laws of the State of Delaware and having its executive offices at 18 Oakland
Avenue, Warwick , New York 10990 ("Company"), and MARINE MIDLAND BANK, a banking
corporation organized under the laws of the state of New York and having an
office at 250 Park Avenue, New York, New York 10177 ("Trustee").
W I T N E S S E T H :
WHEREAS, the Company has, by action of its Board of Directors,
adopted an Employee Stock Ownership Plan ("Plan") to be qualified under section
401(a) of the Internal Revenue Code of 1986, as amended ("Code"), for the
exclusive benefit of its eligible employees ("Participants") and their
beneficiaries; and
WHEREAS, the Company has, in accordance with the terms of the
Plan, appointed a Plan Administrator ("Plan Administrator") and a Committee
("Committee") to administer the Plan; and
WHEREAS, the Plan contemplates the establishment and
continuance of a trust so long as it remains in effect to be and to remain
qualified for tax exempt status under section 501(a) of the Code, to which
contributions will be made from time to time, to be accepted, invested and
maintained in accordance with this Agreement; and
WHEREAS, the Plan provides for the assets of such trust to be
invested primarily in shares of common stock of the Company ("Shares") and for
the assumption of debt for the purpose of purchasing Shares;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Company and the Trustee hereby agree as
follows:
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ARTICLE I
TRUST FUND
SECTION 1.1 TRUST FUND.
The Company hereby establishes with the Trustee a trust,
pursuant to the Plan, in which shall be deposited such Shares and such sums of
money as shall from time to time be paid or delivered to or deposited with the
Trustee by or with the approval of the Company in accordance with terms of the
Plan and this Trust Agreement. All such Shares and all such sums of money, all
investments and reinvestments thereof and all earnings, appreciation and
additions allocable thereto, less losses, depreciation and expenses allocable
thereto and any payments made therefrom as authorized under the Plan or this
Agreement shall constitute the "Trust Fund". The Trust Fund shall be held,
managed and administered by the Trustee, IN TRUST, and dealt with in accordance
with the provisions of this Agreement and in accordance with any funding policy
or guidelines established under the Plan that are communicated in writing to the
Trustee.
SECTION 1.2 COLLECTION OF CONTRIBUTIONS.
The Trustee shall have no authority over and shall have no
responsibility for the administration of the Plan or for the collection of any
contributions to the Trust Fund required under the Plan, nor shall it have any
authority to bring any action or proceeding to enforce the collection of any
such amount or to make inquiry as to whether any such contributions received by
it were properly collected or computed in accordance with the terms of the Plan.
SECTION 1.3 NON-DIVERSION OF FUNDS.
Notwithstanding anything to the contrary contained in this
Agreement or any amendment hereto, no part of the Trust Fund other than such
expenses and taxes properly charged to the Trust Fund under the Plan or this
Agreement shall be used for or diverted to purposes other than for the exclusive
benefit of Plan Participants and their beneficiaries (including any alternate
payee entitled to benefits under the Plan pursuant to a qualified domestic
relations order described in section 414(p) of the Code ("Alternate Payee")).
ARTICLE II
INVESTMENT AND ADMINISTRATION
SECTION 2.1 IN GENERAL.
The Trust Fund shall be held by the Trustee and shall be
invested and reinvested as hereinafter provided in this Article II, without
distinction between principal and income and
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without regard to the restrictions of the laws of the State of New York, or of
any other jurisdiction relating to the investment of trust funds. Subject to
section 2.7, the Trust Fund shall be invested at all times, pursuant to
directions given in accordance with section 2.4, primarily in Shares.
SECTION 2.2 INVESTMENT FUNDS.
(a) The Trustee shall establish and maintain, for the
investment of the Trust Fund, such separate investment funds (individually, an
"Investment Fund") as the Company may request by written notice to the Trustee.
In the absence of such notice, the Trust Fund shall consist of a single
Investment Fund.
(b) To the extent directed to do so pursuant to section 2.4,
the Trustee shall hold and invest amounts paid over to it pursuant to this
Agreement in such Investment Funds as shall have been established in accordance
with section 2.2(a), and shall allocate amounts paid over to it among the
Investment Funds in the manner and in the proportion designated by the Plan
Administrator pursuant to the terms of the Plan. The Trustee shall also credit
to each such Investment Fund all earnings and appreciation allocable thereto and
shall charge against each such fund any depreciation, losses, expenses, payments
and distributions allocable thereto.
(c) The Trustee shall invest and reinvest amounts allocated to
each Investment Fund in accordance with such written investment criteria as
shall be established by the Committee and communicated in writing to the
Trustee. Notwithstanding any such investment criteria, the Trustee is authorized
to retain in an Investment Fund, for as long as it is deemed advisable by the
person responsible for directing the investment of the particular Investment
Fund, (i) any securities or other property received by means of a dividend,
distribution, exchange, conversion, liquidation or otherwise than by initial
purchase; and (ii) any investments which were authorized hereunder when made by
the Trustee.
SECTION 2.3 APPOINTMENT OF INVESTMENT MANAGER.
(a) The Committee may, in its discretion, appoint an
investment manager ("Investment Manager") to direct the investment and
reinvestment of all or any portion of the Trust Fund. Any such Investment
Manager shall either (i) be registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Investment Advisers Act"); (ii) be
a bank, as defined in the Investment Advisers Act; or (iii) be an insurance
company qualified to perform investment services under the laws of more than one
state.
(b) The Plan Administrator shall give written notice to the
Trustee of the appointment of an Investment Manager pursuant to section 2.3(a).
Such notice shall include: (i) a specification of the portion of the Trust Fund
to which the appointment applies; (ii) a certification by the Plan Administrator
that the Investment Manager satisfies the requirements of section 2.3(a)(i),
(ii) or (iii); (iii) a copy of the instruments appointing the Investment Manager
and evidencing the Investment Manager's acceptance of the appointment; (iv)
directions as to the manner in which the Investment Manager is authorized to
give instructions to the Trustee,
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including the persons authorized to give instructions and the number of
signatures required for any written instruction; (v) an acknowledgment by the
Investment Manager that it is a fiduciary of the Plan; and (vi) if applicable, a
certificate evidencing the Investment Manager's current registration under the
Investment Advisers Act. For purposes of this Agreement, the appointment of an
Investment Manager pursuant to this section 2.3 shall become effective as of the
effective date specified in such notice, or, if later, as of the date on which
the Trustee receives proper notice of such appointment.
(c) The Plan Administrator shall give written notice to the
Trustee of the resignation or removal of an Investment Manager previously
appointed pursuant to this section 2.3. From and after the date on which the
Trustee receives such notice, or, if later, the effective date of the
resignation or removal specified in such notice, the Committee shall be
responsible, in accordance with this section 2.3, for the investment and
reinvestment of the portion of the Trust Fund theretofore managed by such
Investment Manager, until such time as a successor Investment Manager has been
duly appointed pursuant to this section 2.3.
SECTION 2.4 INVESTMENT DECISIONS.
(a) The Trustee shall invest and reinvest the Trust Fund as
follows:
(i) in accordance with the directions of the Committee; or
(ii) to the extent that an Investment Manager is appointed to
direct the investment of any Investment Fund, in accordance with the
directions of such Investment Manager.
The Trustee shall be under no duty or obligation to review any investment to be
acquired, held or disposed of pursuant to directions of the Committee or any
Investment Manager nor to make any recommendation with respect to the
disposition or continued retention of any such investment. To the extent that
the Trustee is subject to direction by the Committee or an Investment Manager,
the Trustee shall have no liability or responsibility for its actions or
inaction pursuant to the direction of, or its failure to act in the absence of
directions from, the Committee or an Investment Manager, except to the extent
provided in section 5.2. To the extent that the Trustee is subject to direction
by the Committee or an Investment Manager, the Company hereby agrees to
indemnify the Trustee and hold it harmless from and defend it against any claim
or liability which may be asserted against the Trustee by reason of any action
or inaction by it pursuant to a direction by the Committee or by an Investment
Manager or failing to act in the absence of any such direction.
(b) The Committee or an Investment Manager appointed pursuant
to section 2.3 shall, from time to time, issue orders for the purchase or sale
of securities directly to a broker. Written notification of the issuance of each
such order shall be given promptly to the Trustee by the Committee or the
Investment Manager, and the execution of each such order shall be confirmed by
written advice to the Trustee by the broker. Such notification shall be
authority for
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the Trustee to pay for securities purchased against receipt thereof and to
deliver securities sold against payment therefor, as the case may be.
(c) To the extent that neither the Committee nor an Investment
Manager furnishes directions as to the investment of any portion of the Trust
Fund that is subject to its direction, the Trustee shall invest and reinvest the
Trust Fund (i) in Shares and (ii) to the extent that it is not practicable to
invest and reinvest the Trust Fund in Shares, in any savings account, time or
other interest bearing deposit or in any other interest bearing obligation of
any one or more savings banks, savings and loan associations, banks and other
financial institutions, or any of them, including the Trustee or any subsidiary
of the Company, or, subject to section 2.5, in any commingled, common or group
trust fund at least 75% of the assets of which are invested in such savings
accounts, time or other interest bearing deposits or other interest bearing
obligations.
(d) Subject to the preceding provisions of this Section 2.4,
the Trustee shall have the power and authority to be exercised in its sole
discretion at any time and from time to time to issue and place orders for the
purchase or sale of securities directly with qualified brokers or dealers. Such
orders may be placed with such qualified brokers and/or dealers who also provide
investment information or other research or statistical services to the Trustee
in its capacity as a fiduciary or investment manager for other clients.
SECTION 2.5 INVESTMENT IN COMMINGLED FUNDS.
The Trustee may, if directed to do so by the Committee or an
Investment Manager or if authorized to do so pursuant to section 2.4, invest any
amounts, other than Shares, held by it under this Agreement in any commingled or
group trust fund described in section 401(a) of the Code and exempt under
section 501(a) of the Code or in any common trust fund exempt under section 584
of the Code, provided that such trust fund satisfies the requirements of this
Agreement applicable to such amounts and that the Trustee serves as trustee of
such commingled, group or common trust fund. To the extent that the Trust Fund
is at any time invested in any commingled, group or common trust fund, the
declaration of trust or other instrument pertaining to such fund and any
amendments thereto are hereby adopted as part of this Agreement and deemed to
form a part of the Plan. If there is any conflict between the provisions of this
Agreement and such declaration of trust or other instrument, then the terms of
the declaration of trust or other instrument of the commingled, group or common
trust fund shall govern.
SECTION 2.6 LIQUIDITY.
Notwithstanding any provisions of this Article II to the
contrary, the Trustee, in its sole discretion or as the Plan Administrator shall
request, may retain uninvested cash or cash balances, and sell, to provide cash
or cash balances, such investments in whatever portion of the Trust Fund that it
may deem advisable, without being required to pay interest thereon. Pending
investment, the Trustee, in its sole discretion, may temporarily invest any
funds held or received by it for investment in an investment fund established
hereunder in commercial paper or in obligations of, or guaranteed by, the United
States government or any of its agencies.
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SECTION 2.7 INVESTMENT DIRECTIONS BY PARTICIPANTS.
Each Participant entitled thereto under the terms of the Plan
("Qualified Participant") shall have the right to direct the allocation to the
various Investment Funds established hereunder to be made by the Trustee for a
portion of such Qualified Participant's account under the Plan. The Plan
Administrator shall by written notice furnish the Trustee with the investment
directions for each Qualified Participant's account in the Plan. The Trustee
shall act in accordance with the most recent directions it has received from the
Plan Administrator for each account and shall have no discretion over or
responsibility or liability for its actions taken in accordance with such
directions. The Company hereby agrees to indemnify and defend the Trustee and
hold it harmless from and against any claim asserted against or liability
imposed on the Trustee by reason of its having acted on any direction given by a
Qualified Participant with respect to his own account.
SECTION 2.8 TRUSTEE'S ADMINISTRATIVE AUTHORITY.
(a) In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or by other provisions of this
Agreement, but subject to the provisions of section 1.3 and this Article II, the
Trustee is authorized and empowered:
(i) subject to section 2.10, to sell, exchange, convey,
transfer or dispose of and also to grant options with respect to any
property, whether real or personal, at any time held by it, and any
sale may be made by private contract or by public auction, and for cash
or upon credit, or partly for cash and partly upon credit, and no
person dealing with the Trustee shall be bound to see to the
application of the purchase money or to inquire into the validity,
expediency or propriety of any such sale or other disposition;
(ii) to retain, manage, operate, repair and rehabilitate and
to mortgage or lease for any period any real estate held by it and, in
its discretion, cause to be formed any corporation or trust to hold
title to any such real property;
(iii) unless otherwise agreed to and subject to sections 2.9
and 2.10, to vote in person or by proxy on any stocks, bonds, or other
securities held by it, to exercise any options appurtenant to any
stocks, bonds or other securities for the conversion thereof into other
stocks, bonds or securities, or to exercise any rights to subscribe for
additional stocks, bonds or other securities and to make any and all
necessary payment therefor and to enter into any voting trust;
(iv) with respect to any investment, subject to section 2.12,
to join in, dissent from, or oppose any action or inaction of any
corporation, or of the directors, officers or stockholders of any
corporation, including, without limitation, any reorganization,
recapitalization, consolidation, liquidation, sale or merger;
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(v) to settle, adjust, compromise, or submit to arbitration
any claims, debts or damages due or owing to or from the Trust Fund;
and
(vi) to deposit any property with any protective,
reorganization or similar committee, to delegate power thereto and to
pay and agree to pay part of its ex penses and compensation and any
assessments levied with respect to any property so deposited.
In exercising such powers with respect to any portion of the Trust Fund that is
invested in the discretion of the Trustee or pursuant to section 2.4(c), the
Trustee shall act in its discretion. In exercising such powers with respect to
any portion of the Trust Fund that is invested pursuant to directions of the
Committee or of an Investment Manager, the Trustee shall act in accordance with
directions provided by the Committee or Investment Manager. The Trustee shall be
under no duty or obligation to review any action to be taken, nor to recommend
any action, pursuant to this section 2.8(a) with respect to any portion of the
Trust Fund that is under the direction of the Committee or an Investment
Manager. The Trustee shall have no liability or responsibility for its actions
or inaction pursuant to the direction of, or its failure to act in the absence
of directions from, the Committee or an Investment Manager, except to the extent
provided in section 5.2.
(b) In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or other provisions of this Agreement,
but subject to section 1.3 and this Article II, the Trustee is authorized and
empowered, in its discretion:
(i) to commence or defend suits or legal proceedings, and to
represent the Trust Fund in all suits or legal proceedings in any court
or before any other body or tribunal;
(ii) to register securities in its name or in the name of any
nominee or nominees with or without indication of the capacity in which
the securities shall be held, or to hold securities in bearer form, but
the books and records of the Trustee shall at all times show that such
investments are part of the Trust Fund;
(iii) subject to section 2.11, to borrow or raise moneys for
the purposes of the Trust Fund from any lender, except the Trustee in
its individual capacity, and for any sum so borrowed to issue its
promissory note as Trustee and to secure the repayment thereof by
pledging all or any part of the Trust Fund, and no person lending money
to the Trustee shall be bound to see the application of the money
loaned or to inquire into the validity, expediency or propriety of any
such borrow ing;
(iv) to make distributions in cash or in Shares upon the
direction of the Committee and to make transfers of funds into and out
of the Investment Funds for value or upon the direction of the Plan
Administrator;
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(v) to employ such agents, counsel and accountants as the
Trustee shall deem advisable and to pay their reasonable expenses and
compensation from the Trust Fund;
(vi) to make, execute, acknowledge, and deliver any and all
deeds, leases, assignments and instruments; and
(vii) generally to do all acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable for the
administration and protection of the Trust Fund.
SECTION 2.9 EXERCISE OF VOTING RIGHTS WITH RESPECT TO
SHARES.
The Committee shall direct the Trustee as to the manner of
exercise of voting rights appurtenant to Shares held in the Trust Fund. The
Trustee shall act in accordance with the directions that it receives from the
Committee for each matter as to which voting rights are to be exercised and
shall refrain from exercising the voting rights appurtenant to Shares held in
the Trust Fund in the absence of such directions. The Trustee shall have no
discretion over or responsibility or liability for its actions taken in
accordance with such directions, or for its failure to exercise such voting
rights in the absence of such directions. The Company hereby agrees to indemnify
the Trustee and hold it harmless from and defend it against any claim asserted
against or liability imposed on the Trustee by reason of its having acted on any
direction given by the Committee in accordance with this section 2.9 or failing
to act in the absence of any such direction.
SECTION 2.10 RESPONSE TO TENDER OFFERS AND SIMILAR
EVENTS.
The Committee shall direct the Trustee as to the manner of
exercise of any rights to tender Shares held in the Trust Fund or otherwise act
in response to any tender offer with respect to Shares or any other offer to
purchase, exchange, redeem or otherwise transfer such Shares. The Trustee shall
act in accordance with the directions that it receives from the Committee for
each matter as to which such rights are to be exercised and shall refrain from
taking any action in response to such an offer in the absence of such
directions. The Trustee shall have no discretion over or responsibility or
liability for its actions taken in accordance with such direc tions, or for its
failure to exercise such rights in the absence of such directions. The Company
hereby agrees to indemnify the Trustee and hold it harmless from and defend it
against any claim asserted against or liability imposed on the Trustee by reason
of its having acted on any direction given by the Committee in accordance with
this section 2.10 or failing to act in the absence of any such direction.
SECTION 2.11 DISSENT AND APPRAISAL RIGHTS.
The Committee shall direct the Trustee as to the manner of
exercise of any dissent and appraisal rights appurtenant to Shares held in the
Trust Fund. The Trustee shall act in accordance with the directions that it
receives from the Committee for each matter as to which such rights are to be
exercised and shall refrain from taking any action in the absence of such
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directions. The Trustee shall have no discretion over or responsibility or
liability for its actions taken in accordance with such directions, or for its
failure to exercise such rights in the absence of such directions. The Company
hereby agrees to indemnify the Trustee and hold it harmless from and defend it
against any claim asserted against or liability imposed on the Trustee by reason
of its having acted on any direction given by the Committee in accordance with
this section 2.11 or failing to act in the absence of any such direction.
SECTION 2.12 SHARE ACQUISITION LOANS.
(a) To the extent permitted by ERISA (including, without
limitation, Section 4975 of the Code) and by any regulations promulgated
thereunder, the Trustee shall, if directed to do so by the Committee, obtain a
loan ("Share Acquisition Loan") on behalf of the Plan and shall apply the
proceeds of such Share Acquisition Loan in the proportions directed by the
Committee:
(i) to purchase Shares; or
(ii) to make payments of principal or interest, or a
combination of principal and interest, with respect to such Share
Acquisition Loan; or
(iii) 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 on such terms and conditions as the
Committee may determine, and the Trustee shall have no duty or obligation to
inquire as to the expediency or propriety of any such Share Acquisition Loan or
any of the terms and conditions thereof.
(b) If directed to do so by the Committee, the Trustee shall
execute a promissory note, in its capacity as Trustee, evidencing the obligation
of the Plan to repay a Share Acquisition Loan and shall pledge, in such
proportions as the Committee may direct, 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
(ii) any Shares purchased with the proceeds of a previous
Share Acquisition Loan, provided that such previous Share Acquisition
Loan is repaid with the proceeds of the Share Acquisition Loan for
which such Shares are pledged.
Any Share Acquisition Loan shall be without recourse against the Plan or the
Trustee, and, except as specifically provided in this section 2.12, no assets of
the Plan shall be pledged as collateral for a Share Acquisition Loan.
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(c) The Company shall contribute under the Plan amounts
sufficient to pay each installment of principal and interest on all Share
Acquisition Loans payable by the Trust pursuant to this Section and any loan
agreement pertaining to the Share Acquisition Loan on or before the date such
installment is due and to meet the obligations of the Trustee under the loan.
The Trustee shall apply the Company's contributions to the Trust Fund, the
earnings on such contributions, and the earnings with respect to Shares that
shall have been pledged as collateral for a Share Acquisition Loan, in such
proportions as the Committee may direct, to the payment of principal and
interest with respect to such Share Acquisition Loan.
(d) All Shares purchased with any Share Acquisition Loan shall
be credited to and held in a suspense account under the Trust until they shall
be released from such suspense account and allocated to the accounts of Plan
Participants in accordance with the Plan. The Plan Administrator shall at least
annually advise the Trustee of the number of Shares to be released from such
suspense account, as determined in accordance with the Plan.
ARTICLE III
TRUSTEE, PLAN ADMINISTRATOR AND COMMITTEE
SECTION 3.1 COMMITTEE AND PLAN ADMINISTRATOR.
The Company shall certify to the Trustee the names and
specimen signatures of the Plan Administrator and of the members of the
Committee appointed by the Company to administer the Plan and give directions to
the Trustee. Such certification shall include directions as to the number of
signatures required for any communication or direction to the Trustee. The
Company shall promptly give notice to the Trustee of changes in the identity of
the Plan Administrator or in the membership of the Committee. The Plan
Administrator or the Committee may also certify to the Trustee the name of any
person, together with a specimen signature of any such person, authorized to act
for it in relation to the Trustee. The Plan Administrator or the Committee shall
promptly give notice to the Trustee of any change in any person authorized to
act on behalf of it. For all purposes under this Agreement, until any such
notice is received by the Trustee, the Trustee shall be fully protected in
assuming that the identity of the Plan Administrator, the membership of the
Committee and the authority of any person certified to act in its behalf remain
unchanged.
SECTION 3.2 TRUSTEE'S RELIANCE.
The Trustee may rely and act upon any certificate, notice or
direction of the Plan Administrator or the Committee, or of a person authorized
to act on its behalf, or of the Company or of an Investment Manager which the
Trustee believes to be genuine and to have been signed by the person or persons
duly authorized to sign such certificate, notice, or direction.
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SECTION 3.3 RETENTION OF ADVISORS.
The Trustee may consult with legal counsel and other
professional advisors who may, but need not, be its counsel or advisors or
counsel or advisors to the Company, the Plan Administrator, the Committee, or
any Plan Participant or beneficiary, with respect to the meaning and
construction of this Agreement or its powers, obligations, and conduct
hereunder. The Trustee shall be entitled to reasonable reimbursement from the
Trust Fund for such legal counsel's and other professional advisors' fees. The
Trustee shall not be deemed imprudent, and shall be fully and completely
protected, by reason of its taking or refraining form taking any action in
accordance with the opinion of counsel.
SECTION 3.4 LIABILITY UNDER THE PLAN.
The duties and obligations of the Trustee shall be limited to
those expressly set forth in this Agreement, notwithstanding any reference
herein to the Plan. The Trustee shall not be obliged to take or defend any
action or participate in or proceed with any suit or legal or administrative
proceeding which might subject it to substantial cost or expense or liability
unless first indemnified by the Company in an amount and by security
satisfactory to it against all losses, costs, damages and expenses which may
result therefrom or be occasioned thereby.
SECTION 3.5 INDEMNIFICATION.
The Company shall pay and shall protect, indemnify and save
harmless the Trustee and its officers, employees and agents from and against any
and all losses, liabilities (including liabilities for penalties), actions,
suits, judgments, demands, damages, costs and expenses (including reasonable
attorneys' fees and expenses) of any nature arising from or relating to any
action or any failure to act by the Trustee, its officers, employees and agents
with respect to the transactions contemplated by this Trust Agreement, including
any claim made by the Company or its successors that this Trust Agreement is
invalid or ultra vires, except to the extent that any such loss, liability,
action, suit, judgment, demand, damage, cost or expense is the result of the
gross negligence of the Trustee (determined by reference to customary trust
company standards) /or willful misconduct of the Trustee, its officers,
employees or agents. The Trust assumes no obligation or responsibility with
respect to any action required by this Trust Agreement on the part of the
Company. The Company and the Trustee may, by separate agreement, agree on terms
by which the Company shall indemnify the Trustee in connection with the
Trustee's carrying out of its duties hereunder.
SECTION 3.6 BENEFIT CLAIMS LIMITED TO THE TRUST FUND.
The Trustee in its corporate capacity shall not be liable for
claims for benefits under the Plan; such claims shall be limited to the Trust
Fund. The Trust shall not be liable to make distributions or payments of any
kind unless sufficient funds are available therefor in the Trust Fund. The
Trustee shall be responsible only for such money and other property as are
received by it as Trustee under this Agreement.
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ARTICLE IV
DISTRIBUTIONS FROM THE TRUST FUND
SECTION 4.1 IN GENERAL.
The Trustee shall make payments from the Trust Fund in such
amounts, at such times, and to such persons as the Plan Administrator may, from
time to time, direct.
SECTION 4.2 DIRECTION BY THE PLAN ADMINISTRATOR.
(a) A direction by the Plan Administrator to make a
distribution from the Trust Fund shall:
(i) be made in writing;
(ii) specify the amount of the payment or the number of Shares
to be distributed, the date such payment is to be made, the person to
whom payment is to be made, and the address to which the payment is to
be sent; and
(iii) be deemed to certify to the Trustee that such direction
and any payment pursuant thereto are authorized under the terms of the
Plan and applicable law.
(b) The Trustee shall be entitled to rely conclusively on the
Plan Administrator's certification of its authority to direct a payment without
independent investigation. The Trustee shall have no liability to any person
with respect to payments made in accordance with the provisions of this Article
IV.
SECTION 4.3 METHOD OF PAYMENT.
Payments of money by the Trustee may be made by its check
payable to the order of the payee designated by the Plan Administrator and
mailed to the payee's address last furnished to the Trustee by the Plan
Administrator, or, if no such address has been so furnished, to the payee in
care of the Company. Distributions of Shares shall be made by causing the
Company, or its transfer agent, to issue to the distributee a stock certificate
evidencing ownership of the designated number of Shares. To the extent that any
distribution of Shares to any person requires the registration of such Shares
under the securities or blue sky laws of the United States or any state, or
otherwise requires any governmental approvals, the Company shall undertake to
complete such registration or obtain such approvals at its sole expense.
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SECTION 4.4 DISPUTES.
If a dispute arises as to the payment of any funds or delivery
of any assets by the Trustee, the Trustee may withhold such payment or delivery
until the dispute is determined by a court of competent jurisdiction or finally
settled in writing by the parties concerned.
ARTICLE V
RESPONSIBILITIES
SECTION 5.1 GENERAL STANDARD OF CARE.
The Trustee, the Plan Administrator, the members of the
Committee and any Investment Manager shall at all times discharge their duties
with respect to the Trust Fund solely in the interest of the Plan Participants
and their beneficiaries (including any Alternate Payee) and with the care,
skill, prudence, and diligence that, under the circumstances prevailing, a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims.
SECTION 5.2 NO LIABILITY FOR ACTS OF OTHERS.
(a) Subject to section 5.2(b), no "fiduciary" (as such term is
defined in section 3(21) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) under this Agreement shall be liable for an act or
omission of another person in carrying out any fiduciary responsibility where
such fiduciary responsibility is allocated to such other person by this
Agreement or pursuant to a procedure established in this Agreement except to the
extent that:
(i) such fiduciary participated knowingly in, or knowingly
undertook to conceal, an act or omission of such other person, knowing
such act or omission to be a breach of fiduciary responsibility;
(ii) such fiduciary, by his failure to comply with section
404(a)(1) of ERISA in the administration of his specific
responsibilities which give rise to his status as a fiduciary, has
enabled such other person to commit a breach of fiduciary
responsibility;
(iii) such fiduciary has knowledge of a breach of fiduciary
responsibility by such other person, unless he makes reasonable efforts
under the circumstances to remedy the breach; or
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<PAGE>
(iv) such fiduciary is a "named fiduciary" (as such term is
defined in section 402(a)(2) of ERISA) and has violated his duties
under section 404(a)(1) of ERISA:
(A) with respect to the allocation of fiduciary
responsibilities among named fiduciaries or the designation of
persons other than named fiduciaries to carry out fiduciary
responsibilities under this Agreement;
(B) with respect to the establishment or
implementation of procedures for allocating fiduciary
responsibilities among named fiduciaries or for designating
persons other than named fiduciaries to carry out fiduciary
responsibilities under this Agreement; or
(C) in continuing the allocation of fiduciary
responsibilities among named fiduciaries or the designation of
persons other than named fiduciaries to carry out fiduciary
responsibilities under this Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, the Trustee shall have no liability or responsibility for an act or
omission of an Investment Manager appointed pursuant to section 2.3 in carrying
out its fiduciary responsibilities with respect to the Plan, unless the Trustee
(i) by its failure to comply with section 404(a)(1) of ERISA in the
administration of its specific responsibilities which give rise to its status as
a fiduciary, has enabled such Investment Manager to commit a breach of fiduciary
responsibility, or (ii) participated knowingly in, or knowingly undertook to
conceal, an act or omission of such Investment Manager, knowing such act or
omission to be a breach of fiduciary responsibility.
SECTION 5.3 COMPLIANCE WITH ERISA.
Notwithstanding anything in this Agreement, as amended from
time to time, to the contrary, no provision of this Agreement shall be construed
so as to violate the requirements of ERISA.
ARTICLE VI
TRUSTEE'S ACCOUNTS
SECTION 6.1 ACCOUNTS.
The Trustee shall keep accurate and detailed accounts of all
investments, reinvestments, receipts and disbursements, and other transactions
hereunder, and all such accounts and the books and records relating thereto
shall be open to inspection at all reasonable times by the Company or the Plan
Administrator or persons designated by them.
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<PAGE>
SECTION 6.2 VALUATION OF TRUST FUND.
The Trustee shall value or cause to be valued the Trust Fund
and any Investment Fund that has been established hereunder as of the last
business day of each calendar quarter ("Valuation Date"), and shall report to
the Plan Administrator the value of the Trust Fund and each Investment Fund as
of such date, within a reasonable time after the first day of the month next
succeeding each Valuation Date.
SECTION 6.3 REPORTS TO THE PLAN ADMINISTRATOR.
(a) Within 75 days following the last day of each fiscal year
of the trust, and within 75 days following the effective date of the resignation
or removal of the Trustee as provided in section 8.1, the Trustee shall render
to the Plan Administrator a written account setting forth all investments,
receipts, disbursements and other transactions affecting the Trust Fund or any
Investment Fund, which account shall be signed by the Trustee and mailed to the
Plan Administrator.
(b) The Plan Administrator shall notify the Trustee in writing
of any objection or exception to an account so rendered not later than 60 days
following the date on which the Account was mailed to the Plan Administrator,
whereupon the Plan Administrator and the Trustee shall cooperate in resolving
such objection or exception.
(c) If the Plan Administrator has not communicated in writing
to the Trustee within 60 days following the mailing of the account to the Plan
Administrator any exception or objection to the account, the account shall
become an account stated at the end of such 60 day period. If the Plan
Administrator does communicate such an exception or objection, as to which it
later becomes satisfied, the Plan Administrator shall thereupon indicate in
writing its approval of the account, or of the account as amended, and the
account shall thereupon become an account stated.
(d) Whenever an account shall have become an account stated as
aforesaid, such account shall be deemed to be finally settled and shall be
conclusive upon the Trustee, the Company and all persons having or claiming to
have any interest in the Trust Fund or under the Plan, and the Trustee shall be
fully and completely discharged and released to the same extent as if the
account had been settled and allowed by a judgment or decree of a court of
competent jurisdiction in an action or proceeding in which the Trustee, the
Company, and all persons having or claiming to have any interest in the Trust
Fund or under the Plan were parties.
SECTION 6.4 RIGHT OF JUDICIAL SETTLEMENT.
Notwithstanding the provisions of section 6.3, the Trustee,
the Plan Administrator, and the Company, or any of them, shall have the right to
apply at any time to a court of competent jurisdiction for the judicial
settlement of the Trustee's account. In any such case, it shall be necessary to
join as parties thereto only the Trustee, the Plan Administrator and the
Company; and
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<PAGE>
any judgment or decree which may be entered therein shall be conclusive upon all
persons having or claiming to have any interest in the Trust Fund or under the
Plan.
SECTION 6.5 ENFORCEMENT OF AGREEMENT.
To protect the Trust Fund from expenses which might otherwise
be incurred, the Company and the Plan Administrator shall have authority, either
jointly or severally, to enforce this Agreement on behalf of all persons
claiming any interest in the Trust Fund or under the Plan, and no other person
may institute or maintain any action or proceeding against the Trustee or the
Trust Fund in the absence of written authority from the Plan Administrator or a
judgment of a court of competent jurisdiction that in refusing authority the
Plan Administrator acted fraudulently or in bad faith.
ARTICLE VII
TAXES; COMPENSATION OF TRUSTEE
SECTION 7.1 TAXES.
Any taxes that may be imposed upon the Trust Fund or the
income therefrom shall be deducted from and charged against the Trust Fund or to
the particular Investment Funds to which such taxes are applicable. The Trustee
shall notify the Committee of any proposed or final assessments of taxes and may
assume that any such taxes are lawfully levied or assessed unless the Committee
advises it in writing to the contrary within fifteen days after receiving the
above notice from the Trustee. In such case, the Trustee, if requested by the
Committee in writing, shall contest the validity of such taxes in any manner
deemed appropriate by the Committee; the Company may itself contest the validity
of any such taxes, in which case the Committee shall so notify the Trustee and
the Trustee shall have no responsibility or liability respecting such contest.
If either party to this Agreement contests any such proposed levy or
assessments, the other party shall provide such information and cooperation as
the party conducting the contest shall reasonably request.
SECTION 7.2 COMPENSATION OF TRUSTEE; EXPENSES.
The Trustee shall receive for its services hereunder such
compensation as may be agreed upon in writing from time to time by the Company
and the Trustee and shall be reimbursed for its reasonable expenses, including
counsel fees, incurred in the performance of its duties hereunder. The Trustee
shall deduct from and charge against the Trust Fund such compensation and all
such expenses unless previously paid by the Company, except that all commissions
paid in connection with the acquisition or sale of Shares shall be paid by the
Company. Expenses of the Trust Fund, as well as compensation of the Trustee,
that are not paid by the Company and that are general in nature and not directly
related to a particular Investment Fund shall be charged to
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<PAGE>
the Trust Fund and allocated to each of the Investment Funds in the same
proportion that the value of each such Investment Fund bears to the value of the
Trust Fund on the Valuation Date next preceding the date of such payments. Any
expenses directly related to a particular Investment Fund that are not paid by
the Company shall be charged to such Investment Fund.
ARTICLE VIII
RESIGNATION AND REMOVAL OF TRUSTEE
SECTION 8.1 RESIGNATION OR REMOVAL OF TRUSTEE.
The Trustee may resign as trustee hereunder at any time by
giving sixty (60) days prior written notice to the Company. The Company may
remove the Trustee as trustee hereunder at any time by giving the Trustee prior
written notice of such removal, which shall include notice of the appointment of
a successor trustee. Such removal shall take effect not earlier than sixty (60)
days following receipt of such notice by the Trustee unless otherwise agreed
upon by the Trustee and the Company.
SECTION 8.2 APPOINTMENT OF SUCCESSOR.
In the event of the resignation or removal of the Trustee, a
successor trustee shall be appointed by the Company. Except as is otherwise
provided in section 8.1, such appointment shall take effect upon delivery to the
Trustee of an instrument so appointing the successor and an instrument of
acceptance executed by such successor, both of which instruments shall be duly
acknowledged before a notary public. If within 60 days after notice of
resignation shall have been given by the Trustee a successor shall not have been
appointed as aforesaid, the Trustee may apply to any court of competent
jurisdiction for the appointment of such successor.
SECTION 8.3 SUCCESSION.
(a) Upon the appointment of a successor, the Trustee shall
transfer and deliver the Trust Fund to such successor; provided, however, that
the Trustee may reserve such sum of money as it shall in its sole discretion
deem advisable for payment of its fees and all expenses in connection with the
settlement of its account, and any balance of such reserve remaining after the
payment of such charges shall be paid over to the successor trustee. If such
reserve shall be insufficient to pay such charges, the Trustee shall be entitled
to recover the amount of any deficiency from the Company, from the successor
trustee, or from both.
(b) Upon the completion of the succession and the rendering of
its final accounts, the Trustee shall have no further responsibilities
whatsoever under this Agreement.
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<PAGE>
SECTION 8.4 SUCCESSOR BOUND BY AGREEMENT.
All the provisions of this Agreement shall apply to any
successor trustee with the same force and effect as if such successor had been
originally named herein as the trustee hereun der.
ARTICLE IX
AMENDMENT AND TERMINATION
SECTION 9.1 AMENDMENT AND TERMINATION.
(a) The Company may, at any time and from time to time, by
instrument in writing executed pursuant to authorization of its Board of
Directors, (i) amend in whole or in part any or all of the provisions of this
Agreement, or (ii) terminate this Agreement and the trust created hereby;
provided, however, that no amendment which affects the rights, duties or
responsibilities of the Trustee may be made without the Trustee's consent; and
provided further that no such amendment shall divert any part of the Trust Fund
to purposes other than for the exclusive benefit of the Plan Participants or
their beneficiaries (including any Alternate Payee) at any time prior to the
satisfaction of all liabilities with respect to such Participants and their
beneficiaries under the Plan and this Agreement.
(b) Any such amendment shall become effective upon receipt by
the Trustee of the instrument of amendment and endorsement thereon by the
Trustee of its consent thereto, if such consent is required. Any such
termination shall become effective upon the receipt by the Trustee of the
instrument of termination; thereafter the Trustee, upon the direction of the
Plan Administrator, shall liquidate the Trust Fund to the extent required for
distribution and, after the final account of the Trustee has been approved or
settled, shall distribute the balance of the Trust Fund remaining in its hands
as directed by the Plan Administrator, or in the absence of such direction, as
may be directed by a judgment or decree of a court of competent jurisdiction.
Following any such termination, the powers of the Trustee hereunder shall
continue as long as any of the Trust Fund remains in its hands.
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<PAGE>
ARTICLE X
MISCELLANEOUS
SECTION 10.1 BINDING EFFECT; ASSIGNABILITY.
This Agreement shall be binding upon, and the powers granted
to the Company and the Trustee, respectively, shall be exercisable by the
respective successors and assigns of the Company and the Trustee. Any
corporation which shall, by merger, consolidation, purchase, or otherwise,
succeed to substantially all the trust business of the Trustee shall, upon such
succession and without any appointment or other action by the Company, be and
become successor trustee hereunder.
SECTION 10.2 GOVERNING LAW.
Except to the extent that the federal law of the United States
of America is applicable, this Agreement and the trust created and the Trust
Fund held hereunder shall be inter preted, construed and administered in
accordance with the law of the State of New York applicable to contracts to be
performed entirely within the State of New York and between parties all of whom
are citizens and residents of such state. All contributions to the Trust Fund
shall be deemed to take place in the State of New York.
SECTION 10.3 NOTICES.
Any communication requested or permitted to be given under
this Agreement, including any notice, direction, designation, certification,
order, instruction, or objection shall be in writing and signed by the person
authorized under the Plan to give the communication. The person receiving such a
communication shall be fully protected in acting in accordance therewith. Any
notice required or permitted to be given to a party hereunder shall be deemed
given if in writing and hand delivered or mailed, postage prepaid, certified
mail, return receipt requested, to such party at the following address or at
such other address as such party may by written notice specify:
If to the Company:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990
Attention: PRESIDENT
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<PAGE>
WITH COPIES TO:
Thacher Proffitt & Wood
2 World Trade Center
38th Floor
New York, New York 10048
Attention: DOUGLAS J. MCCLINTOCK, ESQ.
If to the Trustee:
Marine Midland Bank
250 Park Avenue
New York, New York 10177
Attention: MR. RICHARD A. GLOVER
WITH COPIES TO:
Helm, Shapiro, Anito & McCale, P.C.
20 Corporate Woods Boulevard
Albany, New York 12211
Attention: BRIAN P. GOLDSTEIN, ESQ.
SECTION 10.4 SEVERABILITY.
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the remaining
provisions.
SECTION 10.5 WAIVER.
Failure of any party to insist at any time or times upon
strict compliance with any provision of this Agreement shall not be a waiver of
such provision at such time or any later time unless in a writing designated as
a waiver and signed by or on behalf of the party against whom enforcement of the
waiver is sought.
SECTION 10.6 NON-ALIENATION.
No interest, right or claim in or to any part of the Trust
Fund or any payment therefrom shall be assignable, transferable or subject to
sale, mortgage, pledge, hypothecation, commutation, anticipation, garnishment,
attachment, execution, or levy of any kind, and the Trustee and the Plan
Administrator shall not recognize any attempt to assign, transfer, sell,
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<PAGE>
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law.
SECTION 10.7 QUALIFIED PLAN AND TRUST.
This Agreement and the trust hereby created are part of an
employee benefit plan which the Company intends shall be qualified under section
401(a) of the Code and until advised to the contrary, the Trustee may assume
that the Plan so qualifies and that the trust is exempt from tax under section
501(a) of the Code. However, any taxes that may be assessed on or in respect of
the Trust Fund shall be a charge against the Trust Fund. All contributions made
prior to the receipt by the Company of a determination from the Internal Revenue
Service to the effect that the trust forming part of the Plan is a qualified
trust under section 401(a) of the Code and that the trust is exempt from federal
income tax under section 501(a) of the Code shall be made on the express
condition that such a determination is received, and in the event that the
Internal Revenue Service determines that the trust and Plan are not so
qualified, all contributions made prior to the date of the receipt of such
determination, after giving effect to any income, gain or loss, less any
compensation and expenses properly chargeable thereto, shall be returned to the
Company.
SECTION 10.8 RETURN OF CONTRIBUTIONS.
(a) In the event that any contribution to the Trust Fund by
the Company shall be the result of a mistake of fact, such contribution (after
giving effect to any income gain or loss, less any compensation or expenses
properly chargeable thereto) shall be returned to the Company promptly upon
discovery of the mistake of fact; PROVIDED, HOWEVER, that no such return shall
be made after the first anniversary of the date of the contribution.
(b) In the event that a contribution to the Trust Fund by the
Company shall be conditioned upon its deductibility under the Code, the amount
of such contribution which shall have been disallowed as a deduction shall be
returned to the Company within one (1) year after the date on which it is
disallowed.
SECTION 10.9 COMPLIANCE WITH SECURITIES LAWS.
In the event that the Plan or any portion thereof, or any
interest therein, by virtue of investments made in Shares, shall be deemed to be
a "security" for purposes of the Securities Act of 1933, the Securities Exchange
Act of 1934 or any other federal or state law, for which there is no exemption
from the registration, reporting, blue sky or other requirements applicable to
securities under such laws, the Company shall, at its sole cost and expense,
take all such actions as are necessary or appropriate to comply with the
requirements of such laws. The Company hereby agrees to indemnify the Trustee
and hold it harmless from and against any claim or liability which may be
asserted against the Trustee by reason of any determination that the Plan or any
portion thereof, or any interest therein, constitutes such a security.
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<PAGE>
SECTION 10.10 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 10.11 PARTY IN INTEREST INFORMATION.
The Company shall provide the Trustee with such information
concerning the relationship between any person or organization and the Plan as
the Trustee reasonably requests in order to determine whether such person or
organization is a party in interest with respect to the Plan within the meaning
of Section 3(14) of ERISA.
SECTION 10.12 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in this Agreement, 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 shall be deemed equally to
refer to the female gender or the neuter. Any reference to a section number
shall refer to a section of this Agreement, unless otherwise indicated.
SECTION 10.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Company and the Trustee, respectively,
have caused this Agreement to be executed in their corporate names and their
corporate seals to be hereunto affixed and duly attested, on the dates indicated
below their respective signatures.
WARWICK COMMUNITY BANCORP, INC.
By /s/ Timothy A. Dempsey
---------------------------------------
Timothy A. Dempsey
Title: President and Chief Executive
Officer
Date: December 11, 1997
------------------------------------
ATTEST:
/s/ Nancy L. Sobotor-Littell
- ---------------------------------------
Secretary
[Seal]
MARINE MIDLAND BANK
By /s/ Richard A. Glover
---------------------------------------
Richard A. Glover
Title: Vice President and Trust Officer
Date: December 9, 1997
-------------------------------------
ATTEST:
/s/ Mindy F. Smith
- ---------------------------------------
Secretary
[Seal]
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<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 11th day of December, 1997, before me personally came
TIMOTHY A. DEMPSEY, to me known, who, being by me duly sworn, did depose and say
that he resides at 36 Waterbury Road, Warwick, New York 10990; that he is the
President and Chief Executive Officer of WARWICK COMMUNITY BANCORP, INC., the
business corporation described in and which executed the foregoing instrument;
that he knows the seal of said business corporation; that the seal affixed to
said instrument is such business corporation's seal; that it was so affixed by
order of the Board of Directors of said business corporation; and that he signed
his name thereto by like order.
/s/ Barbara Destafeno
---------------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 9th day of December, 1997, before me personally came
RICHARD A. GLOVER, to me known, who, being by me duly sworn, did depose and say
that he resides at 5 Windward Court, Dix Hills, New York, that he is Vice
President and Trust Officer of MARINE MIDLAND BANK, the banking corporation
described in and which executed the foregoing instru ment; that he knows the
seal of said banking 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
banking corporation; and that he signed his name thereto by like order.
/s/ Mindy F. Smith
---------------------------------------
Notary Public
-24-
Exhibit 10.14
-------------
LOAN AGREEMENT
BY AND BETWEEN
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
WARWICK COMMUNITY BANCORP, INC.
MADE AND ENTERED INTO AS OF
DECEMBER 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.1 BUSINESS DAY..............................................1
SECTION 1.2 CODE......................................................1
SECTION 1.3 DEFAULT...................................................2
SECTION 1.4 ERISA.....................................................2
SECTION 1.5 EVENT OF DEFAULT..........................................2
SECTION 1.6 INDEPENDENT COUNSEL.......................................2
SECTION 1.7 LOAN......................................................2
SECTION 1.8 LOAN DOCUMENTS............................................2
SECTION 1.9 PLAN YEAR.................................................2
SECTION 1.10 PLEDGE AGREEMENT..........................................2
SECTION 1.11 PRINCIPAL AMOUNT..........................................2
SECTION 1.12 PROMISSORY NOTE...........................................2
SECTION 1.13 REGISTER..................................................2
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT................................2
SECTION 2.2 INTEREST..................................................3
SECTION 2.3 PROMISSORY NOTE...........................................4
SECTION 2.4 PAYMENT OF TRUST LOAN.....................................4
SECTION 2.5 PREPAYMENT................................................5
SECTION 2.6 METHOD OF PAYMENTS........................................5
SECTION 2.7 USE OF PROCEEDS OF LOAN...................................6
SECTION 2.8 SECURITY..................................................6
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE.......................7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 3.1 POWER, AUTHORITY, CONSENTS................................7
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY...................7
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS.............................7
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS.........................8
SECTION 3.5 PURCHASES OF COMMON STOCK.................................8
(i)
<PAGE>
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
SECTION 4.1 POWER, AUTHORITY, CONSENTS................................8
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY...................9
SECTION 4.3 ESOP; CONTRIBUTIONS.......................................9
SECTION 4.4 TRUSTEE; COMMITTEE........................................9
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS.............................9
SECTION 4.6 EXEMPT LOAN RULES.........................................9
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT...................10
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT....................10
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER...............................11
SECTION 6.2 PAYMENTS.................................................11
SECTION 6.3 SURVIVAL.................................................11
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE AGREEMENT....11
SECTION 6.5 REMEDIES CUMULATIVE......................................12
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS............12
SECTION 6.7 NOTICES..................................................12
SECTION 6.8 COUNTERPARTS.............................................13
SECTION 6.9 CONSTRUCTION; GOVERNING LAW..............................14
SECTION 6.10 SEVERABILITY.............................................14
SECTION 6.11 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION..............14
EXHIBIT A FORM OF PROMISSORY NOTE.........................................A-1
EXHIBIT B FORM OF PLEDGE AGREEMENT........................................B-1
EXHIBIT C FORM OF ASSIGNMENT..............................................C-1
EXHIBIT D FORM OF IRREVOCABLE PROXY.......................................D-1
(ii)
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT ("Loan Agreement") is made and entered
into as of the 23rd day of December, 1997, by and between the WARWICK COMMUNITY
BANCORP, INC. EMPLOYEE STOCK OWNERSHIP PLAN TRUST ("Borrower"), a trust forming
part of the Warwick Community Bancorp, Inc. Employee Stock Ownership Plan
("ESOP"), acting through and by its Trustee, MARINE MIDLAND BANK ("Trustee"), a
banking corporation organized under the laws of the State of New York and having
an office at 140 Broadway, New York, New York 10005; and WARWICK COMMUNITY
BANCORP, INC. ("Lender"), a corporation organized and existing under the laws of
the state of Delaware, having an office at 18 Oakland Avenue, Warwick, New York
10990-0591.
W I T N E S S E T H :
WHEREAS, in the Combined Certificate of Directions dated as of
December 11, 1997, the Lender, the ESOP Plan Administrator and the ESOP
Committee ("Committee") has certified that the Trustee, as Trustee of the ESOP,
has been directed to acquire, through open market purchases, if necessary,
528,523 shares of common stock of the Lender ("Common Stock"), which is equal to
8% of the shares of Common Stock issued by the Lender in connection with the
conversion of The Warwick Savings Bank ("Conversion"), including the number of
shares to be issued to The Warwick Savings Foundation ("Foundation"), and to
borrow funds from the Lender for the purpose of financing authorized purchases
of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower
for such purpose;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply for purposes of this
Loan Agreement, except to the extent that a different meaning is plainly
indicated by the context:
SECTION 1.1 BUSINESS DAY means any day other than a Saturday,
Sunday or other day on which banks are authorized or required to close under
federal law or the laws of the State of New York.
SECTION 1.2 CODE means the Internal Revenue Code of 1986
(including the cor responding provisions of any succeeding law).
SECTION 1.3 DEFAULT means an event or condition which would
constitute an Event of Default. The determination as to whether an event or
condition would constitute an Event of Default shall be determined without
regard to any applicable requirement of notice or lapse of time.
1
<PAGE>
SECTION 1.4 ERISA means the Employee Retirement Income
Security Act of 1974, as amended (including the corresponding provisions of any
succeeding law).
SECTION 1.5 EVENT OF DEFAULT means an event or condition
described in Article 5.
SECTION 1.6 INDEPENDENT COUNSEL means Thacher Proffitt & Wood
or other counsel mutually satisfactory to both the Lender and the Borrower.
SECTION 1.7 LOAN means the loan described in section 2.1.
SECTION 1.8 LOAN DOCUMENTS means, collectively, this Loan
Agreement, the Promissory Note and the Pledge Agreement and all other documents
now or hereafter executed and delivered in connection with such documents,
including all amendments, modifications and supplements of or to all such
documents.
SECTION 1.9 PLAN YEAR means the calendar year, beginning with
the calendar year ending December 31, 1997.
SECTION 1.10 PLEDGE AGREEMENT means the agreement described in
section 2.8(a).
SECTION 1.11 PRINCIPAL AMOUNT means the face amount of the
Promissory Note, determined as set forth in section 2.1(c).
SECTION 1.12 PROMISSORY NOTE means the promissory note
described in section 2.3.
SECTION 1.13 REGISTER means the register described in section
2.9.
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT.
(a) The Lender hereby agrees to lend to the Borrower such
amounts, and at such times, as shall be determined under this section 2.1;
PROVIDED, HOWEVER, that in no event shall the aggregate amount lent under this
Loan Agreement from time to time exceed an amount sufficient to permit the
Borrower to purchase 528,523 shares of Common Stock, which is equal to 8% of the
number of shares of Common Stock issued by the Lender in the Conversion,
including the number of shares of Common Stock issued to the Foundation.
(b) Subject to the limitations of section 2.1(a), the Borrower
shall determine the amounts borrowed under this Agreement, and the times at
which such borrowings are effected. Each such determination shall be evidenced
in a writing which shall set forth the amount to be borrowed and the date on
which the Lender shall disburse such amount, and such writing shall be
2
<PAGE>
furnished to the Lender by notice from the Borrower. The Lender shall disburse
to the Borrower the amount specified in each such notice on the date specified
therein or, if later, as promptly as practicable following the Lender's receipt
of such notice; PROVIDED, HOWEVER, that the Lender shall have no obligation to
disburse funds pursuant to this Agreement following the occurrence of a Default
or an Event of Default until such time as such Default or Event of Default shall
have been cured.
(c) For all purposes of this Loan Agreement, the Principal
Amount on any date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender
pursuant to section 2.1(b) on or before such date; over
(ii) the aggregate amount of any repayments of such
amounts made before such date.
The Lender shall maintain on the Register a record of, and shall record on the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
SECTION 2.2 INTEREST.
(a) The Borrower shall pay to the Lender interest on the
Principal Amount, for the period commencing on the date of this Loan Agreement
and continuing until the Principal Amount shall be paid in full at the rate of
eight percent (8%) per annum. Interest payable under this Agreement shall be
computed on the basis of a year of 365 days and actual days elapsed (including
the first day but excluding the last) occurring in the period to which the
computation relates.
(b) Except as otherwise provided in this section 2.2(b),
accrued interest on the Principal Amount shall be payable by the Borrower
quarterly in arrears commencing on the last Business Day of the first calendar
quarter to end following the date of this Agreement and continu ing on the last
Business Day of each calendar quarter thereafter and upon the payment or prepay
ment of such Loan. All interest on the Principal Amount shall be paid by the
Borrower in immediately available funds. The Lender shall remit to the Borrower,
at least three (3) Business Days before the end of each calendar quarter, a
statement of the interest payment due under section 2.2(a) for such quarter;
PROVIDED, HOWEVER, that a delay or failure by the Lender in providing the
Borrower with such statement shall not alter the Borrower's obligation to make
such payment.
(c) Anything in this Loan Agreement or the Promissory Note to
the contrary notwithstanding, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the
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laws applicable to the Lender limiting rates of interest which may be charged or
collected by the Lender. Such deferred interest shall not bear interest.
SECTION 2.3 PROMISSORY NOTE.
The Loan shall be evidenced by a Promissory Note of the
Borrower in substantially the form of Exhibit A attached hereto, dated the date
hereof, payable to the order of the Lender in the Principal Amount and otherwise
duly completed.
SECTION 2.4 PAYMENT OF TRUST LOAN.
(a) The Principal Amount of the Loan shall be repaid in annual
installments payable on the last Business Day of each Plan Year ending after the
date of this Agreement. The amount of each such annual installment shall be
equal to a fraction of the Principal Amount on the due date of such installment,
determined in accordance with the following schedule:
INSTALLMENT DUE ON FRACTION OF OUTSTANDING
LAST BUSINESS DAY OF PRINCIPAL AMOUNT
DECEMBER: ----------------
---------
1997 1/10
1998 1/10
1999 1/10
2000 1/10
2001 1/10
2002 1/10
2003 1/10
2004 1/10
2005 1/10
2006 1/10
PROVIDED, HOWEVER, that the Borrower shall not be required to make any payment
of principal due to be made in any Plan Year to the extent that (i) following
such payment, the consolidated return on average assets of Warwick Community
Bancorp. Inc. for such Plan Year, excluding the contribution by Warwick
Community Bancorp, Inc. to the Foundation, would be less than one-half of one
percent (0.5%) or the consolidated return on average equity for such Plan Year,
excluding the contribution by Warwick Community Bancorp, Inc. to the Foundation,
would be less than four percent (4%) or (ii) such payment would not be
deductible for federal income tax purposes for such Plan Year under section 404
of the Code. Notwithstanding anything contained herein to the contrary, a
reduction in regularly scheduled principal payments shall not be permitted
pursuant to the preceding sentence if such reduction would, in the sole
discretion of the Trustee, based on the opinion of its counsel, violate the
exempt loan rules described in section 4.6 hereof.
(b) Any payment not required to made pursuant to the clause
(i) of the proviso in section 2.4(a) shall be deferred to and be payable on the
earlier of the tenth (10th) anniversary of the loan origination date or the last
day of the first Plan Year in which such proviso would not
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apply to alleviate a requirement of payment; and payment not required to be made
pursuant to clause (ii) of section 2.4(a) shall be deferred to and be payable on
the last day of the first Plan Year in which such payment may be made on a tax
deductible basis.
SECTION 2.5 PREPAYMENT.
The Borrower shall be entitled to prepay the Loan in whole or
in part, at any time and from time to time; PROVIDED, HOWEVER, that the Borrower
shall give notice to the Lender of any such prepayment; and provided, further,
that any partial prepayment of the Loan shall be in an amount not less than TEN
THOUSAND DOLLARS ($10,000.00). Any such prepayment shall be: (a) permanent and
irrevocable: (b) accompanied by all accrued interest through the date of such
prepayment; (c) made without premium or penalty; and (d) applied in the inverse
order of the maturity of the installments thereof unless the Lender and the
Borrower agree to apply such prepayments in some other order.
SECTION 2.6 METHOD OF PAYMENTS.
(a) All payments of principal, interest, other charges
(including indemnities) and other amounts payable by the Borrower hereunder
shall be made in lawful money of the United States, in immediately available
funds, to the Lender at the address specified in or pursuant to this Loan
Agreement for notices to the Lender, not later than 3:00 P.M., New York time, on
the date on which such payment shall become due. Any such payment made on such
date but after such time shall, if the amount paid bears interest, and except as
expressly provided to the contrary herein, be deemed to have been made on, and
interest shall continue to accrue and be payable thereon until, the next
succeeding Business Day. If any payment of principal or interest becomes due on
a day other than a Business Day, such payment may be made on the next succeeding
Business Day, and when paid, such payment shall include interest to the day on
which such payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this
Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee
shall be obligated to make any payment, repayment or prepayment on the
Promissory Note or take or refrain from taking any other action hereunder or
under the Promissory Note if doing so would cause the ESOP to cease to be an
employee stock ownership plan within the meaning of section 4975(e)(7) of the
Code or qualified under section 401(a) of the Code or cause the Borrower to
cease to be a tax exempt trust under section 501(a) of the Code or if such act
or failure to act would cause the Borrower or the Trustee to engage in any
"prohibited transaction" as such term is defined in section 4975(c) of the Code
and the regulations promulgated thereunder which is not exempted by section
4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in
section 406 of ERISA and the regulations promulgated thereunder which is not
exempted by section 408(b) of ERISA and the regulations promulgated thereunder;
PROVIDED, HOWEVER, that in each case, the Borrower or the Trustee or both, as
the case may be, may act or refrain from acting pursuant to this section 2.6(b)
on the basis of an opinion of Independent Counsel. The Borrower and the Trustee
may consult with Independent Counsel, and any opinion of such Independent
Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith and in
accordance with such opinion of Independent Counsel. Nothing contained in this
section 2.6(b) shall be construed as imposing a duty on either the Borrower or
the Trustee to
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consult with Independent Counsel. Any obligation of the Borrower or the Trustee
to make any payment, repayment or prepayment on the Promissory Note or to take
or refrain from taking any other act hereunder or under the Promissory Note
which is excused pursuant to this section 2.6(b) shall be considered a binding
obligation of the Borrower or the Trustee, or both, as the case may be, for the
purposes of determining whether a Default or Event of Default has occurred
hereunder or under the Promissory Note and nothing in this section 2.6(b) shall
be construed as providing a defense to any remedies otherwise available upon a
Default or an Event of Default hereunder (other than the remedy of specific
performance).
SECTION 2.7 USE OF PROCEEDS OF LOAN.
The entire proceeds of the Loan shall be used solely for
acquiring shares of Common Stock, and for no other purpose whatsoever.
SECTION 2.8 SECURITY.
(a) In order to secure the due payment and performance by the
Borrower of all of its obligations under this Loan Agreement, simultaneously
with the execution and delivery of this Loan Agreement by the Borrower, the
Borrower shall:
(i) pledge to the Lender as Collateral (as defined in the
Pledge Agreement), and grant to the Lender a first priority lien on and
security interest in, the Common Stock purchased with the Principal
Amount, by the execution and delivery to the Lender of a Pledge
Agreement in the form attached hereto as Exhibit B; and
(ii) execute and deliver, or cause to be executed and
delivered, such other agreements, instruments and documents as the
Lender may reasonably require in order to effect the purposes of the
Pledge Agreement and this Loan Agreement.
(b) The Lender shall release from encumbrance under the Pledge
Agreement and transfer to the Borrower, as of the date on which any payment or
prepayment of the Principal Amount is made, a number of shares of Common Stock
held as Collateral pursuant to section 6.4 of the ESOP.
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE.
(a) The Lender shall maintain a Register providing for the
registration of the Principal Amount and any stated interest and of transfer and
exchange of the Promissory Note. Transfer of the Promissory Note may be effected
only by the surrender of the old instrument and either the reissuance by the
Borrower of the old instrument to the new holder or the issuance by the Borrower
of a new instrument to the new holder. The old Promissory Note so surrendered
shall be cancelled by the Lender and returned to the Borrower after such
cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a)
shall carry the same rights to interest (unpaid and to accrue) carried by the
Promissory Note so transferred or ex changed so that there will not be any loss
or gain of interest on the note surrendered. Such new
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Promissory Note shall be subject to all of the provisions and entitled to all of
the benefits of this Agreement. Prior to due presentment for registration or
transfer, the Borrower may deem and treat the registered holder of any
Promissory Note as the holder thereof for purposes of payment and all other
purposes. A notation shall be made on each new Promissory Note of the amount of
all payments of principal and interest theretofore paid.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as
follows:
SECTION 3.1 POWER, AUTHORITY, CONSENTS.
The Borrower has the power to execute, deliver and perform
this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which
have been duly authorized by all necessary and proper corporate or other action.
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
Each of the Loan Documents, including, without limitation,
this Loan Agreement, the Promissory Note and the Pledge Agreement, have been
duly executed and delivered by the Borrower; and each constitutes the valid and
legally binding obligation of the Borrower, enforceable in accordance with its
terms.
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS.
The liens which have been created and granted by the Pledge
Agreement constitute valid, first liens on the properties and assets covered by
the Pledge Agreement, subject to no prior or equal lien.
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS.
The Borrower is not, to the actual knowledge of the Trustee,
in default in any material respect under any agreement, ordinance, resolution,
decree, bond, note, indenture, order or judgment to which it is a party or by
which it is bound, or any other agreement or other instrument by which any of
the properties or assets owned by it is materially affected.
SECTION 3.5 PURCHASES OF COMMON STOCK.
Upon consummation of any purchase of Common Stock by the
Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal
and marketable title to all of the Common Stock so purchased, free and clear of
any liens, other than a pledge to the Lender of the Common Stock so purchased
pursuant to the Pledge Agreement. To the actual knowledge of the
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Trustee, (a) neither the execution and delivery of the Loan Documents nor the
performance of any obligation thereunder violates any provision of law or
conflicts with or results in a breach of or creates (with or without the giving
of notice or lapse of time, or both) a default under any agreement to which the
Borrower is a party or by which it is bound or any of its properties is
affected, and (b) no consent of any federal, state or local governmental
authority, agency or other regulatory body, the absence of which could have a
materially adverse effect on the Borrower or the Trustee, is or was required to
be obtained in connection with the execution, delivery or performance of the
Loan Documents and the transactions contemplated therein or in connection
therewith, including, without limitation, with respect to the transfer of the
shares of Common Stock purchased with the proceeds of the Loan pursuant thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender hereby represents and warrants to the Borrower as
follows:
SECTION 4.1 POWER, AUTHORITY, CONSENTS.
The Lender has the power to execute, deliver and perform this
Loan Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Loan Agreement and the Pledge Agreement have been duly
executed and delivered by the Lender; and each constitutes a valid and legally
binding obligation of the Lender, enforceable in accordance with its terms.
SECTION 4.3 ESOP; CONTRIBUTIONS.
The ESOP and the Borrower have been duly created, organized
and maintained by the Lender in compliance with all applicable laws, regulations
and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined
in section 4975(e)(7) the Code. The ESOP provides that the Lender may make
contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note and this
Loan Agreement, and the Lender will make such contributions; PROVIDED, HOWEVER,
that no such contributions shall be required if they would adversely affect the
qualification of the ESOP under section 401(a) of the Code.
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SECTION 4.4 TRUSTEE; COMMITTEE.
The Lender has taken such action as is required to be taken by
it to duly appoint the Trustee and the members of the Committee. The Lender
expressly acknowledges and agrees that this Loan Agreement, the Promissory Note
and the Pledge Agreement are being executed by the Trustee not in its individual
capacity but solely as trustee of and on behalf of the Borrower.
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS.
Neither the execution and delivery by the Lender of this Loan
Agreement or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the Lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Lender is a party or by which the Lender is bound or to
which the Lender is subject, which violation or event of default would have a
material adverse effect on the Lender. There is no action or proceeding pending
or threatened against either of the ESOP or the Borrower before any court or
administrative agency.
SECTION 4.6 EXEMPT LOAN RULES.
The Loan will be an "exempt loan," as that phrase is defined
in Treasury Regulation section 54.4975-7 and Department of Labor Regulation
section 2550.408b-3, and the transactions contemplated by the Loan Documents are
not nonexempt "prohibited transactions" under section 4975 of the Code and
section 406 of ERISA.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT.
Each of the following events shall constitute an "Event of
Default" hereunder:
(a) Failure to make any payment or mandatory prepayment of
principal of the Promissory Note when due, or failure to make any payment of
interest on the Promissory Note not later than five (5) Business Days after the
date when due.
(b) Failure by the Borrower to perform or observe any term,
condition or covenant of this Loan Agreement or of any of the other Loan
Documents, including, without limitation, the Promissory Note and the Pledge
Agreement; PROVIDED, HOWEVER, that such failure is not cured by the Borrower
within five (5) Business Days after notice of such failure is provided to the
Borrower by the Lender.
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(c) Any representation or warranty made in writing to the
Lender in any of the Loan Documents or any certificate, statement or report made
or delivered in compliance with this Loan Agreement, shall have been false or
misleading in any material respect when made or delivered.
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT.
If an Event of Default under this Loan Agreement shall occur
and be continuing, the Lender shall have no rights to assets of the Borrower
other than: (a) contributions (other than contributions of Common Stock) that
are made by the Lender to enable the Borrower to meet its obligations pursuant
to this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); PROVIDED, HOWEVER, that: (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment schedule of the Loan; and (iii) all rights of the Lender to the
Common Stock purchased with the proceeds of the Loan covered by the Pledge
Agreement following an Event of Default shall be governed by the terms of the
Pledge Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER.
If any amount is payable by the Borrower to the Lender
pursuant to any indemnity obligation contained herein, then the Borrower shall
pay, at the time or times provided therefor, any such amount and shall indemnify
the Lender against and hold it harmless from any loss or damage resulting from
or arising out of the nonpayment or delay in payment of any such amount. If any
amounts as to which the Borrower has so indemnified the Lender hereunder shall
be assessed or levied against the Lender, the Lender may notify the Borrower and
make immediate payment thereof, together with interest or penalties in
connection therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrower, together with interest on
each such amount as provided in section 2.2(c). Notwithstanding any other
provision contained in this Loan Agreement, the covenants and agreements of the
Borrower contained in this section 6.1 shall survive: (a) payment of the
Promissory Note and (b) termination of this Loan Agreement.
SECTION 6.2 PAYMENTS.
All payments hereunder and under the Promissory Note shall be
made without set-off or counterclaim and in such amounts as may be necessary in
order that all such payments
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shall not be less than the amounts otherwise specified to be paid under this
Loan Agreement and the Promissory Note, subject to any applicable tax
withholding requirements. Upon payment in full of the Promissory Note, the
Lender shall mark such Promissory Note "Paid" and return it to the Borrower.
SECTION 6.3 SURVIVAL.
All agreements, representations and warranties made herein
shall survive the delivery of this Loan Agreement and the Promissory Note.
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE
AGREEMENT.
No modification, amendment or waiver of or with respect to any
provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or
any of the other Loan Documents, nor consent to any departure from any of the
terms or conditions thereof, shall in any event be effective unless it shall be
in writing and signed by the party against whom enforcement thereof is sought.
Any such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No consent to or demand on a party in any case
shall, of itself, entitle it to any other or further notice or demand in similar
or other circumstances. This Loan Agreement embodies the entire agreement and
understanding between the Lender and the Borrower and supersedes all prior
agreements and understandings relating to the subject matter hereof.
SECTION 6.5 REMEDIES CUMULATIVE.
Each and every right granted to the Lender hereunder or under
any other document delivered hereunder or in connection herewith, or allowed it
by law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Lender or the holder of the Promissory Note to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise of any right preclude any
other or future exercise thereof or the exercise of any other right. The due
payment and performance of the obligations under the Loan Documents shall be
without regard to any counterclaim, right of offset or any other claim
whatsoever which the Borrower may have against the Lender and without regard to
any other obligation of any nature whatsoever which the Lender may have to the
Borrower, and no such counterclaim or offset shall be asserted by the Borrower
in any action, suit or proceeding instituted by the Lender for payment or
performance of such obligations.
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH
COVENANTS.
At any time and from time to time, upon the request of the
Lender, the Borrower shall execute, deliver and acknowledge or cause to be
executed, delivered and acknowledged, such further documents and instruments and
do such other acts and things as the Lender may reasonably request in order to
fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
SECTION 6.7 NOTICES.
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Except as otherwise specifically provided for herein, all
notices, requests, reports and other communications pursuant to this Loan
Agreement shall be in writing, either by letter (delivered by hand or commercial
messenger service or sent by registered or certified mail, return receipt
requested, except for routine reports delivered in compliance with Article VI
hereof which may be sent by ordinary first-class mail) or telex or facsimile,
addressed as follows:
(a) If to the Borrower:
Warwick Community Bancorp, Inc.
Employee Stock Ownership Plan Trust
c/o The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: Mr. Timothy A. Dempsey
President and Chief Executive
Officer
with copies to:
Marine Midland Bank
140 Broadway
New York, New York 10005
Attention: Mr. Richard A. Glover
Vice President
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Douglas J. Mcclintock, Esq.
Helm, Shapiro, Anito & McCale, P.C.
20 Corporate Woods Boulevard
Albany, New York 12211-2350
Attention: Brian P. Goldstein, Esq.
(b) If to the Lender:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: Mr. Timothy A. Dempsey
President And Chief
Executive Officer
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with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Douglas J. McClintock, Esq.
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or facsimile, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; PROVIDED, HOWEVER, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
SECTION 6.8 COUNTERPARTS.
This Loan Agreement may be signed in any number of
counterparts which, when taken together, shall constitute one and the same
document.
SECTION 6.9 CONSTRUCTION; GOVERNING LAW.
The headings used in the table of contents and in this Loan
Agreement are for convenience only and shall not be deemed to constitute a part
hereof. All uses herein of any gender or of singular or plural terms shall be
deemed to include uses of the other genders or plural or singular terms, as the
context may require. All references in this Loan Agreement to an Article or
section shall be to an Article or section of this Loan Agreement, unless
otherwise specified. This Loan Agreement, the Promissory Note, the Pledge
Agreement and the other Loan Documents shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
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SECTION 6.10 SEVERABILITY.
Wherever possible, each provision of this Loan Agreement shall
be interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Loan Agreement in any jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement is
independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any
action the effect of which shall constitute a breach or violation of any
provision of this Loan Agreement.
SECTION 6.11 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION.
This Loan Agreement shall be binding upon and inure to the
benefit of the Borrower and its successors and the Lender and its successors and
assigns. The rights and obligations of the Borrower under this Agreement shall
not be assigned or delegated without the prior written consent of the Lender,
and any purported assignment or delegation without such consent shall be void.
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed as of the date first above written.
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: MARINE MIDLAND BANK, AS TRUSTEE
BY: /s/ Richard A. Glover
-----------------------------------
TITLE: Vice President
---------------------------------
WARWICK COMMUNITY BANCORP, INC.
BY: /s/ Timothy A. Dempsey
-----------------------------------
Timothy A. Dempsey
President and Chief Executive
Officer
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EXHIBIT A
TO LOAN AGREEMENT
BY AND BETWEEN
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
WARWICK COMMUNITY BANCORP, INC.
FORM OF PROMISSORY NOTE
For the "Principal Amount," Warwick, New York
as defined below December 23, 1997
FOR VALUE RECEIVED, the undersigned, Warwick Community
Bancorp, Inc. Employee Stock Ownership Plan Trust ("Borrower"), acting by and
through its Trustee, Marine Midland Bank ("Trustee"), hereby promises to pay to
the order of Warwick Community Bancorp, Inc. ("Lender") the "Principal Amount,"
as determined under the Loan Agreement made and entered into between the
Borrower and the Lender as of December 23, 1997 ("Loan Agreement") pursuant to
which this Promissory Note is issued, payable in ten equal annual installments,
commencing on the last Business Day of December, 1997 and continuing on the last
Business Day of December of each subsequent calendar year until the last
Business Day of December, 2006, at which time the entire Principal Amount then
outstanding and all accrued interest shall become due and payable; PROVIDED,
HOWEVER, that the Borrower shall not be required to make any payment of
principal due to be made in any Plan Year to the extent that (i) following such
payment, the consolidated return on average assets of Warwick Community Bancorp,
Inc. for such Plan Year, excluding the contribution by Warwick Community
Bancorp, Inc. to The Warwick Savings Foundation ("Foundation"), would be less
than one-half of one percent (0.5%) or the consolidated return on average equity
for such Plan Year, excluding the contribution by Warwick Community Bancorp,
Inc. to the Foundation, would be less than four percent (4%) or (ii) such
payment would not be deductible for federal income tax purposes for such Plan
Year under section 404 of the Code. Any payment not required to be made pursuant
to the clause (i) of the above provision shall be deferred to and be payable on
the earlier of the tenth (10th) anniversary of the loan origination date or the
last day of the first Plan Year in which such proviso would not apply to
alleviate a requirement of payment; and payment not required to be made pursuant
to clause (ii) of the above proviso shall be deferred to and be payable on the
last day of the first Plan Year in which such payment may be made on a tax
deductible basis.
This Promissory Note shall bear interest at the rate per annum
set forth or established under the Loan Agreement, such interest to be payable
quarterly in arrears, commenc ing on December 31, 1997 and thereafter on the
last Business Day of each calendar quarter and upon payment or prepayment of
this Promissory Note.
<PAGE>
A-2
Anything herein to the contrary notwithstanding, the
obligation of the Borrower to make payments of interest shall be subject to the
limitation that payments of interest shall not be required to be made to the
Lender to the extent that the Lender's receipt thereof would not be permissible
under the law or laws applicable to the Lender limiting rates of interest which
may be charged or collected by the Lender. Any such payments of interest which
are not made as a result of the limitation referred to in the preceding sentence
shall be made by the Borrower to the Lender on the earliest interest payment
date or dates on which the receipt thereof would be permissible under the laws
applicable to the Lender limiting rates of interest which may be charged or
collected by the Lender. Such deferred interest shall not bear interest.
Payments of both principal and interest on this Promissory
Note are to be made at the principal office of the Lender at 18 Oakland Avenue,
Warwick, New York 10990-0591 or such other place as the holder hereof shall
designate to the Borrower in writing, in lawful money of the United States of
America in immediately available funds.
Failure to make any payment of principal on this Promissory
Note when due, or failure to make any payment of interest on this Promissory
Note not later than five (5) Business Days after the date when due, shall
constitute a default hereunder, whereupon the principal amount of and accrued
interest on this Promissory Note shall immediately become due and payable in
accordance with the terms of the Loan Agreement.
This Promissory Note is subject, in all respects, to the terms
and provisions of the Loan Agreement, which is incorporated herein by this
reference, and is secured by a Pledge Agreement between the Borrower and the
Lender of even date herewith and is entitled to the benefits thereof.
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: MARINE MIDLAND BANK, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
BY:
---------------------------------
TITLE:
------------------------------
<PAGE>
EXHIBIT B
TO LOAN AGREEMENT
BY AND BETWEEN
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
WARWICK COMMUNITY BANCORP, INC.
FORM OF PLEDGE AGREEMENT
This PLEDGE AGREEMENT ("Pledge Agreement") is made as of the
23rd day of December, 1997, by and between the WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST, acting by and through its Trustee, MARINE
MIDLAND BANK, a banking corporation organized under the laws of the State of New
York and having office at 140 Broadway, New York, New York 10005 ("Pledgor"),
and WARWICK COMMUNITY BANCORP, INC., corporation organized and existing under
the laws of the State of New York, having an office at 18 Oakland Avenue,
Warwick, New York 10990-0591 ("Pledgee").
W I T N E S S E T H :
WHEREAS, this Pledge Agreement is being executed and delivered
to the Pledgee pursuant to the terms of a Loan Agreement of even date herewith
("Loan Agreement"), by and between the Pledgor and the Pledgee;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and in the Loan Agreement, the parties hereto do hereby
covenant and agree as follows:
SECTION 1. DEFINITIONS. The following definitions shall apply
for purposes of this Pledge Agreement, except to the extent that a different
meaning is plainly indicated by the context; all capitalized terms used but not
defined herein shall have the respective meanings assigned to them in the Loan
Agreement:
(a) COLLATERAL shall mean the Pledged Shares and, subject to
section 5 hereof, and to the extent permitted by applicable law, all
rights with respect thereto, and all proceeds of such Pledged Shares
and rights.
(b) EVENT OF DEFAULT shall mean an event so defined in the
Loan Agreement.
(c) LIABILITIES shall mean all the obligations of the Pledgor
to the Pledgee, howsoever created, arising or evidenced, whether direct
or indirect, absolute or contingent, now or hereafter existing, or due
or to become due, under the Loan Agreement and the Promissory Note.
<PAGE>
B-2
(d) PLEDGED SHARES shall mean all the shares of Common Stock
of Warwick Community Bancorp, Inc. purchased by the Pledgor with the
proceeds of the loan made by the Pledgee to the Pledgor pursuant to the
Loan Agreement, but excluding any such shares previously released
pursuant to section 4.
SECTION 2. PLEDGE. To secure the payment of and performance
of all the Liabilities, the Pledgor hereby pledges to the Pledgee, and grants to
the Pledgee a security interest in and lien upon, the Collateral.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. The
Pledgor represents, warrants, and covenants to the Pledgee as follows:
(a) the execution, delivery and performance of this Pledge
Agreement and the pledging of the Collateral hereunder do not and will
not conflict with, result in a violation of, or constitute a default
under any agreement binding upon the Pledgor;
(b) the Pledged Shares are and will continue to be owned by
the Pledgor free and clear of any liens or rights of any other person
except the lien hereunder and under the Loan Agreement in favor of the
Pledgee, and the security interest of the Pledgee in the Pledged Shares
and the proceeds thereof is and will continue to be prior to and senior
to the rights of all others;
(c) this Pledge Agreement is the legal, valid, binding and
enforceable obligation of the Pledgor in accordance with its terms;
(d) the Pledgor shall, from time to time, upon request of the
Pledgee, promptly deliver to the Pledgee such stock powers, proxies,
and similar documents, satisfactory in form and substance to the
Pledgee, with respect to the Collateral as the Pledgee may reasonably
request; and
(e) subject to the first sentence of section 4(b), the Pledgor
shall not, so long as any Liabilities are outstanding, sell, assign,
exchange, pledge or otherwise transfer or encumber any of its rights in
and to any of the Collateral.
SECTION 4. ELIGIBLE COLLATERAL.
(a) As used herein the term "Eligible Collateral" shall mean
that amount of Collateral which has an aggregate fair market value equal to the
amount by which the Pledgor is in default (without regard to any amounts owing
solely as the result of an acceleration of the Loan Agreement) or such lesser
amount of Collateral as may be required pursuant to section 2 of this Pledge
Agreement.
(b) The Pledged Shares shall be released from this Pledge
Agreement in a manner conforming to the requirements of Treasury Regulations
Section 54.4975-7(b)(8), as the same may be from time to time amended or
supplemented, and section 6.4(a) of the ESOP. Subject to such Regulations, the
Pledgee may from time to time, after any Default or Event of Default, and
without prior notice to the Pledgor, transfer all or any part of the Eligible
Collateral
<PAGE>
B-3
into the name of the Pledgee or its nominee, with or without disclosing that
such Eligible Collateral is subject to any rights of the Pledgor and may from
time to time, whether before or after any of the Liabilities shall become due
and payable, without notice to the Pledgor, take all or any of the following
actions: (i) notify the parties obligated on any of the Eligible Collateral to
make payment to the Pledgee of any amounts due or to become due thereunder, (ii)
release or exchange all or any part of the Eligible Collateral, or compromise or
extend or renew for any period (whether or not longer than the original period)
any obligations of any nature of any party with respect thereto, and (iii) take
control of any proceeds of the Eligible Collateral.
SECTION 5. DELIVERY.
(a) The Pledgor shall deliver to the Pledgee upon execution of
this Pledge Agreement (i) an assignment by the Pledgor of all the Pledgor's
rights to and interest in the Pledged Shares and (ii) an irrevocable proxy, in
form and substance satisfactory to the Pledgee, signed by the Pledgor with
respect to the Pledged Shares.
(b) So long as no Default or Event of Default shall have
occurred and be continu ing, (i) the Pledgor shall be entitled to exercise any
and all voting and other rights pertaining to the Collateral or any part thereof
for any purpose not inconsistent with the terms of this Pledge Agreement, and
(ii) the Pledgor shall be entitled to receive any and all cash dividends or
other distributions paid in respect of the Collateral.
SECTION 6. EVENTS OF DEFAULT.
(a) If a Default or an Event of Default shall be existing, in
addition to the rights it may have under the Loan Agreement, the Promissory Note
and this Pledge Agreement, or by virtue of any other instrument, (i) the Pledgee
may exercise, with respect to the Eligible Col lateral, from time to time any
rights and remedies available to it under the Uniform Commercial Code as in
effect from time to time in the State of New York or otherwise available to it
and (ii) the Pledgee shall have the right, for and in the name, place and stead
of the Pledgor, to execute endorsements, assignments, stock powers and other
instruments of conveyance or transfer with respect to all or any of the Eligible
Collateral. Written notification of intended disposition of any of the Eligible
Collateral shall be given by the Pledgee to the Pledgor at least three (3)
Business Days before such disposition. Subject to section 13 below, any proceeds
of any disposition of Eligible Collateral may be applied by the Pledgee to the
payment of expenses in connection with the Eligible Collateral, including,
without limitation, reasonable attorneys' fees and legal expen ses, and any
balance of such proceeds may be applied by the Pledgee toward the payment of
such of the Liabilities as are in Default, and in such order of application, as
the Pledgee may from time to time elect. No action of the Pledgee permitted
hereunder shall impair or affect its rights in and to the Eligible Collateral.
All rights and remedies of the Pledgee expressed hereunder are in addition to
all other rights and remedies possessed by it, including, without limitation,
those contained in the documents referred to in the definition of Liabilities in
section 1 hereof.
(b) In any sale of any of the Eligible Collateral after a
Default or an Event of Default shall have occurred, the Pledgee is hereby
authorized to comply with any limitation or restriction in connection with such
sale as it may be advised by counsel is necessary in order to avoid any
violation of applicable law (including, without limitation, compliance with such
<PAGE>
B-4
procedures as may restrict the number of prospective bidders and purchasers or
further restrict such prospective bidders or purchasers to persons who will
represent and agree that they are purchasing for their own account for
investment and not with a view to the distribution or resale of such Eligible
Collateral), or in order to obtain such required approval of the sale or of the
purchase by any governmental regulatory authority or official, and the Pledgor
further agrees that such compliance shall not result in such sale's being
considered or deemed not to have been made in a commercially reasonable manner,
nor shall the Pledgee be liable or accountable to the Pledgor for any discount
allowed by reason of the fact that such Eligible Collateral is sold in
compliance with any such limitation or restriction.
SECTION 7. PAYMENT IN FULL. Upon the payment in full of all
outstanding Liabili ties, this Pledge Agreement shall terminate and the Pledgee
shall forthwith assign, transfer and deliver to the Pledgor, against receipt and
without recourse to the Pledgee, all Collateral then held by the Pledgee
pursuant to this Pledge Agreement.
SECTION 8. NO WAIVER. No failure or delay on the part of the
Pledgee in exercising any right or remedy hereunder or under any other document
which confers or grants any rights in the Pledgee in respect of the Liabilities
shall operate as a waiver thereof nor shall any single or partial exercise of
any such right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy of the Pledgee.
SECTION 9. BINDING EFFECT; NO ASSIGNMENT OR DELEGATION. This
Pledge Agreement shall be binding upon and inure to the benefit of the Pledgor,
the Pledgee and their respective suc cessors and assigns, except that the
Pledgor may not assign or transfer its rights hereunder without the prior
written consent of the Pledgee (which consent shall not unreasonably be
withheld). Each duty or obligation of the Pledgor to the Pledgee pursuant to the
provisions of this Pledge Agreement shall be performed in favor of any person or
entity designated by the Pledgee, and any duty or obligation of the Pledgee to
the Pledgor may be performed by any other person or entity designated by the
Pledgee.
SECTION 10. GOVERNING LAW. Except to the extent preempted by
federal law, this Pledge Agreement shall be governed by and construed in
accordance with the laws of the State of New York and interpreted without regard
to conflicts of law principles.
SECTION 11. NOTICES. All notices, requests, instructions or
documents hereunder shall be in writing and delivered personally or sent by
United States mail, registered or certified, return receipt requested, with
proper postage prepaid, as follows:
(a) If to the Pledgee:
Warwick Community Bancorp, Inc.
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: Mr. Timothy A. Dempsey
President and Chief Executive
Officer
with a copy to:
<PAGE>
B-5
Thacher Proffitt & Wood
Two World Trade Center, 38th Floor
New York, New York 10048
Attention: Douglas J. Mcclintock, Esq.
(b) If to the Pledgor:
Warwick Community Bancorp, Inc.
Employee Stock Ownership Plan Trust
c/o The Warwick Savings Bank
18 Oakland Avenue
Warwick, New York 10990-0591
Attention: Mr. Timothy A. Dempsey
President and Chief Executive
Officer
with copies to:
Marine Midland Bank
149 Broadway
New York, New York 10005
Attention: Mr. Richard A. Glover
Vice President
Thacher Proffitt & Wood
Two World Trade Center, 38th Floor
New York, New York 10048
Attention: Douglas J. Mcclintock, Esq.
Helm, Shapiro, Anito & McCale, P.C.
20 Corporate Woods Boulevard
Albany, New York 12211-2350
Attention: Brian P. Goldstein, Esq.
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or facsimile, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; PROVIDED, HOWEVER, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
SECTION 12. INTERPRETATION. Wherever possible each provision
of this Pledge Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision hereof shall be prohibited
by or invalid under such law, such provisions shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions hereof.
<PAGE>
B-6
SECTION 13. CONSTRUCTION. All provisions hereof shall be
construed so as to maintain (a) the ESOP as a qualified leveraged employee stock
ownership plan under section 401(a) and 4975(e)(7) of the Internal Revenue Code
of 1986, as amended (the "Code"), (b) the Trust as exempt from taxation under
section 501(a) of the Code and (c) the Trust Loan as an exempt loan under
section 54.4975-7(b) of the Treasury Regulations and as described in Department
of Labor Regulation section 2550.408b-3.
IN WITNESS WHEREOF, this Pledge Agreement has been duly
executed by the parties hereto as of the day and year first above written.
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: MARINE MIDLAND BANK, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
BY:
-----------------------------------
TITLE:
---------------------------------
WARWICK COMMUNITY BANCORP, INC.
BY:
-----------------------------------
TIMOTHY A. DEMPSEY
PRESIDENT AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT C
TO LOAN AGREEMENT
BY AND BETWEEN
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
WARWICK COMMUNITY BANCORP, INC.
FORM OF ASSIGNMENT
In consideration of the loan made by Warwick Community
Bancorp, Inc. ("Lender") to the Warwick Community Bancorp, Inc. Employee Stock
Ownership Plan Trust ("Borrower") pursuant to the Loan Agreement of even date
herewith between the Lender and the Borrower ("Loan Agreement") and pursuant to
the Pledge Agreement between the Lender and the Borrower of even date herewith
pertaining thereto, the undersigned Borrower hereby transfers, assigns and
conveys to Lender, subject to the terms and provisions of the Loan Agreement,
all its right, title and interest in and to those certain shares of common stock
of the Lender which it shall purchase with the proceeds of the loan made
pursuant to the Loan Agreement, and agrees to transfer and endorse to Lender the
certificates representing such shares as and when required pursuant to the Loan
Agreement or Pledge Agreement.
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: MARINE MIDLAND BANK, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
BY:
TITLE:
DECEMBER 23, 1997
<PAGE>
EXHIBIT D
TO LOAN AGREEMENT
BY AND BETWEEN
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
AND
WARWICK COMMUNITY BANCORP, INC.
FORM OF IRREVOCABLE PROXY
In consideration of the loan made by Warwick Community Bancorp, Inc.
("Lender") to the Warwick Community Bancorp, Inc. Employee Stock Ownership Plan
Trust ("Borrower") pursuant to the Loan Agreement of even date herewith between
the Lender and the Borrower ("Loan Agreement") and the Pledge Agreement between
the Lender and the Borrower of even date herewith pertaining thereto, and
subject to the terms and conditions of the Loan Agreement, the undersigned
Borrower hereby appoints the Lender as its proxy, with power of substitution, to
represent and to vote those certain shares of common stock of the Lender which
it shall purchase with the proceeds of the loan made pursuant to the Loan
Agreement. This proxy, when properly executed, shall be irrevocable and shall
give the Lender full power and authority to vote on any and all matters for
which other holders of shares of common stock of the Lender are entitled to
vote.
WARWICK COMMUNITY BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
BY: MARINE MIDLAND BANK, AS TRUSTEE
AND NOT IN ANY OTHER CAPACITY
BY:
----------------------------------
TITLE:
--------------------------------
DECEMBER 23, 1997
EXHIBIT 10.16
-------------
GRANTOR TRUST AGREEMENT
FOR THE BENEFIT RESTORATION PLAN OF
THE WARWICK SAVINGS BANK
THIS AGREEMENT (hereinafter referred to as the "Trust
Agreement"), made as of this 10th day of December 1997, by and between THE
WARWICK SAVINGS BANK, a savings bank organized under the laws of the State of
New York ("Bank") and having its principal offices at 18 Oakland Avenue,
Warwick, New York 10990, and MARINE MIDLAND BANK, a bank organized under the
laws of the State of New York and having an office at 140 Broadway, New York,
New York 10005 ("Trustee"). Any references herein to the "Company" shall mean
WARWICK COMMUNITY BANCORP, INC., the holding company of the Bank.
W I T N E S S E T H:
WHEREAS, the Bank has established the Benefit Restoration Plan
of The Warwick Savings Bank ("Plan") for the benefit of certain management
employees of the Bank and designated affiliates;
WHEREAS, the Trustee is not a party to the Plan and makes no
representations with respect thereto, and all representations and recitals with
respect to the Plan shall be deemed to be those of the Bank;
WHEREAS, the Bank wishes to establish a trust ("Trust") and to
contribute to the Trust assets that shall be held therein, subject to the claims
of the Bank's creditors in the event of the Bank's Insolvency, as herein
defined, until paid to Plan participants and their beneficiaries in such manner
and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that the Trust
shall constitute an unfunded arrangement and shall not affect the status of any
Plan as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of Title I of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"); and
WHEREAS, it is the intention of the Bank to make contributions
to the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plan, provided that the assets of the Trust
shall be subject to the claims of the Bank's creditors in the event of the
Bank's Insolvency, as herein defined, until paid to Plan participants and their
beneficiaries in the time and manner specified in the Plan;
<PAGE>
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
FIRST: ESTABLISHMENT OF THE TRUST.
(a) (i) The Bank hereby deposits with the Trustee in trust
$100.00, which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.
(ii) The Trustee hereby accepts a trust consisting of
the initial deposit referred to in the preceding sentence and such cash or other
property acceptable to the Trustee as shall be paid or delivered to the Trustee
from time to time, together with the earnings, income, additions and
appreciation thereon and thereto (all of which is hereinafter called the
"Fund").
(b) The Trust hereby established shall be irrevocable. The
Bank may, but shall not be required to, apply for a Private Letter Ruling
regarding the status of the Trust as a "grantor trust" under sections 671
through 679 of the Code from the Internal Revenue Service ("IRS") in accordance
with Article FIFTEENTH hereof. In the event the Bank makes such a request, it
shall furnish to the Trustee a copy of such Private Letter Ruling promptly upon
the Bank's receipt thereof.
(c) The Trust is intended to be a grantor trust, of which the
Bank is the grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended ("Code"),
and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of the Bank and shall be used
exclusively for the uses and purposes of Plan participants and general creditors
as herein set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of Plan participants and their beneficiaries
against the Bank. Any assets held by the Trust will be subject to the claims of
the Bank's general creditors under federal and state law in the event of
Insolvency, as defined in Article THIRD herein.
(e) The Bank, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other property in trust with
the Trustee to augment the principal to be held, administered and disposed of by
the Trustee as provided in this Trust Agreement. Neither the Trustee nor any
Plan participant or beneficiary shall have any right to compel such additional
deposits, or any other contribution to the Trust.
-2-
<PAGE>
(f) (i) Upon a Change of Control, the Bank shall, as soon as
possible, but in no event longer than 30 days following the Change of Control,
as defined herein, make an irrevocable contribution to the Trust in an amount
that is sufficient to pay each Plan participant or beneficiary the benefits to
which Plan participants or their beneficiaries would be entitled pursuant to the
terms of the Plan as of the date on which the Change of Control occurred.
(ii) Within 30 days following the end of the Plan
year(s) ending after the Trust has become irrevocable pursuant to subparagraph
(b) of Article FIRST hereof, the Bank shall be required to irrevocably deposit
additional cash or other property to the Trust in an amount sufficient to pay
each Plan participant or beneficiary the benefits payable pursuant to the terms
of the Plan as of the close of the Plan year(s).
(iii) For purposes of this paragraph (f), no
irrevocable contribution shall be required for any Plan year that ended before
the occurrence of a Change in Control, as herein defined. In addition, any
contribution required hereunder shall be deemed sufficient if the aggregate of
such contributions and the other assets of the Fund, determined as of the date
of the contributions, is at least equal to the actuarially determined value of
the aggregate benefits accrued under the Plan, determined as of the same date.
Any actuarial determination required under the preceding sentence shall be made
by the Bank, in its sole discretion.
(iv) The Trustee shall have the right and power, but
shall be under no duty, to determine whether the amount of any contribution is
in accordance with any Plan or to collect or enforce payment of any
contribution. The Trustee shall not be responsible for computing or collecting
any contribution or other amounts due under the Plan or the Trust.
SECOND: PAYMENTS TO PLAN PARTICIPANTS AND THEIR
BENEFICIARIES.
(a) (i) The Bank shall deliver to the Trustee a schedule (the
"Payment Schedule") that indicates the amounts payable in respect of each Plan
participant (and his or her beneficiaries), that provides a formula or other
instructions acceptable to the Trustee for determining the amounts so payable,
the form in which such amount is to be paid (as provided for or available under
the Plan), and the time of commencement for payment of such amounts. Except as
otherwise provided herein, the Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such Payment Schedule.
(ii) The Payment Schedule shall be delivered to the
Trustee following the execution of this Trust Agreement and an updated Payment
Schedule shall be furnished at least annually thereafter. Each such Payment
Schedule shall include, without limitation, (A) the names, addresses, dates of
birth, social security numbers and the amount and form of accrued benefit of
each Plan participant and beneficiary in the Plan; (B) the amount and form of
projected benefits under the Plan of each participant and beneficiary, assuming
such participant would retire or die as of the last day of such calendar year;
(C) a schedule of the estimated yearly cash payments
-3-
<PAGE>
under the Plan; and (D) any other information regarding the Plan which the
Trustee may reasonably request.
(b) (i) To the extent that amounts are paid under this Article
SECOND by the Trustee directly to any Plan participant or beneficiary, such
amounts shall be reduced by the Trustee in an amount equal to the income and
employment tax withholding required by law with respect to such participant or
beneficiary, as determined by the Bank and promptly communicated to the Trustee.
The Trustee shall inform each Plan participant and beneficiary to whom payment
is made of the amount withheld from payment and the purpose for withholding such
amount. Such withheld amounts shall be paid by the Trustee to the Bank, which
shall remit such withheld amounts to, and shall file the appropriate withholding
reports with, the appropriate governmental agencies. In making any determination
whether the Bank has properly determined, reported and/or withheld the
appropriate taxes, the Trustee may rely on a written certification, under
penalties of perjury, signed by the Chief Executive Officer of the Bank or by
another officer of the Bank authorized by the Chief Executive Officer to sign
such certification in his behalf.
(ii) To the extent that amounts are to be paid under
this Article SECOND by the Trustee directly to any Plan participant or
beneficiary and the Bank fails to direct the Trustee with respect to the
appropriate amount to be withheld by the Trustee with respect to the applicable
withholding requirements, the Trustee shall use its best efforts to determine,
in its sole discretion, the appropriate amount of income and employment tax
withholding required by law with respect to the payment to such participant or
beneficiary, and shall reduce any payments by the amount of tax withholding
required. The Trustee shall inform the Bank and each Plan participant or
beneficiary to whom payment is made of the amount withheld and the purpose for
withholding such amount. The amount withheld by the Trustee shall be paid by the
Trustee to the Bank, and the Bank shall remit such withheld amounts to, and
shall file the appropriate withholding reports with, the appropriate
governmental agencies. Provided that the Trustee has withheld the amounts
directed by the Bank or, in the absence of such direction from the Bank, used
its best efforts to determine applicable withholding under this Article, it
shall have no liability for failure to withhold amounts sufficient to meet
applicable requirements, and shall be held harmless by the Bank against such
liability.
(iii) Unless otherwise agreed to by the Trustee, the
Bank shall be responsible for all tax information reporting with respect to
payments made to Plan participants and beneficiaries hereunder.
(c) (i) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan shall be determined by the Bank or such
party as it shall designate under the Plan, and any claim for such benefits
shall be considered and reviewed under the procedures
set out in the Plan.
-4-
<PAGE>
(ii) The Trustee shall have no authority over or
responsibility for the disposition of claims for benefits under the Plan and, in
the absence of an order to the contrary of a court of competent jurisdiction,
may rely conclusively on the most recent Payment Schedule furnished to it by the
Bank in making or refraining from making payments from the Trust to individuals
who are or purport to be Plan participants or their beneficiaries. The Trustee
shall not make payments hereunder to any person until it receives instructions
from the Bank in a form reasonably satisfactory to the Trustee.
(d) (i) The Bank may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan. The Bank shall notify the Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to Plan participants or
their beneficiaries. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of benefits in accordance
with the terms of the Plan, the Bank shall make the balance of each such payment
as it falls due. The Trustee shall notify the Bank where principal and earnings
are not sufficient.
(ii) The Trustee shall have no liability or
responsibility for duplicate payments made prior to its receipt from the Bank of
notice of the Bank's intention to make direct payment.
(e) The Bank may direct that payments be made before they
would otherwise be due if, based on a change in the federal tax or revenue laws,
a published ruling or similar announcement issued by the IRS, a regulation
issued by the Secretary of the Treasury, a decision by a court of competent
jurisdiction involving a Participant or a beneficiary, or a closing agreement
made under section 7121 of the Code that is approved by the IRS and involves a
Participant or a beneficiary, it determines that a Participant or beneficiary
has or will recognize income for federal income tax purposes with respect to
amounts that are or will be payable under the Plan before they are to be paid.
THIRD: TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN BANK IS INSOLVENT.
(a) (i) The Trustee shall cease payment of benefits to Plan
participants and their beneficiaries if the Bank is or becomes Insolvent. The
Bank shall be considered "Insolvent" for purposes of this Trust Agreement if (A)
the Bank is unable to pay its debts as they become due, (B) the Bank is subject
to a pending proceeding as a debtor under the United States Bankruptcy Code or
the equivalent thereof or (C) the Bank is subject to an order or regulation
issued pursuant to section 18(k) of the Federal Deposit Insurance Act, as
amended, prohibiting payments from the Plan.
(ii) For purposes of this Trust Agreement, a condition which
results in the Bank's being Insolvent shall be referred to as the Bank's
"Insolvency."
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(iii) While the Bank is Insolvent, the Trustee shall make
payments from the Trust only to or for the benefit of the Bank's general
creditors and only upon the direction of a court of competent jurisdiction or,
in the event that a trustee, receiver, conservator or other similar official
shall be appointed to oversee the Bank's affairs during a period of Insolvency,
upon the direction of such trustee, receiver, conservator or other similar
official.
(b) At all times during the continuance of this Trust
Agreement, as provided in subparagraph (d) of Article FIRST hereof, the
principal and income of the Trust shall be subject to claims of general
creditors of the Bank under federal and state law as set forth below:
(1) The Board of Directors of the Bank (the "Board")
and the Chief Executive Officer of the Bank shall have the duty to
inform the Trustee in writing of the Bank's Insolvency. If a person
claiming to be a creditor of the Bank alleges in writing to the Trustee
that the Bank has become Insolvent, the Trustee shall determine whether
the Bank is Insolvent and, pending such determination, the Trustee
shall discontinue payment of benefits to Plan participants or their
beneficiaries.
(2) (i) Unless the Trustee has actual knowledge of
the Bank's Insolvency, or has received notice from the Bank or a person
claiming to be a creditor alleging that the Bank is Insolvent, the
Trustee shall have no duty to inquire whether the Bank is Insolvent.
The Trustee may in all events rely on such evidence concerning the
Bank's solvency as may be furnished to the Trustee and that provides
the Trustee with a reasonable basis for making a determination
concerning the Bank's solvency.
(ii) The Trustee shall be deemed to have a
reasonable basis for determining that the Bank is Insolvent if it has
received (A) a certified copy of a bankruptcy or insolvency petition
with respect to the Bank or a general assignment by the Bank for the
benefit of its creditors, (B) a Certificate of Commencement of Case (or
similar document) acknowledging either (I) that a petition for the
commencement of a voluntary or involuntary case pursuant to Titles 7 or
11 of the United States Bankruptcy Code, as amended, was duly filed by
or against the Bank with the United States Bankruptcy Court, or (II)
the taking of possession of the Bank or all or all substantially all of
its assets by a receiver, custodian, trustee or similar official, (C) a
certified copy of an order pursuant to section 18(k) of the Federal
Deposit Insurance Act, as amended, prohibiting payments pursuant to the
Plan ("Regulatory Order"), or (D) a written certification, under
penalties of perjury, signed by the Chief Executive Officer of the Bank
or a majority of the members of the Board that the Bank is Insolvent.
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(3) If at any time the Trustee has determined that
the Bank is Insolvent, the Trustee shall discontinue payments to Plan
participants or their beneficiaries and shall hold the assets of the
Trust for the benefit of the Bank's general creditors. Nothing in this
Trust Agreement shall in any way diminish any rights of Plan
participants or their beneficiaries to pursue their rights as general
creditors of the Bank with respect to benefits due under the Plan or
otherwise.
(4) (i) The Trustee shall resume the payment of
benefits to Plan participants or their beneficiaries in accordance with
Article SECOND of this Trust Agreement only after the Trustee has
determined that the Bank is not Insolvent (or is no longer Insolvent).
(ii) The Trustee shall be deemed to have a
reasonable basis for determining that the Bank is no longer Insolvent
if it has received: (A) a judgment, decree or order of a court of
competent jurisdiction dismissing a case filed with respect to the Bank
under Title 7 or 11 of the United States Bankruptcy Code; or (B) a
judgment, decree or order of a court of competent jurisdiction
overturning a Regulatory Order; or (C) if the Trustee determined the
Bank to be Insolvent based on a certification of the Chief Executive
Officer or the Board, a subsequent written certification, under
penalties of perjury, signed by the Chief Executive Officer of the Bank
or a majority of the members of the Board that the Bank is no longer
Insolvent.
(5) The Board and Chief Executive Officer of the Bank
shall certify to the Trustee, at the Trustee's request, whether the
Bank is Insolvent. Any such certification may be requested by the
Trustee from time to time and at any time, and shall be made promptly
by the Board or Chief Executive Officer under the penalties of perjury.
Any certification received by the Trustee under this subparagraph shall
also be deemed a reasonable basis from the Trustee's determination of
Insolvency under this Article THIRD.
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to subparagraph (b)
of Article THIRD hereof and subsequently resumes such payments, the first
payment following such discontinuance shall include the aggregate amount of all
payments due to Plan participants or their beneficiaries under the terms of the
Plan for the period of such discontinuance, less the aggregate amount of any
payments made to Plan participants or their beneficiaries by the Bank in lieu of
the payments provided for hereunder during any such period of discontinuance.
The Trustee shall have an obligation to offset payments hereunder by direct
payments made to Plan participants and their beneficiaries by the Bank during
the period of discontinuance described in the preceding sentence only to the
extent the Bank directs the Trustee to make such offset.
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FOURTH: PAYMENTS TO THE BANK.
Except as provided in Article THIRD hereof, after the Trust
has become irrevocable, the Bank shall have no right or power to direct the
Trustee to return to the Bank or to divert to others any of the Trust assets
before all payments of benefits have been made to Plan participants and their
beneficiaries pursuant to the terms of the Plan.
FIFTH: INVESTMENT AUTHORITY.
(a) Subject to paragraphs (b) and (c) of this Article FIFTH,
the Trustee shall have exclusive authority and discretion to manage and control
the assets of the Fund as specified in this Article FIFTH, and pursuant to such
authority and discretion may exercise from time to
time and at any time the power:
(i) To invest and reinvest the Fund, without
distinction between principal and income, in the group, family, or
class of mutual funds specified in writing by the Bank which shall
constitute the exclusive permitted investments of the Fund;
(ii) To exercise, personally or by general or limited
proxy, the right to vote any shares of such mutual funds held in the
Fund; and to exercise, personally or by power of attorney, any other
right appurtenant to mutual funds held by the Fund;
(iii) To exercise or sell any conversion or
subscription or other rights appurtenant to any shares of mutual fund
held in the Fund;
(iv) To invest and reinvest any property, real or
personal, in the Fund in any other form or type of investment not
specifically mentioned in this paragraph (a), so long as such form or
type of investment is a form or type of investment approved by the
Chief Financial Officer or Chief Executive Officer of the Bank and a
direction is made by the Bank to invest in such property.
(b) (i) The Trustee may invest in securities (including stock
or rights to acquire stock) or obligations issued by Warwick Community Bancorp,
Inc. All rights associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the
Trustee,
and shall in no event be exercisable by or rest with Plan participants except
that voting, tender, appraisal, dissenter and other similar rights with respect
to Trust assets shall be exercised by the Bank. In the absence of timely
directions from the Bank, the Trustee shall have no duty to exercise such
rights, and shall have no liability for refraining from exercising such rights.
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(ii) Any investment by the Trustee in securities or
obligations of the Company or the Bank shall be subject to prior written
approval of the Bank.
(iii) The Bank shall have the right at anytime, and
from time to time in its sole discretion, to substitute assets of equal fair
market value for any asset held by the Trust. This right is exercisable by the
Bank in a nonfiduciary capacity without the approval or consent of any person in
a fiduciary capacity.
(c) The Trustee shall exercise its powers under this Article
FIFTH in a manner consistent with such direction by the Bank and shall have no
liability whatsoever for any loss, cost or expense occasioned by any investment
in such group, class or family of mutual funds in
accordance with this paragraph.
(d) To the extent permitted by law, the Trustee shall not be
liable for any act or omission of the Bank hereunder and, except as set forth
hereunder, the Trustee shall not be under any obligations to invest or otherwise
manage the assets of the Plan. Without limiting the generality of the foregoing,
the Trustee shall not be liable by reason of its taking or refraining from
taking any action hereunder at the direction of the Bank; the Trustee shall be
under no duty to question or to make inquiries as to any direction or order or
failure to give direction or order by the Bank and the Trustee shall be under no
duty to make any review of investments acquired for the Fund at the direction or
order of the Bank and shall be under no duty at any time to make any
recommendation with respect to disposing of or continuing to retain any such
investment.
(e) Without limiting the generality of the provisions of
Article EIGHTH hereof, the Bank agrees, to the extent permitted by law, to
indemnify the Trustee and hold it harmless from and against any claim or
liability that may be asserted against it, otherwise than on account of the
Trustee's own gross negligence or willful misconduct or violation of any
provision of law, by reason of the Trustee's taking or refraining from taking
any action in accordance with this Article FIFTH.
(f) Subject to the other provisions of this Trust Agreement,
the Trustee shall have the power and authority to be exercised in its sole
discretion at any time and from time to time to issue and place orders for the
purchase or sale of securities directly with qualified brokers or dealers. Such
orders may be placed with such qualified brokers and/or dealers who also provide
investment information or other research or statistical services to the Trustee
in its capacity as a fiduciary or investment manager for other clients.
SIXTH: DISPOSITION OF INCOME.
During the term of this Trust Agreement, all income received
by the Trust, net of expenses and taxes, shall be accumulated and reinvested.
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SEVENTH: ACCOUNTS.
(a) (i) The Trustee shall keep accurate and detailed accounts
of all its receipts, investments and disbursements under this Agreement. Such
person or persons as the Bank shall designate shall be allowed to inspect the
books of account relating to the Fund upon request at any reasonable time during
the business hours of the Trustee.
(ii) Within 120 days after the close of each calendar
year, the Trustee shall transmit to the Bank, and certify the accuracy of, a
written statement of the assets and liabilities of the Fund at the close of that
calendar year, showing the current value of each asset at that date, and a
written account of all the Trustee's transactions relating to the Fund during
the period from the last previous accounting to the close of that calendar year.
(For the purposes of this paragraph, the date of the Trustee's resignation or
removal as provided in Article TENTH hereof or the date of termination of the
Plan as provided in Article ELEVENTH hereof shall be deemed to be the close of a
calendar year with respect to the Trustee's resignation or the terminated Plan,
as the case may be.)
(iii) Unless the Bank shall have filed with the
Trustee written exceptions or objections to any such statement and account
within 180 days after receipt thereof, the Bank shall be deemed to have approved
such statement and account; and in such case or upon the written approval by the
Bank of any such statement and account the Trustee shall be forever released and
discharged with respect to all matters and things expressly set forth in such
statement and account as though it had been settled by decree of a court of
competent jurisdiction in an action or proceeding to which the Bank and all
persons having any beneficial interest in the Fund were parties.
(b) Nothing contained in this Agreement or in the Plan shall
deprive the Trustee of the right to have a judicial settlement of its accounts.
In any proceeding for a judicial settlement of the Trustee's accounts or for
instructions in connection with the Fund, the only other necessary party thereto
in addition to the Trustee shall be the Bank. If the Trustee so elects, it may
bring in as a party or parties defendant any other person or persons. No person
interested in the Fund, other than the Bank, shall have a right to compel an
accounting, judicial or otherwise, by the Trustee, and each such person shall be
bound by all accountings by the Trustee to the Bank, as herein provided, as if
the account had been settled by decree of a court of competent jurisdiction in
an action or proceeding to which such person was a party.
EIGHTH: RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall discharge its duties under this
Agreement with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character and
with like aims; provided, however, that the Trustee shall incur no liability to
any
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person for any action taken pursuant to a direction, request or approval given
by any duly authorized person which is contemplated by, and in conformity with,
the terms of the Plan or the Trust and is given in writing by the Bank. The
duties and obligations of the Trustee shall be limited to those expressly
imposed upon it by this Agreement notwithstanding any reference herein to the
Plan.
(b) The Trustee shall have no duty to commence or defend any
legal action arising in connection with the Trust unless it shall first have
been indemnified, in manner and substance satisfactory to it, against its costs,
expenses and liabilities (including, without limitation, attorneys' fees and
expenses) relating thereto.
(c) The Trustee may consult with counsel, who may be counsel
for the Bank or for the Trustee in its individual capacity, and shall not be
liable for any action taken or omitted in accordance with the opinion of
counsel. The Bank agrees, to the extent permitted by law, to indemnify and hold
the Trustee harmless from and against any liability that it may incur in
connection with the Fund, unless arising from the Trustee's own grossly
negligent or willful breach of the provisions of paragraph (a) above. The
Trustee shall not be required to give any bond or any other security for the
faithful performance of its duties under this Agreement, except as required by
law. The Trustee in its corporate capacity shall not be liable for claims of any
persons in any manner regarding the Plan; such claims shall be limited to the
Trust Fund.
(d) (i) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly provided otherwise
herein; provided, however, that if an insurance policy is held as an asset of
the Trust, the Trustee shall have no power to name a beneficiary of the policy
other than the Trust, to assign the policy (as distinct from conversion of the
policy to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
(ii) The Trustee shall have, and in its sole and
absolute discretion may exercise from time to time and at any time, the
following administrative powers and authority with respect to the Fund
consistent with the provisions of Article FIFTH:
(A) To continue to hold any property of the Fund
whether or not productive of income; to reserve from investment and
keep unproductive of income, without liability for interest, cash
temporarily awaiting investment and such cash as it deems advisable or
as the Bank from time to time may specify in order to meet the
administrative expenses of the Fund or anticipated distributions
therefrom;
(B) To hold property of the Fund in its own name or
in the name of a nominee or nominees, without disclosure of the Trust,
or in bearer form so that it will pass by delivery, but no such holding
shall relieve the Trustee of its
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responsibility for the safe custody and disposition of the Fund in
accordance with the provisions of this Agreement; the Trustee's books
and records shall at all times show that such property is part of the
Fund; and, subject to subsection (c) above, the Trustee shall be
absolutely liable for any loss occasioned by the acts of its nominee or
nominees with respect to securities registered in the name of the
nominee or nominees;
(C) To employ in the management of the Fund suitable
agents, without liability for any loss occasioned by any such agents
selected by the Trustee with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims;
(D) To do all other acts that the Trustee may deem
necessary or proper to carry out any of the powers set forth in Article
FIFTH hereof or otherwise in the best interests of the Fund.
(e) Notwithstanding any powers granted to the Trustee pursuant
to this Trust Agreement or to applicable law, the Trustee shall not have any
power that could give the Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of section 301.7701-2 of the
Procedure and Administrative Regulations promulgated pursuant to the
Code.
(f) Unless the Trustee participates knowingly in, or knowingly
undertakes to conceal, an act or omission of the Bank or any other fiduciary,
knowing such act or omission to be a breach of fiduciary responsibility, the
Trustee shall be under no liability for any loss of any kind which may result by
reason of such act or omission.
(g) If a dispute arises as to the payment of any funds or
delivery of any assets by the Trustee, the Trustee may withhold such payment or
delivery until the dispute is determined by a court of competent jurisdiction or
finally settled in writing by the parties concerned.
NINTH: TAXES, COMPENSATION AND EXPENSES OF TRUSTEE.
(a) (i) The Bank shall pay any Federal, state, local or other
taxes imposed or levied with respect to the corpus and/or income of the Fund or
any part thereof under existing
or future laws.
(ii) All taxes that may be levied or assessed upon or
in respect of the Fund shall be paid from the Fund. The Trustee shall notify the
Bank of any proposed or final assessments of taxes and may assume that any such
taxes are lawfully levied or assessed unless the Bank advises it in writing to
the contrary within fifteen days after receiving the above notice
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from the Trustee. In such case, the Trustee, if requested by the Bank in
writing, shall contest the validity of such taxes in any manner deemed
appropriate by the Bank; the Bank may itself contest the validity of any such
taxes, in which case the Bank shall so notify the Trustee and the Trustee shall
have no responsibility or liability respecting such contest. If either party to
this Agreement contests any such proposed levy or assessments, the other party
shall provide such information and cooperation as the party conducting the
contest shall reasonably request.
(b) The Trustee, without direction from the Bank, shall pay
from the Fund from time to time such reasonable compensation for its services as
Trustee as shall be agreed upon with the Bank, the reasonable and necessary
expenses and compensation of counsel and other agents employed or engaged by the
Trustee pursuant to subparagraph (d)(ii)(C) of Article EIGHT, and all other
reasonable and necessary expenses of managing and administering the Fund (which
the Trustee, in its discretion, determines to be necessary or appropriate) that
are not paid by the Bank.
TENTH: RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to
the Bank, which shall be effective 60 days after receipt of such notice unless
the Bank and the Trustee agree otherwise.
(b) The Bank, by action of its Board, may remove the Trustee
at any time upon 60 days' written notice to the Trustee, or upon shorter notice
if acceptable to the Trustee. In the event it resigns or is removed, the Trustee
shall have a right to have its accounts settled as
provided in Article SEVENTH hereof.
(c) (i) Upon resignation or removal of the Trustee and
appointment of a successor Trustee, all assets shall subsequently be transferred
to the successor Trustee. The transfer shall be completed within 60 days after
receipt of notice of resignation, removal or transfer, unless the Bank extends
the time limit.
(ii) The Trustee may reserve such sums as the Trustee
shall deem necessary to defray its expenses in settling its accounts, to pay any
of its compensation due and unpaid and to discharge any obligation of the Fund
for which the Trustee may be liable. If the sums so reserved are not sufficient
for these purposes, the Trustee shall be entitled to recover the amount of any
deficiency from either the Bank or the successor Trustee, or both. When the Fund
shall have been transferred and delivered to the successor Trustee and the
accounts of the Trustee have been settled as provided in Article SEVENTH hereof,
the Trustee shall be released and discharged from all further accountability or
liability for the Fund and shall not be responsible in any way for the further
disposition of the Fund or any part thereof.
(d) (i) If the Trustee resigns or is removed, a successor
shall be appointed, in accordance with Article ELEVENTH, by the effective date
of resignation or removal under
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paragraph (a) or (b) of this Article TENTH. If no such appointment has been
made, the Trustee may apply to a court of competent jurisdiction for appointment
of a successor or for instructions. All expenses of the Trustee in connection
with the proceeding shall be allowed as administrative expenses of the Trust.
Any successor Trustee shall be an independent commercial bank or trust bank
which is not affiliated with, controlled by, in control of, or under common
control with the Bank.
(ii) Each successor Trustee shall have the powers and
duties conferred upon the Trustee in this Trust Agreement, and the "Trustee" as
used in this Agreement shall be deemed to include any successor Trustee.
ELEVENTH: APPOINTMENT OF SUCCESSOR.
In the event of the resignation or removal of the Trustee, a
successor Trustee shall be appointed by the Bank. Except as otherwise provided
herein, such appointment shall take effect upon delivery to the Trustee of an
instrument so appointing the successor and an instrument of acceptance executed
by such successor, both of which instruments shall be duly acknowledged before a
notary public. The delivery of such instruments shall take place within sixty
(60) days after notice of resignation or removal, as applicable, of the Trustee
shall have been given.
TWELFTH: AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written
instrument duly executed and acknowledged by the Trustee and the Bank.
Notwithstanding the foregoing, no such amendment shall conflict with the terms
of the Plan or shall make the Trust revocable after it has become irrevocable in
accordance with subparagraph (b) of Article FIRST hereof.
(b) (i) The Trust shall not terminate until the date on which
Plan participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plan. Upon termination of the Trust any assets
remaining in the Trust shall be returned to the
Bank.
(ii) Notwithstanding the foregoing, if not sooner
terminated, the Trust shall terminate automatically on the twenty-first (21st)
anniversary of the death of the last to die of all of the lineal descendants of
Rose Fitzgerald Kennedy, daughter of John Francis Fitzgerald and Josephine Mary
Hannon Fitzgerald, who are living and in being on the effective date of this
Trust Agreement.
(iii) Notwithstanding the foregoing, until the Trust
has become irrevocable as provided in subparagraph (b) of Article FIRST hereof,
the Trust may be terminated at any time by the Bank.
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(iv) In case the Plan is terminated in whole or in
part, the Trustee (subject to the provisions of Articles TENTH and ELEVENTH
hereof and reserving such sums as the Trustee shall deem necessary in settling
its accounts and to discharge any obligation of the Fund for which the Trustee
may be liable) shall apply or distribute any subfund attributable to such
terminating Plan in accordance with the written directions of the Bank. Upon
such termination of Plan in whole or in part, the Trustee shall have a right to
have its accounts settled as provided in Article SEVENTH hereof. When a subfund
shall have been so applied or distributed and the accounts of the Trustee shall
have been so settled, the Trustee shall be released and discharged from all
further accountability or liability respecting such subfund, and shall not be
responsible in any way for the further disposition of such subfund.
THIRTEENTH: MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable
process.
(c) (i) This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts to be performed wholly
within the State of New York.
(ii) Nothing in this Agreement shall be construed to
subject either the Trust created hereunder or the Plan to ERISA.
(iii) Any reference herein to ERISA or the Code shall
include such law as in effect on the effective date hereof, subsequent amendment
thereto and any succeeding law.
(d) The titles to Articles of this Agreement are placed herein
for convenience of reference only, and the Agreement is not to be construed by
reference thereto.
(e) This Agreement shall bind and inure to the benefit of the
successors and assigns of the Bank and the Trustee, respectively.
(f) This Agreement may be executed in any number of
counterparts, each of which shall be shall to be an original but all of which
together shall constitute but one instrument, which may be sufficiently
evidenced by any counterpart executed by all parties hereto.
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<PAGE>
(g) Any corporation into which the Trustee is merged with or
with which it is consolidated, or any corporation resulting from a merger,
reorganization or consolidation, to which the Trustee is a party, or any
corporation to which all or substantially all the trust business of the Trustee
is transferred shall become the successor trustee under the Agreement without
the execution or filing of any further instrument or the performance of any
further act.
(h) The Bank or anyone acting on its behalf may at any time
employ the Trustee in its corporate (and not in its fiduciary) capacity as agent
to perform any act, keep any records or accounts, or make any computations
required by the Bank. Any such agency relationship shall be established by a
separate agreement between the Bank and the Trustee, and the existence of such
agreement and any actions performed by the Trustee under such agreement shall
not affect its responsibilities as Trustee under this Agreement.
FOURTEENTH: ADMINISTRATION OF THE PLAN; COMMUNICATIONS.
(a) The Bank shall administer the Plan as provided therein,
and the Trustee shall not be responsible in any respect for administering such
Plan nor shall the Trustee be responsible for the adequacy of the Fund to meet
and discharge all payments and liabilities under such
Plan.
The Trustee shall be fully protected in relying upon any written notice,
instruction, direction or other communication signed by an officer of the Bank
duly authorized to give communications to the Trustee. The Bank from time to
time shall furnish the Trustee with the names and specimen signatures of such
duly authorized officers of the Bank and shall promptly notify the Trustee of
the termination of office of any officer of the Bank and the appointment of a
successor thereto. Until notified to the contrary, the Trustee shall be fully
protected in relying upon the most recent list of such duly authorized officers
of the Bank furnished to it by the Bank.
(b) Any action required by any provision of this Agreement to
be taken by the Board shall be evidenced by a resolution of the Board, certified
to the Trustee by the Secretary or an Assistant Secretary of the Bank under its
corporate seal. The Trustee shall be fully protected in relying upon any
resolution so certified to it. Unless other evidence with respect thereto has
been specifically prescribed in this Agreement, any other action of the Bank
under any provision of this Agreement, including any approval of or exceptions
to the Trustee's accounts, shall be evidenced by a certificate signed by an
officer of the Bank duly authorized to give communications to the Trustee, and
the Trustee shall be fully protected in relying upon such certificate. The
Trustee may accept a certificate signed by an officer of the Bank duly
authorized to give communications to the Trustee as proof of any fact or matter
than it deems necessary or desirable to have established in the administration
of the Trust (unless other evidence of such fact or matter is expressly
prescribed herein), and the Trustee shall be fully protected in relying upon the
statements in the certificate.
(c) Notwithstanding anything contained herein to the contrary,
the Trustee shall be entitled conclusively to rely upon any written notice,
instruction, direction, certificate or other
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communication reasonably believed by it to be genuine and to be signed by the
proper person or persons, and the Trustee shall be under no duty to make
investigation or inquiry as to the truth or
accuracy of any statement contained therein.
(d) Until notice be given to the contrary, communications to
the Trustee shall be sent to it at its office at 140 Broadway, New York, New
York 10005, Attention: RICHARD A. GLOVER, Vice President; communications to the
Bank shall be sent to it at its office at 18 Oakland Avenue, Warwick, New York
10990, Attention: PRESIDENT AND CHIEF EXECUTIVE OFFICER.
FIFTEENTH: IRS RULING.
The Bank may apply for a Private Letter Ruling from the IRS
with respect to the federal income tax consequences of the Trust. If the IRS,
following a request by the Bank, declines to issue a favorable ruling to the
effect that the Bank will be treated for Federal income tax purposes as the
owner of the Fund pursuant to Sections 671 through 679 of the Code, that the
income of the Fund will be treated as income of the Bank, and that the funding
of, and realization of income by, the Fund will not result in income to the
participants or beneficiaries prior to the date that such funds are actually
distributed or made available to participants or beneficiaries hereunder, all of
the assets then held in the Fund shall forthwith be returned to the Bank in kind
and this Agreement shall be null and void and have no force and effect.
SIXTEENTH: DEFINITION OF CHANGE OF CONTROL.
(a) Change of Control means 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 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;
-17-
<PAGE>
(ii) the acquisition of all or 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 such an acquisition;
(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:
(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:
(I) 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
(II) 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 Company; or
(v) any event which would be described in (i), (ii),
(iii) or (iv) above
if
the term "Warwick Community Bancorp, Inc." was substituted for the term "Bank"
therein and the term "Board of Directors of Warwick Community Bancorp, Inc."
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 Warwick Community Bancorp, Inc., the Bank, or a subsidiary of either of them,
by Warwick Community Bancorp, Inc., the Bank, or any subsidiary of either of
them, or by any employee benefit plan maintained by any of them. For
-18-
<PAGE>
purposes of this Article SIXTEENTH, the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act. The
Trustee may rely on an opinion of a reputable law firm selected by the Trustee,
in its discretion, to determine whether a Change of Control has occurred. The
Trustee may also request that the Bank furnish evidence to determine, or enable
the Trustee to determine, whether a Change of Control has occurred.
(b) The Trustee shall not be responsible for determining
whether a Change of Control occurs. Such determination shall be made solely by
the Bank, and the Bank shall promptly notify the Trustee in writing in such an
event. The Bank shall, under the penalties of perjury, promptly certify to the
Trustee at any time and from time to time, at the Trustee's request, whether a
Change of Control has been deemed to have occurred.
SEVENTEENTH: EFFECTIVE DATE.
The effective date of this Trust Agreement shall be December
23, 1997.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their respective names by their duly authorized
officers under their corporate seals as
of the day and year first above written.
THE WARWICK SAVINGS BANK
By: /s/ Timothy A. Dempsey
-------------------------------------
Timothy A. Dempsey
Title: President and Chief
Executive Officer
Date: December 10, 1997
-----------------------------------
ATTEST:
By: /s/ Nancy L. Sobotor-Littell
----------------------------
Secretary
[seal]
MARINE MIDLAND BANK
By: /s/ Richard A. Glover
-------------------------------------
Richard A. Glover
Title: Vice President
Date: December 9, 1997
-------------------------------
ATTEST:
By: /s/ Mindy F. Smith
----------------------------
Secretary
[seal]
-20-
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 10th day of December, 1997, before me personally came
TIMOTHY A. DEMPSEY, to me known, who, being by me duly sworn, did depose and say
that he resides at 36 Waterbury Road, Warwick, New York 10990; that he is the
President and Chief Executive Officer 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
savings bank's seal; that it was so affixed by order of the Board of Directors
of said savings bank; and that he signed his name thereto by like order.
/s/ Roseanna Nielsen
-------------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 9th day of December, 1997, before me personally came
RICHARD A. GLOVER, to me known, who, being by me duly sworn, did depose and say
that he resides at 5 Windward Court, Dix Hills, New York, that he is Vice
President and Trust Officer of MARINE MIDLAND BANK, the banking corporation
described in and which executed the foregoing instru ment; that he knows the
seal of said banking 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
banking corporation; and that he signed his name thereto by like order.
/s/ Mindy F. Smith
--------------------------------
Notary Public
-21-
EXHIBIT 10.18
-------------
TRUST AGREEMENT
BETWEEN
THE WARWICK SAVINGS BANK
AND
MARINE MIDLAND BANK
FOR THE
THE WARWICK SAVINGS BANK
401(K) SAVINGS PLAN EMPLOYER STOCK FUND
-------------------------------------------
Entered into as of November 21, 1997
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
Article I
DEFINITIONS
<S> <C> <C>
Section 1.01 Specific Definitions.................................................................-1-
Article II
ESTABLISHMENT OF THE TRUST
Section 2.01 Establishment of Trust...............................................................-2-
Section 2.02 Purposes of Trust....................................................................-2-
Article III
ADMINISTRATION
Section 3.01 Appointment of Committee.............................................................-3-
Section 3.02 Action of the Committee..............................................................-3-
Section 3.03 Plan Administrator...................................................................-3-
Section 3.04 Duties of the Trustee................................................................-4-
Section 3.05 Trustee as Agent.....................................................................-4-
Article IV
INVESTMENTS
Section 4.01 General Investment Operations........................................................-4-
Section 4.02 Investment Funds.....................................................................-5-
Section 4.03 Appointment of Investment Manager....................................................-5-
Section 4.04 Investment Decisions.................................................................-6-
Section 4.05 Brokerage............................................................................-7-
Section 4.06 Investment in Collective Funds.......................................................-7-
Section 4.07 Liquidity............................................................................-7-
<PAGE>
PAGE
Article V
POWERS OF TRUSTEE
Section 5.01 Specific Powers......................................................................-8-
Section 5.02 Discretionary Powers.................................................................-9-
Article VI
PAYMENTS OF BENEFITS AND EXPENSES
Section 6.01 Authorization by Plan Administrator.................................................-10-
Section 6.02 Representations by the Plan Administrator...........................................-11-
Section 6.03 Form of Payment.....................................................................-11-
Section 6.04 Fees and Expenses of Trustee........................................................-11-
Section 6.05 Taxes...............................................................................-11-
Article VII
VOTING RIGHTS AND TENDER OFFERS
Section 7.01 Exercise of Voting Rights...........................................................-12-
Section 7.02 Response to Tender Offers and Similar Events........................................-13-
Section 7.03 Dissent and Appraisal Rights........................................................-14-
Article VIII
LIABILITY OF THE TRUSTEE
Section 8.01 Contributions.......................................................................-15-
Section 8.02 Claims Limited to the Trust Fund....................................................-15-
Section 8.03 Retention of Advisors...............................................................-16-
Section 8.04 Qualification of Plan and Trust.....................................................-16-
Section 8.05 General Duties of Trustee...........................................................-16-
Section 8.06 No Liability for Acts of Others.....................................................-16-
Section 8.07 Indemnification.....................................................................-17-
Section 8.08 Communications......................................................................-19-
Section 8.09 Proof of Matters....................................................................-19-
Section 8.10 Party in Interest Information.......................................................-20-
Section 8.11 Disputes............................................................................-20-
-ii-
<PAGE>
PAGE
Article IX
ACCOUNTING OF THE TRUSTEE
Section 9.01 Keeping of Accounts.................................................................-20-
Section 9.02 Rendering of Accounts...............................................................-20-
Section 9.03 Discharge of Trustee................................................................-21-
Section 9.04 Right to Judicial Settlement........................................................-21-
Article X
REMOVAL AND RESIGNATION OF THE TRUSTEE
Section 10.01 Removal or Resignation..............................................................-21-
Section 10.02 Successor Trustee...................................................................-22-
Section 10.03 Delivery of Trust Fund..............................................................-22-
Article XI
AMENDMENT AND TERMINATION
Section 11.01 Amendment...........................................................................-22-
Section 11.02 Termination.........................................................................-22-
Article XII
MISCELLANEOUS
Section 12.01 Merger of Trustee...................................................................-23-
Section 12.02 Affiliated Companies................................................................-23-
Section 12.03 Alienation of Trust Fund............................................................-24-
Section 12.04 Applicable Law......................................................................-24-
Section 12.05 Headings Not Part of the Agreement..................................................-24-
Section 12.06 Multiple Copies.....................................................................-24-
-iii-
</TABLE>
<PAGE>
TRUST AGREEMENT
FOR THE
THE WARWICK SAVINGS BANK
401(K) SAVINGS PLAN EMPLOYER STOCK FUND
This AGREEMENT ("Agreement") has been made as of the 21st day
of November, 1997 between THE WARWICK SAVINGS BANK, a savings bank organized
under the laws of the State of New York with its principal place of business at
18 Oakland Avenue, Warwick, New York 10990 ("Bank") and MARINE MIDLAND BANK, a
bank organized under the laws of the State of New York, with a principal place
of business at 140 Broadway, New York, New York 10005 ("Trustee").
W I T N E S S E T H :
WHEREAS, the Bank maintains The Warwick Savings Bank 401(k)
Savings Plan ("Plan") for the exclusive benefit of certain of its employees and
their beneficiaries; and
WHEREAS, the Plan contemplates the establishment of one or
more trusts to hold, invest and administer amounts contributed under the Plan,
and the Bank desires to establish an investment fund that will invest primarily
in shares of common stock of Warwick Community Bancorp, Inc. ("Shares"); and
WHEREAS, the Trustee has agreed to hold, invest and administer
the assets of the Plan that are held under this Trust Fund (as defined in
Section 1.01(g)) on the terms set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein, the Bank and the Trustee hereby agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 SPECIFIC DEFINITIONS.
The following terms as used in this Agreement have the
meanings indicated unless the context requires otherwise:
(a) "Board" means the Board of Trustees of the Bank prior to
the conversion of the Bank from mutual to stock form and the Board Directors of
the Bank thereafter.
<PAGE>
(b) "Committee" means the committee appointed by the Bank
under Section 3.01 of this Agreement.
(c) "ERISA" means the Employee Retirement Income Security Act
of 1974, as it has been and may be amended, and corresponding provisions of
future laws, as they may be amended.
(d) "Internal Revenue Code" means the Internal Revenue Code of
1986, as it has been and may be amended, and corresponding provisions of future
laws, as they may be
amended.
(e) "Participant" means a person for whose benefit
contributions have been made to the Trust Fund under the Plan.
(f) "Prohibited Transaction" has the meaning of that term
under ERISA and the Internal Revenue Code.
(g) "Trust Fund" means the assets held under this Trust by the
Trustee, including contributions made under the Plan which are transferred to
the Trustee by the Bank, a predecessor or co-trustee and any income and
appreciation, and reinvestments attributable thereto.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 2.01 ESTABLISHMENT OF TRUST.
The Bank hereby establishes with the Trustee a Trust for the
purpose of holding and administering the Trust Fund in accordance with this
Agreement. Such Trust shall continue for such time as may be necessary to
accomplish the purpose for which it was created, subject to the
provisions of Section 10.02.
SECTION 2.02 PURPOSES OF TRUST.
The Bank and the Trustee shall discharge their duties with
respect to the Trust Fund for, and the Trust Fund shall be used solely for and
not diverted from, the exclusive purpose of providing benefits to Participants
and their beneficiaries who are entitled to benefits under the Plan, other than
such part as is required to pay taxes and reasonable expenses of administering
the Plan. Notwithstanding the preceding sentence, however, contributions may be
returned to the Bank by the Trustee at the direction of the Committee as
hereinafter provided, if the Committee certifies in writing to the Trustee that
one or both of the following circumstances exist and that the Plan permits such
repayments:
(a) If a contribution is made by the Bank by a mistake of
fact, the contribution may be returned to the Bank within one year after it was
paid to the Trustee;
-2-
<PAGE>
(b) If a contribution is conditioned upon its deductibility
under Section 404 of the Internal Revenue Code, the contribution, to the extent
the deduction is disallowed by the Internal Revenue Service, may be returned to
the Bank within one year after the disallowance or, if such disallowance is
appealed to the courts, within one year after the date a court decision
upholding such disallowance becomes final.
For purposes of this Section, the word "contribution" has the
same meaning as it does in Section 403(c) of ERISA.
ARTICLE III
ADMINISTRATION
SECTION 3.01 APPOINTMENT OF COMMITTEE.
The Bank shall appoint a Committee of one or more persons to
represent it in dealing with the Trustee under this Agreement. The Secretary or
assistant Secretary of the Bank shall promptly give the Trustee a certified copy
of each Board resolution appointing or removing a member of the Committee or
approving any action with respect to this Agreement. Until it receives such
written notice that a person is no longer a member of the Committee, the Trustee
shall be fully protected in assuming that the person is still a member of the
Committee. When the Secretary or Assistant Secretary delivers to the Trustee a
certified copy of a resolution of the Board appointing a member of the
Committee, he shall also deliver a specimen signature of that member. The
members of the Committee shall be "named fiduciaries" within the meaning of
Section 402(a) of ERISA with respect to the Plan and the Trust. If at any time
no members are currently serving as the Committee, or if no Committee is
appointed, the Board shall be deemed to be the Committee.
SECTION 3.02 ACTION OF THE COMMITTEE.
The Bank shall certify to the Trustee the names and specimen
signatures of the members of the Committee appointed by the Bank to give
directions to the Trustee. Such certification shall include directions as to the
number of signatures required for any communication or direction to the Trustee.
The Bank shall promptly give notice to the Trustee of changes in the membership
of the Committee. The Committee may also certify to the Trustee the name of any
person, together with a specimen signature of any such person, authorized to act
for it in relation to the Trustee. The Committee shall promptly give notice to
the Trustee of any change in any person authorized to act on behalf of it. For
all purposes under this Agreement, until any such notice is received by the
Trustee, the Trustee shall be fully protected in assuming that the membership of
the Committee and the authority of any person certified to act in its behalf
remain unchanged.
SECTION 3.03 PLAN ADMINISTRATOR.
The Bank shall certify to the Trustee the name and specimen
signature of the Plan Administrator appointed by the Bank to administer the Plan
and give directions to the Trustee. Such
-3-
<PAGE>
certification shall include directions as to the number of signatures required
for any communication or direction to the Trustee. The Bank shall promptly give
notice to the Trustee of changes in the identity of the Plan Administrator. The
Plan Administrator may also certify to the Trustee the name of any person,
together with a specimen signature of any such person, authorized to act for the
Plan Administrator in relation to the Trustee. The Plan Administrator shall
promptly give notice to the Trustee of any change in any person authorized to
act on behalf of the Plan Administrator. For all purposes under this Agreement,
until any such notice is received by the Trustee, the Trustee shall be fully
protected in assuming that the identity of the Plan Administrator and the
authority of any person certified to act on the Plan Administrator's behalf
remain unchanged.
SECTION 3.04 DUTIES OF THE TRUSTEE.
The Trustee shall have only those duties specifically assumed
by it in this Agreement. The Trustee shall have no responsibility to administer
or interpret the Plan, to enforce payment of any contributions to the Trust
Fund, or to see that the Trust Fund is adequate to meet liabilities under the
Plan. The Trustee shall be fully protected in acting upon any instrument,
certificate or paper reasonably believed by it to be genuine and to be signed or
presented by the proper person or persons, and the Trustee shall be under no
duty to make any investigation or inquiry as to any statement contained in any
such writing but may accept the same as conclusive evidence of the truth and
accuracy of the statements therein contained. The Trustee shall not be liable
for the proper application of any part of the Trust Fund if payments are made in
accordance with the written directions of the Committee or the Plan
Administrator as herein provided. All persons dealing with the Trustee are
released from inquiry into the decision or authority of the Trustee and from
seeing to the application of any monies, securities or other property paid or
delivered to the Trustee.
SECTION 3.05 TRUSTEE AS AGENT.
The Bank or anyone acting on its behalf may at any time employ
the Trustee in its corporate (and not its fiduciary) capacity, in addition to
its duties provided hereunder, as agent to perform any act, keep any records or
accounts, or make any computations required by the Bank or the Committee. Any
such agency relationship shall be established by a separate agreement between
the Bank and the Trustee and the existence of such arrangement shall not affect
its responsibilities as Trustee under this Agreement.
ARTICLE IV
INVESTMENTS
SECTION 4.01 GENERAL INVESTMENT OPERATIONS.
The Trust Fund shall be held by the Trustee and shall be
invested and reinvested as hereinafter provided in this Article IV, without
distinction between principal and income and without regard to the restrictions
of the laws of the State of New York, or of any other jurisdiction, relating to
the investment of trust funds.
-4-
<PAGE>
SECTION 4.02 INVESTMENT FUNDS.
(a) The Trustee shall establish and maintain an investment
fund, to be known as the Employer Stock Fund, which fund shall be invested in
Shares and, only to the extent provided in Section 4.07 or pending investment in
Shares, in cash and short-term investments.
(b) The Trustee shall establish and maintain, for the
investment of the Trust Fund, such separate investment funds in addition to the
Employer Stock Fund established pursuant to Section 4.02(a), (individually, the
Employer Stock Fund and such other investment funds are referred to herein as an
"Investment Fund"), as the Bank may request by written notice to the Trustee.
(c) To the extent directed to do so pursuant to Section 4.04,
the Trustee shall hold and invest amounts paid over to it pursuant to this
Agreement in such Investment Funds as shall have been established in accordance
with Section 4.02(a) and 4.02(b), and shall allocate amounts paid over to it
among the Investment Funds in the manner and in the proportion designated by the
Committee or such other person or entity selected by the Committee. The Trustee
shall also credit to each Investment Fund all earnings and appreciation
allocable thereto and shall charge against each such fund any depreciation,
losses, expenses, payments and distributions allocable thereto.
(d) The Trustee shall invest and reinvest amounts allocated to
each Investment Fund in accordance with such written investment criteria as
shall be established by the Committee and communicated in writing to the
Trustee. Notwithstanding any such investment criteria, the Trustee is authorized
to retain in an Investment Fund, for as long as it is deemed advisable by the
person responsible for directing the investment of the particular Investment
Fund, (i) any securities or other property received by means of a dividend,
distribution, exchange, conversion, liquidation or otherwise than by initial
purchase; and (ii) any investments which were authorized hereunder when made by
the Trustee.
SECTION 4.03 APPOINTMENT OF INVESTMENT MANAGER.
(a) The Committee may, in its discretion, appoint an
investment manager ("Investment Manager") to direct the investment and
reinvestment of all or any portion of the Trust Fund. Any such Investment
Manager shall either: (i) be registered as an investment adviser under the
Investment Advisers Act of 1940, as amended ("Investment Advisers Act"); (ii) be
a bank, as defined in the Investment Advisers Act; or (iii) be an insurance
company qualified to perform investment services under the laws of more than one
state.
(b) The Committee shall give written notice to the Trustee of
the appointment of an Investment Manager pursuant to Section 4.03(a). Such
notice shall include: (i) a specification of the portion of the Trust Fund to
which the appointment applies; (ii) a certification by the Committee that the
Investment Manager satisfies the requirements of Section 4.03(a)(i), (ii) or
(iii); (iii) a copy of the instruments appointing the Investment Manager and
evidencing the Investment Manager's acceptance of the appointment; (iv)
directions as to the manner in which the Investment Manager is authorized to
give instructions to the Trustee, including the persons authorized to give
-5-
<PAGE>
instructions and the number of signatures required for any written instruction;
(v) an acknowledgment by the Investment Manager that it is a fiduciary of the
Plan; and (vi) if applicable, a certificate evidencing the Investment Manager's
current registration under the Investment Advisers Act. For purposes of this
Agreement, the appointment of an Investment Manager pursuant to this Section
4.03 shall become effective as of the effective date specified in such notice,
or, if later, as of the date on which the Trustee receives proper notice of such
appointment.
(c) The Committee shall give written notice to the Trustee of
the resignation or removal of an Investment Manager previously appointed
pursuant to this Section 4.03. From and after the date on which the Trustee
receives such notice, or, if later, the effective date of the resignation or
removal specified in such notice, the Committee shall be responsible, in
accordance with this Section 4.03, for the investment and reinvestment of the
portion of the Trust Fund theretofore managed by such Investment Manager, until
such time as a successor Investment Manager has been duly appointed pursuant to
this Section 4.03.
SECTION 4.04 INVESTMENT DECISIONS.
(a) The Trustee shall invest and reinvest the Trust Fund as
follows:
(i) To the extent that any portion of the Trust
Fund shall be allocated to an Investment
Fund other than the Employer Stock Fund,
such portion of the Trust fund shall be
invested and reinvested:
(A) by the Trustee, in its discretion;
or
(B) if an Investment Manager is
appointed to direct the investment
of amounts allocated to such
Investment Fund, in accordance with
the directions of such Investment
Manager;
and
(ii) to the extent that any portion of the Trust
Fund is allocated to the Employer Stock
Fund, such portion of the Trust Fund shall
be invested and reinvested in Shares at such
prices and at such times as the Trustee, in
its discretion, may determine.
The Trustee shall be under no duty or obligation to review any investment to be
acquired, held or disposed of pursuant to directions of the Committee, any
Investment Manager nor to make any recommendation with respect to the
disposition or continued retention of any such investment. To the extent that
the Trustee is subject to direction by the Committee or an Investment Manager,
or the Trustee is acting pursuant to Section 4.04(c), the Bank hereby agrees to
indemnify the Trustee and hold it harmless from and defend it against any claim
or liability which may be asserted against the Trustee by reason of any action
or inaction by it pursuant to a direction by the Committee or by an Investment
Manager or failing to act in the absence of any such direction.
-6-
<PAGE>
(b) The Committee or an Investment Manager appointed pursuant
to Section 4.03 may, from time to time, issue orders for the purchase or sale of
securities directly to a broker. Written notification of the issuance of each
such order shall be given promptly to the Trustee by the Committee or the
Investment Manager, and the execution of each such order shall be confirmed by
written advice to the Trustee by the broker. Such notification shall be
authority for the Trustee to pay for securities purchased against receipt
thereof and to deliver securities sold against payment therefor, as the case may
be.
(c) To the extent that neither the Committee nor an Investment
Manager furnishes directions as to the investment of any portion of the Trust
Fund that is subject to its direction, to the extent provided by ERISA, the
Trustee shall invest and reinvest the Trust Fund in any savings account, time or
other interest bearing deposit or in any other interest bearing obligation of
any one or more banks, savings banks, savings and loan associations and other
financial institutions, or any of them, including any subsidiary of the Bank,
or, subject to Section 4.06, in any commingled, collective, common or group
trust fund at least 75 % of the assets of which are invested in such savings
accounts, time or other interest bearing deposits or other interest bearing
obligations.
SECTION 4.05 BROKERAGE.
The Trustee shall have the power and authority to be exercised
in its sole discretion at any time and from time to time to issue and place
orders for the purchase or sale of securities directly with qualified brokers or
dealers. Such orders may be placed with such qualified brokers and/or dealers
who also provide investment information or other research or statistical
services to the Trustee in its capacity as a fiduciary or investment manager for
other clients.
SECTION 4.06 INVESTMENT IN COLLECTIVE FUNDS.
The Trustee may from time to time temporarily transfer any
assets of the Trust Fund to, or withdraw the same from, any pooled investment
fund or group or collective trusts maintained by a bank or trust company (which
may be the Trustee or an affiliate of the Trustee) supervised by a state or
federal agency, which has been determined by the Internal Revenue Service to be
a qualified trust or fund exempt from federal income tax under Section 501(a) of
the Internal Revenue Code, and which has been established to permit separate
pension and profit sharing trusts qualified under Section 401(a) of the Internal
Revenue Code to pool some or all of their funds for investment purposes. To the
extent the Trust Fund is invested in such a pooled fund or group or collective
trust, the terms of the instrument establishing such pooled fund or group or
collective trust are made a part of this Agreement as fully as if set forth at
length herein. The commingling of assets of this Trust with assets of other
qualified participating trusts in such pooled funds or group or collective
trusts is specifically authorized.
SECTION 4.07 LIQUIDITY.
Notwithstanding any provision of this Article IV to the
contrary, the Trustee, in its sole discretion or as the Committee may request,
may retain uninvested cash or cash balances, and sell, to provide cash or cash
balances, such investments in whatever portion of the Trust Fund that
-7-
<PAGE>
it may deem advisable without being required to pay interest thereon. Pending
investment, the Trustee, in its sole discretion, may temporarily invest any
funds held or received by it for investment in an investment fund established
hereunder in commercial paper or in obligations or, or guaranteed
by, the United States government or any of its agencies.
ARTICLE V
POWERS OF TRUSTEE
SECTION 5.01 SPECIFIC POWERS.
In addition to, and not in limitation of, the powers now, or
which may later become, vested in it by law or by other provisions of this
Agreement, but subject to Section 2.02, Section 4.04 and this Article V, the
Trustee is authorized and empowered:
(a) to purchase, receive or subscribe for Shares (for which
the Trustee shall pay no more than "adequate consideration," as defined in
Section 3(18) of ERISA and shall pay no commission), other securities or other
property and to retain in trust such Shares, other securities or other property;
(b) to sell, exchange, redeem, transfer, and otherwise dispose
of, by private agreement or public auction, any property held in the Trust Fund;
and no person dealing with the Trustee need see to the application of the
consideration paid therefor or inquire into the validity, expediency, or
propriety of any such transaction;
(c) subject to the provisions of Article VII, to exercise
voting rights either in person, by limited or general power of attorney, or by
proxy, with respect to Shares and other stocks, securities or other property,
and generally to exercise with respect to Trust Fund assets all rights, powers,
and privileges that may be lawfully exercised by any person owning similar
property in his own right;
(d) subject to the provisions of Article VII, to exercise any
options, conversion rights, or rights to subscribe for additional Shares,
stocks, bonds or other securities appurtenant to any Shares, stocks, bonds or
other securities held by it, and to make any necessary payments in connection
with such exercise; to join in, dissent from, and oppose the reorganization,
consolidation, recapitalization, liquidation, merger, or sale, mortgage, pledge
or lease, of corporate property with respect to any corporations or property in
which it may be interested as Trustee; to deposit any property with any
protective, reorganization or similar committee, and to pay or agree to pay part
of the expenses and compensation of any committee and any assessments levied
with respect to property so deposited; and
(e) to compromise, compound, submit to arbitration or settle
any debt or obligation owing to or from it as Trustee; to reduce or increase the
rate of interest on extension, or otherwise modify, foreclose upon default, or
otherwise enforce any such obligation.
-8-
<PAGE>
ln exercising such powers with respect to any portion of the Trust Fund that is
invested in the discretion of the Trustee or pursuant to Section 4.04(c), the
Trustee shall act in its discretion. In exercising such powers with respect to
directions of the Committee or of an Investment Manager, the Trustee shall act
in accordance with directions provided by the Committee or Investment Manager.
The Trustee shall be under no duty or obligation to review any action to be
taken, nor to recommend any action, pursuant to this Section 5.01 with respect
to any portion of the Trust Fund that is under the direction of the Committee or
an Investment Manager. The Trustee shall have no liability of responsibility
for, and the Bank agrees to indemnify the Trustee and hold it harmless from and
defend it against any claim or liability which may be asserted against the
Trustee by reason of, its actions or inaction pursuant to the direction of, or
its failure to act in the absence of directions from, the Committee, the Plan
Administrator or an Investment Manager, except to the extent provided in Section
8.06.
SECTION 5.02 DISCRETIONARY POWERS.
In addition to and not by way of limitation of any other
powers conferred upon the Trustee by law or other provisions of this Agreement,
but subject to Section 2.02 and this Article V, the Trustee is authorized and
empowered, in its discretion:
(a) to sue or defend suits or legal proceedings to protect or
enforce any interest in the Trust and to represent the Trust in all suits or
legal proceedings in any court or before any other administrative agency, body
or tribunal, where it is advised by counsel that such action is required by
applicable law;
(b) to organize corporations and/or partnerships or
established ancillary or subsidiary trusts under the laws of any jurisdiction
for the purpose of holding title to any property
held in the Trust Fund;
(c) to borrow, subject to the provisions of Article VI and
ERISA, for the purpose of the Trust from any person or persons, and for any sums
so borrowed to issue its promissory note as Trustee and to secure the repayment
thereof by pledging all or any part of the assets of the Trust fund; no person
lending money to the Trustee shall be required to see to the application of the
money lent or to inquire into the validity, expediency, or propriety of any such
borrowing;
(d) to hold part of the Trust Fund uninvested in cash or cash
balances for liquidity purposes and not be required to pay interest thereon;
(e) to hold any property at any place, except that it shall
not maintain the indicia of ownership of any assets of the Trust Fund outside
the jurisdiction of the district courts of the United States except as permitted
by regulations issued by the Secretary of Labor of the United
States under Section 404(b) or ERISA.
(f) to make, sign, acknowledge, and deliver deeds, leases,
assignments, and other instruments;
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(g) to cause any property to be registered in the name of its
nominee, or to hold any such property in such form that it will pass by delivery
and, in accordance with Sections
11-1.8
and 11-1.9 of the Estates, Powers and Trusts Law of the State of New York, to
deposit or arrange for the deposit of any securities held by it with the Federal
Reserve Bank of New York or in a clearing corporation (as defined in the New
York State Uniform Commercial Code); provided, however, that the records of the
Trustee shall at all times show that any such property held or registered in the
name of another is part of the Trust Fund;
(h) to employ legal counsel, brothers, and other advisors,
agents, or employees to perform services for the Trust Fund or to advise it with
respect to its duties and obligations under this Agreement and in connection
with the Trust, and to pay to them from the Trust Fund such compensation as it
deems appropriate; and
(i) generally to do all acts, whether or not expressly
authorized, which the Trustee may deem necessary or desirable for the protection
of the Trust Fund.
ARTICLE VI
PAYMENTS OF BENEFITS AND EXPENSES
SECTION 6.01 AUTHORIZATION BY PLAN ADMINISTRATOR.
The Trustee shall pay benefits and administrative expenses
under the Plan, transfer funds to any other trust fund established under the
Plan or make direct transfers to other tax-qualified plans, only when it
receives (and in accordance with) written instructions of the Plan Administrator
indicating the amount of the payment and the name and address of the recipient.
The Trustee need not inquire into whether any payment the Plan Administrator
instructs it to make is consistent with the terms of the Plan or applicable law
or otherwise proper. Any payment made by the Trustee in accordance with such
instructions shall be a complete discharge and acquittance to the Trustee. If
the Plan Administrator advises the Trustee that benefits have become payable
with respect to a Participant's interest in the Trust Fund but does not instruct
the Trustee as to the manner of payment, the Trustee shall hold the
Participant's interest in the Trust until it receives written instructions from
the Plan Administrator as to the manner of payment. The Trustee shall not pay
benefits from the Trust Fund without such instructions, even though it may be
informed from other sources, including, without limitation, a Participant or
beneficiary, that benefits are payable under the Plan. The Trustee shall have no
responsibility to determine when, to whom, or in what amount benefits and
expenses are payable under the Plan. If the Plan Administrator so directs, the
Trustee shall segregate amounts payable with respect to the interest in the Plan
of any Participant and administer them separately from the rest of the Trust
Fund in accordance with the Plan Administrator's instructions. The Plan
Administrator shall certify to the Trustee that any such instructions are
consistent with the Plan.
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SECTION 6.02 REPRESENTATIONS BY THE PLAN ADMINISTRATOR.
The Trustee may require the Plan Administrator to certify in
writing that any payment of benefits or expenses it instructs the Trustee to
make pursuant to Section 6.01 is: (a) in accordance with the terms of the Plan,
and/or (b) one which the Plan Administrator is authorized by the Plan and any
other applicable instruments to direct, and/or (c) made for the exclusive
purpose of providing benefits to Participants and their beneficiaries, or
defraying reasonable expenses of Plan administration, and/or (d) not made to a
party in interest, within the meaning of Section 3(14) of ERISA or a
disqualified person, within the meaning of Section 4975 of the Internal Revenue
Code, and/or (e) not a Prohibited Transaction. If the Trustee requests,
instructions to pay benefits shall be made by the Plan Administrator on forms
prepared by the Trustee that include any or all of the above representations.
The Trustee shall be fully protected in relying on the truth of any such
representation by the Plan Administrator and shall have no duty to investigate
whether such representations are correct or to see to the application of any
amounts paid to the recipient. The Bank shall indemnify the Trustee and hold it
harmless from any liability resulting from acts or omissions taken in reliance
on such representations.
SECTION 6.03 FORM OF PAYMENT.
Payments of money by the Trustee for any benefit or expense
under the Plan may be made by, when applicable, mailing its check for the amount
thereof to the person designated by the Committee as entitled to receive such
payment to such address as may have been last furnished to the Trustee by the
Committee. If no such address has been furnished, benefits or expenses may be
mailed by the Trustee to such person in care of the Committee or the Bank. To
the extent permitted under the Plan, distributions of Shares shall be made by
causing Warwick Community Bancorp, Inc., or its transfer agent, to issue to the
distributee a stock certificate evidencing ownership of the designated number of
Shares. To the extent that any distribution of Shares to any person requires the
registration of such Shares under the securities or blue sky laws of the United
States or any state, or otherwise requires any governmental approvals, the Bank
shall undertake to complete such registration or obtain such approvals at its
sole expense.
SECTION 6.04 FEES AND EXPENSES OF TRUSTEE.
The Trustee shall receive as reasonable compensation for its
services as Trustee such amounts as may, from time to time, be agreed upon in
writing between the Bank and the
Trustee.
Such fees and expenses may be charged directly to the Trust Fund unless paid by
the Bank. The Trustee shall have a lien against the Trust Fund for the unpaid
amount of any fees and disbursements due it and, in its discretion, may withdraw
the same from the Trust Fund.
SECTION 6.05 TAXES.
All taxes that may be levied or assessed upon or in respect of
the Trust Fund shall be paid from the Trust Fund. The Trustee shall notify the
Committee of any proposed or final assessments of taxes and may assume that any
such taxes are lawfully levied or assessed unless the Committee advises it in
writing to the contrary within fifteen (15) days after receiving the above
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notice from the Trustee. In such case, the Trustee, if requested by the
Committee in writing, shall contest the validity of such taxes in any manner
deemed appropriate by the Committee; the Bank may itself contest the validity of
any such taxes, in which case the Committee shall so notify the Trustee and the
Trustee shall have no responsibility or liability respecting such contest. If
either party to this Agreement contests any such proposed levy or assessments,
the other party shall provide such information and cooperation as the party
conducting the contest shall reasonably request.
ARTICLE VII
VOTING RIGHTS AND TENDER OFFERS
SECTION 7.01 EXERCISE OF VOTING RIGHTS.
(a) Each person with amounts invested in the Employer Stock
Fund shall have the right to confidentially direct the exercise of voting rights
appurtenant to Shares attributable to the portion of such person's account
invested in the Employer Stock Fund; PROVIDED, however, that such person had
investments in the Employer Stock Fund as of the most recent valuation date
coincident with or immediately preceding the applicable record date for
exercising such voting rights. Such person shall, for this purpose, be deemed a
"named fiduciary" within the meaning of section 402(a)(2) of ERISA. Such
direction shall be made by completing and filing with the inspector of
elections, Trustee, or such other person who shall be independent of the issuer
of Shares as the Committee 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
Committee. The inspector of elections, Trustee or such other person designated
by the Committee shall tabulate the directions given on a strictly confidential
basis and shall provide the Committee with only the final results of such
tabulation. The final results of the tabulation shall be followed by the
Committee or the Board in directing the Trustee as to the manner in which such
voting rights shall be exercised. The Committee shall furnish, or cause to be
furnished, to each person whose account is invested in the Employer Stock Fund
all annual reports, proxy materials and other information known by the Committee
to have been furnished by the issuer of the Shares or by any proxy solicitor to
the holders of Shares.
(b) To the extent that any person with amounts invested in the
Employer Stock Fund fails to give instructions with respect to the exercise of
voting rights appurtenant to Shares attributable to the portion of such person's
account invested in the Employer Stock Fund with
respect to each matter to be voted upon:
(i) the Committee or the Board shall direct the Trustee
to: (A) cast a number of affirmative votes equal to
the product of (I) the number of Shares for which no
written instructions have been given, multiplied by
(II) a fraction, the numerator of which is the number
of Shares for which affirmative votes will be cast in
accordance with written instructions given as
provided in section 7.01(a) and the denominator of
which is the aggregate number of affirmative and
negative votes which will be cast in accordance with
written
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instructions given as aforesaid, and (B) cast a
number of negative votes equal to the excess (if any)
of (I) the number of Shares for which no written
instructions have been given over (II) the number of
affirmative votes being cast with respect to such
Shares pursuant to section 7.01(b)(i)(A); or
(ii) if the Committee or the Board shall determine that it
may not, consistent with its fiduciary duties, direct
the Trustee to vote the Shares for which no written
instructions have been given in the manner described
in section 7.01(b)(i), it shall direct the Trustee to
vote such Shares in such manner as the Compensation
Committee or the Board, in its discretion, may
determine to be in the best interests of the persons
to whom such Shares are attributable.
(c) To the extent permitted by applicable law, the Trustee
shall act in accordance with the directions that it receives from the Committee
for each matter as to which voting rights are to be exercised. If the Committee
does not provide the Trustee with directions, then to the extent permitted by
applicable law, the Trustee shall exercise the voting rights appurtenant to
Shares held in the Employer Stock Fund in its discretion. The Trustee shall have
no discretion over or responsibility or liability for its actions taken in
accordance with the Committee's directions. The Bank hereby agrees to indemnify
the Trustee and hold it harmless from and defend it against any claim asserted
against or liability imposed on the Trustee by reason of its having acted on any
direction given by the Committee in accordance with this Section 7.01 or failing
to act in the absence of such direction.
SECTION 7.02 RESPONSE TO TENDER OFFERS AND SIMILAR
EVENTS.
(a) Each person with amounts invested in the Employer Stock
Fund shall have the right to confidentially direct the response to a tender
offer, or to any other offer, made to the holders of Shares generally, to
purchase, exchange, redeem or otherwise transfer Shares, with respect to the
Shares attributable to the portion of such person's account invested in the
Employer Stock Fund; PROVIDED, HOWEVER, that such person had amounts invested in
the Employer Stock Fund as of the most recent valuation date coincident with or
immediately preceding the first day for delivering Shares or otherwise
responding to such tender or other offer. Such person shall, for such purpose,
be deemed a "named fiduciary" within the meaning of section 402(a)(2) of ERISA.
Such direction shall be made by completing and filing with the Trustee, or such
other person who shall be independent of the issuer of Shares as the Committee
shall designate, at least 10 days prior to the last day for delivering Shares or
otherwise responding to such tender or other offer, a written direction in the
form and manner prescribed by the Committee. The Trustee or such other person
designated by the Committee shall tabulate the directions given on a strictly
confidential basis and shall provide the Committee with only the final results
of such tabulation. The final results of the tabulation shall be followed by the
Committee or the Board in directing the Trustee as to the number of Shares to be
delivered in response to such tender or other offer. The Committee shall furnish
or cause to be furnished, to each person whose account is invested in whole or
in part in the Employer Stock Fund, all information concerning such tender or
other offer
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<PAGE>
known by the Committee to have been furnished by the issuer of Shares or
furnished by or on behalf of the person making such tender or other offer.
(b) To the extent that any person with amounts invested in the
Employer Stock Fund fails to give instructions with respect to Shares
attributable to the portion of his account
invested in the Employer Stock Fund:
(i) the Committee or the Board shall direct the Trustee
to: (A) tender or otherwise offer for purchase,
exchange or redemption a number of such Shares equal
to the product of (I) the number of Shares for which
no written instructions have been given, multiplied
by (II) a fraction, the numerator of which is the
number of Shares tendered or otherwise offered for
purchase, exchange or redemption in accordance with
written instructions given as provided in section
7.02(a) and the denominator of which is the aggregate
number of 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 Shares for which no written instructions have been
given over (II) the number of Shares being tendered
or otherwise offered pursuant to section
7.02(b)(i)(A); or
(ii) if the Committee or the Board shall determine that it
may not, consistent with its fiduciary duties, direct
the Trustee to tender or otherwise offer for
purchase, exchange or redemption Shares for which no
written instructions have been given in the manner
described in section 7.02(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 whom such
Shares are attributable.
(c) If the Committee does not provide the Trustee with
directions with respect to a tender offer or other offer described in section
7.02(a), then to the extent permitted by applicable law, the Trustee shall take
any action in response to such an offer in its discretion. The Trustee shall
have no discretion over or responsibility or liability for its actions taken in
accordance with the Committee's directions. The Bank hereby agrees to indemnify
the Trustee and hold it harmless from and defend it against any claim asserted
against or liability imposed on the Trustee by reason of its having acted on any
direction given by the Committee in accordance with this Section 7.02 or failing
to act in the absence of any such direction.
SECTION 7.03 DISSENT AND APPRAISAL RIGHTS.
(a) Each person with amounts invested in the Employer Stock
Fund shall have the right to confidentially direct the manner in which all
dissent and appraisal rights appurtenant to Shares attributable to the portion
of such person's account invested in the Employer Stock Fund will be exercised;
PROVIDED, HOWEVER, that such person had amounts invested in the Employer Stock
Fund as of the most recent valuation date coincident with or immediately
preceding the applicable date for exercising such dissent or appraisal rights.
Such individual shall, for such
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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 designated by the Committee who shall be
independent of the issuer of Shares 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 Committee. The Trustee or other person designated
by the Committee shall tabulate the directions given on a strictly confidently
basis and shall provide the Committee with only the final results of such
tabulation. The final results of the tabulation shall be followed by the
Committee or the Board in directing the Trustee as to the manner in which such
dissent and appraisal rights shall be exercised. The Committee shall furnish, or
cause to be furnished, to each person whose account is invested in the Employer
Stock Fund all information known by the Committee to have been furnished by the
issuer of the Shares, 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 with amounts invested in the
Employer Stock Fund shall fails to give instructions with respect to dissent and
appraisal rights appurtenant to Shares attributable to his interest, the
Compensation Committee or the Board shall direct the Trustee to exercise dissent
and appraisal rights as to those Shares in such manner as the Compensation
Committee or the Board shall determine to be in the best interest of the person
to whom such Shares are attributable.
(c) If the Committee does not provide the Trustee with
directions with respect to dissent and appraisal rights, then to the extent
permitted by applicable law, the Trustee shall take any action in response to
such rights in its discretion. The Trustee shall have no discretion over or
responsibility or liability for its actions taken in accordance with the
Committee's directions. The Bank hereby agrees to indemnify the Trustee and hold
it harmless from and defend it against any claim asserted against or liability
imposed on the Trustee by reason of its having acted on any direction given by
the Committee in accordance with this Section 7.03 or failing to act in the
absence of any such direction.
ARTICLE VIII
LIABILITY OF THE TRUSTEE
SECTION 8.01 CONTRIBUTIONS.
The Trustee shall not be responsible for computing or
collecting contributions due under the Plan.
SECTION 8.02 CLAIMS LIMITED TO THE TRUST FUND.
The Trustee in its individual or corporate capacity shall not
be liable for claims of any persons in any manner regarding the Plan; such
claims shall be limited to the Trust Fund. The Trustee shall not be liable to
make distributions or payments of any kind unless sufficient funds are
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available therefor in the Trust Fund. The Trustee shall be responsible only for
such money and other property as are received by it as Trustee under this
Agreement.
SECTION 8.03 RETENTION OF ADVISORS.
The Trustee may consult legal counsel and other professional
advisors who may, but need not, be its counsel or advisors or counsel or
advisors to the Bank, the Committee, or any Participant or beneficiary, with
respect to the meaning and construction of this Agreement or its
powers, obligations, and conduct hereunder.
The Trustee shall be entitled to reasonable reimbursement from
the Trust Fund for such legal counsel's and other professional advisors' fees.
The Trustee shall not be deemed imprudent solely by reason of its taking or
refraining from taking any action in accordance with the opinion of
counsel.
SECTION 8.04 QUALIFICATION OF PLAN AND TRUST.
The Trustee shall be fully protected in assuming that the Plan
and Trust meet the requirements of Sections 401 and 501 of the Internal Revenue
Code and all the applicable provisions of ERISA unless it is advised to the
contrary in writing by the Committee or a governmental
agency.
SECTION 8.05 GENERAL DUTIES OF TRUSTEE.
The Trustee shall discharge its duties hereunder with the
care, skill, prudence, and diligence under the circumstances then prevailing
that a prudent man acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of a like character and with like
aims. The Trustee shall not be liable for any loss sustained by the Trust Fund
by reason of the purchase, retention, sale or exchange of any investment in good
faith and in accordance with the provisions of this Agreement and any applicable
law. The Trustee's duties and obligations shall be limited to those expressly
imposed upon it by this Agreement notwithstanding any reference herein to the
Plan.
SECTION 8.06 NO LIABILITY FOR ACTS OF OTHERS.
(a) Subject to Section 8.06(b), no "fiduciary" (as such term
is defined in Section 3(21) of ERISA) under this Agreement shall be liable for
an act or omission of another person in carrying out any fiduciary
responsibility where such fiduciary responsibility is allocated to such other
person by this Agreement or pursuant to a procedure established in this
Agreement except to the extent that:
(i) such fiduciary participated knowingly in, or
knowingly undertook to conceal, an act or omission of such
other person, knowing such act or omission to be
a breach of fiduciary responsibility;
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(ii) such fiduciary, by his failure to comply with
Section 404(a)(1) of ERISA in the administration of his
specific responsibilities which give rise to his status as a
fiduciary, has enabled such other person to commit a breach of
fiduciary, responsibility; or
(iii) such fiduciary has knowledge of a breach of
fiduciary responsibility by such other person, unless he makes
reasonable efforts under the circumstances to
remedy the breach.
(b) Except as required by applicable law, the Trustee shall
have no liability or responsibility for an act or omission of an Investment
Manager appointed pursuant to Section 4.03 in carrying out its fiduciary
responsibilities with respect to the Plan and no obligation to invest or
otherwise manage any asset of the Plan which is subject to the management of
such Investment Manager unless the Trustee: (i) by its failure to comply with
Section 404(a)(1) of ERISA in the administration of its specific
responsibilities which give rise to its status as a fiduciary, has enabled such
Investment Manager to commit a breach of fiduciary responsibility; or (ii)
participated knowingly in, or knowingly undertook to conceal, an act or omission
of such Investment Manager, knowing such act or omission to be a breach of
fiduciary responsibility.
SECTION 8.07 INDEMNIFICATION.
(a) Subject to the relevant provisions of ERISA, the Bank
hereby agrees to discharge, indemnify and hold Marine Midland Bank, ("Marine"),
and its directors, officers and employees (hereinafter collectively referred to
as the "Indemnitees") harmless from and against:
(i) any and all reasonable costs and expenses
incurred by Marine in the enforcement of this Section 8.07
including, but not limited to, reasonable attorneys'
fees and expenses and court costs; and
(ii) any and all losses, claims, damages, expenses,
or liabilities (including, but not limited to, court costs,
judgments, fines, excise taxes, time charged for personnel
time of Marine related to litigation and the aggregate amount
paid in reasonable settlement of any actions, suits,
proceedings, or claims) (hereinafter referred to as "Losses")
incurred by any one or more of the Indemnitees in connection
with actions, proceedings, or suits of any kind or nature
whatsoever, whether civil under any statue or common law or
otherwise, criminal, administrative or investigative arising
from or in any way related to actions taken, or omitted to be
taken, by one or more of the Indemnitees in connection with
the engagement of Marine as Trustee of the Trust, including,
but not limited to, any actions taken or omitted to be taken
pursuant to directions or requests of the Bank, the Plan
Administrator, the Committee, the Plan's Investment Manager,
or their duly authorized agent or agents (such indemnification
shall also include reasonable fees and expenses of Marine's
legal counsel and financial advisors ("Litigation Expenses")
which shall be paid within thirty (30) days of the date
billed); provided, however, that upon a written determination
of any court of competent jurisdiction ("Court") ,
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in an action in which the Bank and Marine are parties,
concluding that a Loss resulted from the gross negligence or
willful misconduct of one or more Indemnitees, the Bank shall
not be obligated to pay Marine's Litigation Expenses within
thirty (30) days of the date billed. Notwithstanding the
foregoing, the provisions of this Section 8.07 (other than
this sentence and the last sentence of this Section 8.07(a))
shall not apply to the extent that any Loss is found, in a
final judgement ("Judgment") by a Court either (i) from which
no appeal can be taken or (ii) from which no appeal is taken
in a timely manner, to have resulted from the gross negligence
or willful misconduct of one or more Indemnitees, in which
case Marine shall reimburse the Bank for any Litigation
Expenses and/or Losses paid by the Bank hereunder. However, if
the Judgment does not indicate that the Loss resulted from the
gross negligence or willful misconduct of one or more
Indemnitees, the Bank shall pay all of Marine's outstanding
Litigation Expenses and/or Losses within thirty (30) days. Any
reimbursement or payment, as the case may be, required to be
made hereunder after a Judgment shall include interest
calculated in accordance with Marine's prime rate of interest
as of the date the Bank or Marine, as the case may be, paid
the litigation Expense or Loss.
(b) If notice of any action, claim, investigation or
proceeding (hereinafter collectively referred to as "Proceeding") is received by
one or more Indemnitees in respect to which indemnity may be sought against the
Bank hereunder, such Indemnitee or Indemnitees shall promptly notify the Bank,
in writing in no event later than thirty (30) days of the commencement thereof,
but the omission to so notify the Bank shall not relieve the Bank from any
liability to any one or more Indemnitees hereunder, except to the extent that
such failure shall have actually prejudiced the defense of such action. The
Bank, upon written notice to the Indemnitees within fifteen (15) days after
receiving notice of commencement of the Proceeding, will be entitled to
participate in any such Proceeding and to the extent that it may wish, assume
the defense of the Proceeding with counsel satisfactory to the Indemnitees.
After notice from the Bank to the Indemnitees of its election to assume the
defense of any Proceeding, the Bank will pay all costs of defense of such
Proceeding of every kind whatsoever. The Bank shall pay the Indemnitees'
reasonable costs of investigation, of testifying in any hearing, of responding
to discovery proceedings, or of consulting with the Bank or the Bank's
attorneys. Indemnitees shall have the right to employ their own counsel in any
Proceeding and the fees and expenses of such counsel shall be paid by the Bank,
as they are incurred, if:
(i) Indemnitees have been advised by such counsel
that there may be one or more legal defenses available to them
which are different from or additional to defenses that are
available to the Bank (in which case the Bank shall not have
the right to assume the defense of the Proceeding on behalf of
Indemnitees);
(ii) the Bank has not assumed the defense of the
Proceeding and employed counsel satisfactory to Indemnitees
within fifteen (15) days after notice of commencement of the
Proceeding;
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(iii) the employment of such counsel has been
authorized by the Bank in
connection with the defense of the Proceeding; or
(iv) Indemnitees have been reasonably informed by
such counsel that a conflict exists with counsel selected by
the Bank.
(c) Neither termination, nor completion of the engagement of
Marine or Indemnitees shall affect the provisions of this Section 8.07, which
shall nevertheless remain operative and in full force and effect. The Bank
hereby agrees that, in the event a Court holds that any payment or award of
indemnification under the provisions of this Section 8.07 shall be unavailable
to any one or more of the Indemnitees from the Bank for any reason, the Bank
shall contribute to the aggregate Loss such amount as shall reflect the relative
fault of the Bank.
(d) The provisions of this Section 8.07 shall be binding upon
and inure to the benefit of the assigns, successors and legal representatives of
the parties hereto.
(e) The parties agree that this Section 8.07 shall apply from
the date Marine becomes Trustee of the Trust and shall remain in full force and
effect with regard to any matters covered hereunder, irrespective of whether
Marine is then serving as Trustee of the Trust.
(f) The parties agree that, in the event a Court holds that
any part of this Section 8.07 is invalid or unenforceable, the remaining
provisions of this Section 8.07 shall remain in full force and effect as if the
provisions held invalid or unenforceable were never a part thereof.
SECTION 8.08 COMMUNICATIONS.
Communications to the Trustee shall be sent to the Trustee's
principal office as stated in the preamble to this Agreement, to the attention
of its Trust Department, or to such other address as the Trustee shall indicate
in a written instrument delivered to the Committee.
Communication to the Committee, the Plan Administrator, the
Bank or the Board shall be sent to the Bank's principal office as stated in the
preamble to this Agreement, or to such other address as the Committee shall
specify in a written instrument delivered to the Trustee. Communications shall
be deemed to have been given at the time given personally, the day sent by
facsimile transmission or by overnight courier or five (5) days after mailing
postage prepaid or by registered or certified mail.
SECTION 8.09 PROOF OF MATTERS.
Whenever the Trustee shall deem it desirable for a matter to
be proved or established before taking, permitting, or omitting any act, the
matter (unless other evidence in respect thereof is specifically prescribed in
this Agreement) may be deemed to be conclusively established by a certification
signed by any two members of the Committee (or by the member of the Committee if
the Committee has only one member) and delivered to the Trustee, and the Trustee
shall be fully protected in relying on such an instrument.
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SECTION 8.10 PARTY IN INTEREST INFORMATION.
The Bank shall provide the Trustee with such information
concerning the relationship between any person or organization and the Plan as
the Trustee reasonably requests in order to determine whether such person or
organization is a party in interest with respect to the Plan within the meaning
of Section 3(14) of ERISA or a disqualified person with respect to the Plan
within the meaning of section 4975 of the Internal Revenue Code.
SECTION 8.11 DISPUTES.
If a dispute arises as to the payment of any funds or delivery
of any assets by the Trustee, the Trustee may withhold such payment or delivery
until the dispute is determined by a court of competent jurisdiction or finally
settled in writing by the parties concerned.
ARTICLE IX
ACCOUNTING OF THE TRUSTEE
SECTION 9.01 KEEPING OF ACCOUNTS.
The Trustee shall keep accurate and detailed accounts of all
investments, reinvestments, receipts and disbursements and all other records of
all its transactions under this Agreement. These accounts, books and records
shall be open to inspection during regular business hours of the Trustee by the
Committee or the Plan Administrator or any person or persons designated by the
Committee or the Plan Administrator in a written instrument filed with the
Trustee. The Trustee need not keep records of the interests in the Trust Fund of
individual Participants and beneficiaries unless it agrees with the Committee or
the Bank to keep such records under a separate agreement adopted under Section
3.05 of this Agreement.
SECTION 9.02 RENDERING OF ACCOUNTS.
Within ninety (90) days after the close of each fiscal year of
the Plan, the Trustee's removal or resignation as Trustee hereunder, or the
termination of the Plan or this Agreement, the Trustee shall file with the
Committee an account setting forth all its transactions (including all receipts
and disbursements) under the Agreement during such year, or during the period
from the close of the last preceding fiscal year of the Plan to the effective
date of its removal or resignation or the termination of the Plan or this
Agreement, and showing property (including its cost and fair market value) held
by it hereunder at the end of such accounting period. The Trustee shall certify
in writing that the information in the accounting is accurate. The Committee and
the Trustee may agree in writing that similar accounts will be prepared by the
Trustee and filed with the Committee at more frequent intervals. No person or
persons (including, without limitation, the Bank, the Board, and the Committee)
shall be entitled to any further or different accounting by the Trustee, except
as may be required by law.
-20-
<PAGE>
SECTION 9.03 DISCHARGE OF TRUSTEE.
Ninety (90) days after the filing of any account with the
Committee under Section 9.02, the Trustee shall be forever released and
discharged from any liability or accountability to anyone with respect to the
transactions shown or reflected on the account, except with respect to any acts
or transactions as to which the Committee, within such ninety-day period, files
written objections with the Trustee. The written approval of the Committee of
any account filed by the Trustee, or the Committee's failure to file written
objections within ninety (90) days, shall be a settlement of such account as
against all persons, and shall forever release and discharge the Trustee from
any liability or accountability to anyone with respect to the transactions shown
or reflected on such account.
If a statement of objections is filed by the Committee and the
Committee is satisfied that its objections should be withdrawn or if the account
is adjusted to its satisfaction, the Committee shall indicate its approval of
the account in a written statement filed with the Trustee and the Trustee shall
be forever released and discharged from all liability and accountability to
anyone in accordance with the immediately preceding sentence. If an objection is
not settled by the Committee and the Trustee, the Trustee, the Bank or the
Committee may start a proceeding for a judicial settlement of the account in any
court of competent jurisdiction; the only parties that need be joined in such a
proceeding are the Trustee, the Committee, the Bank, and any other parties whose
participation is required by law.
SECTION 9.04 RIGHT TO JUDICIAL SETTLEMENT.
Nothing in this Agreement shall prevent the Trustee, the Bank
or the Committee from having the Trustee's account settled by a Court at any
time. The only parties that need be joined in any such proceeding are the Bank,
the Committee, the Trustee, and any other parties whose
participation is required by law.
ARTICLE X
REMOVAL AND RESIGNATION OF THE TRUSTEE
SECTION 10.01 REMOVAL OR RESIGNATION.
The Trustee may resign as Trustee under this Agreement at any
time by a written instrument delivered to the Committee giving notice of such
resignation, which shall be effective sixty (60) days after receipt or at such
other time as is agreed by the Committee and the Trustee. The Trustee may be
removed at any time by the Board by a written resolution, certified by the
Secretary or Assistant Secretary of the Bank and delivered to the Trustee, which
shall be effective sixty (60) days after receipt or at such other time as is
agreed between the Committee and the Trustee.
-21-
<PAGE>
SECTION 10.02 SUCCESSOR TRUSTEE.
If a vacancy in the office of trustee of the Trust occurs, the
Board shall appoint a successor trustee and shall deliver to the Trustee copies
of (a) a written instrument executed by the Bank appointing such successor, and
(b) a written instrument executed by the successor in which it accepts such
appointment. Such instruments shall indicate their effective dates. The
instrument of appointment shall be accompanied by certified copies of
resolutions of the Board authorizing its adoption. Any such successor trustee or
trustees shall have all the powers and duties of the original trustee.
SECTION 10.03 DELIVERY OF TRUST FUND.
If the Trustee resigns or is removed, it shall deliver any
assets of the Trust Fund in its possession to a successor trustee as soon as it
reasonably practicable after the settlement of its account or at such earlier
time as shall be agreed on by the Bank, the Trustee, and the successor trustee.
The Trustee may, however, reserve such amount of cash or property as it deems
advisable for payment of its fees and expenses in connection with its
administration of the Trust or the settlement of its account or for payment of
all taxes that may be assessed on or in respect of the Trust Fund or the income
thereof for the period before its removal or resignation. The Trustee shall pay
over to the successor trustee any balance of such reserve remaining after the
payment of such fees, expenses, and taxes. The delivery of assets of the Trust
Fund to the successor trustee shall not be deemed a waiver by the Trustee of any
lien or claim it may have on the Trust Fund for its fees or expenses.
ARTICLE XI
AMENDMENT AND TERMINATION
SECTION 11.01 AMENDMENT.
This Agreement may be amended at any time and from time to
time by a written instrument signed by the Trustee and the Bank. The instrument
of amendment must be approved by the Board and the Committee shall deliver to
the Trustee a certified copy of resolutions adopted by the Board authorizing its
adoption. The Bank shall certify to the Trustee that the amendment does not
permit any part of the Trust Fund to be used for or diverted to purposes other
than the exclusive benefit of Participants and their beneficiaries or the
payment of reasonable expenses of administering the Plan and Trust, subject to
Section 2.02. The instrument of amendment shall specify its effective date and
amendments may be made effective retroactively.
SECTION 11.02 TERMINATION.
If the Committee certifies to the Trustee that the Plan is or
has been terminated, the Trustee shall hold and/or dispose of the Trust Fund in
accordance with the Committee's written instructions, subject to the Trustee's
right to receive a written or judicial settlement of its account and
-22-
<PAGE>
such evidence of governmental approval as it shall, in its sole discretion,
require. The Committee shall certify in writing to the Trustee that the
disposition directed: (a) does not result in any part of the Trust Fund being
used for or diverted to purposes other than the exclusive benefit of
Participants and their beneficiaries and the payment of reasonable expenses of
administering the Plan and Trust, subject to Section 2.02, (b) is in accordance
with ERISA and any other applicable laws, and (c) does not result in a
Prohibited Transaction. The Trustee may, however, reserve such amount of cash or
property as it deems advisable for payment of its fees and expenses in
connection with its administration of the Trust or the settlement of its account
or for payment of taxes that may be assessed on or in respect of the Trust or
the income thereof.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 MERGER OF TRUSTEE.
Any corporation into which the Trustee is merged or with which
it is consolidated, or any corporation resulting from a merger, reorganization,
or consolidation, to which the Trustee is a party, or any corporation to which
all or substantially all the trust business of the Trustee is transferred shall
become the successor trustee under this Agreement without the execution or
filing of any further instrument or the performance of any further act.
SECTION 12.02 AFFILIATED COMPANIES.
(a) Any other company which adopts the Plan in accordance with
its terms may, with the written consent of the Trustee and Bank, become a party
to this Agreement as an "Affiliated Company" by delivering a certified copy of a
resolution of its board of directors to the effect that it agrees to adopt the
Plan, to become a party to this Agreement and to be bound by all the terms and
conditions of the Plan and this Agreement, as then in effect and as it may
thereafter be amended. The Bank shall have the sole authority to enforce this
Agreement on behalf of any such Affiliated Bank and the Trustee need not deal
with any Affiliated Company except by dealing with the Bank or the Committee as
its agent. The Trustee shall invest and administer the Trust Fund as a single
fund for investment and accounting purposes without identification or allocation
among the Bank and any Affiliated Companies or to any employee or group of
employees or their beneficiaries, unless the Trustee, the Bank, and the
Affiliated Companies concerned agree in writing to segregate funds.
(b) Any Affiliated Company may cease to be a party to this
Agreement by delivering to the Trustee a certified copy of a resolution of its
board of directors terminating its participation in the Plan or this Agreement.
In such case, or in the event of the merger, consolidation, sale of property or
stock, separation, reorganization or liquidation of any Affiliated Company, the
Trustee, until directed otherwise by the Committee, shall continue to hold, in
accordance with the provisions of this Agreement, that portion of the Trust Fund
which it is advised by the Committee is attributable to the participation in the
Plan of the employees and their beneficiaries affected by such termination or by
such transaction.
-23-
<PAGE>
SECTION 12.03 ALIENATION OF TRUST FUND.
No right or claim in or to the Trust Fund or any assets
thereof shall be assignable or subject to garnishment, attachment, execution, or
levy of any kind except as otherwise provided under Section 414(p) of the
Internal Revenue Code and Section 206(d)(3) of ERISA; any attempt to transfer,
assign, or pledge the same shall be void and shall not be recognized by the
Trustee except to such extent as may be legally required.
SECTION 12.04 APPLICABLE LAW.
This Agreement shall be administered, construed, and enforced
in accordance with applicable federal law (including, but not limited to, the
fiduciary requirements of Part 4 of Title I of ERISA) and, to the extent not
preempted by federal law, the laws of the State of New York.
SECTION 12.05 HEADINGS NOT PART OF THE AGREEMENT.
Headings of Articles and Sections are inserted for convenience
of reference. They are not part of this Agreement and shall not be considered in
construing it.
SECTION 12.06 MULTIPLE COPIES.
This Agreement may be executed in any number of counterparts,
each of which shall be considered an original even though no others are
produced.
-24-
<PAGE>
IN WITNESS WHEREOF, the Bank and the Trustee have caused this
Agreement to be executed by their duly authorized officers and their respective
corporate seals to be hereunto affixed
as of the day and year first above written.
THE WARWICK SAVINGS BANK
By: /s/ Ronald J. Gentile
----------------------------------
Ronald J. Gentile
Title: Executive Vice President
and Chief Operating Officer
Date: November 21, 1997
------------------------------
Attest:
By: Nancy L. Sobotor-Littell
------------------------
Secretary
[seal]
MARINE MIDLAND BANK
By: /s/ Richard A. Glover
----------------------------------
Richard A. Glover
Title: Vice President
Date: November 20, 1997
------------------------------
Attest:
By: James Chin
------------------------
Vice President
[seal]
-25-
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF ORANGE )
On this 21st day of November, 1997, before me personally came
RONALD J. GENITLE to me known, who, being by me duly sworn, did depose and say
that he resides at 30 Newport Bridge Road, Warwick, New York 10990; that he is
the Executive Vice President and Chief Operating Officer 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 savings bank's seal; that it was so affixed by order of the
Board of Directors of said savings bank; and that he signed his name thereto by
like order.
/s/ Mary K. Serriger
-------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On this 20th day of November, 1997, before me personally came
RICHARD A. GLOVER, to me known, who, being by me duly sworn, did depose and say
that he resides at 5 Windward Court, Dix Hills, New York, that he is Vice
President and Trust Officer of MARINE MIDLAND BANK, the banking corporation
described in and which executed the foregoing instru ment; that he knows the
seal of said banking 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
banking corporation; and that he signed his name thereto by like order.
/s/ Doris Colon
-------------------------
Notary Public
-26-
EXHIBIT 11.1
------------
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the Year Ended May 31, 1998
1. Net income (since December 23, 1997) $ 628,400
2. Total weighted average common shares outstanding 6,112,610
3. Basic earnings per share $ 0.10
4. Diluted earnings per share $ 0.10
- --------------------------------------------------------------------------------
Warwick Community Bancorp, Inc.
Annual Report
[GRAPHIC]
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
Mission Statement
Our objective is to be a leading financial services organization offering a full
range of consumer and commercial products and services. We endeavor to offer
these products and services with a focus on our customers, while taking
appropriate safety and soundness principles into consideration. As a public
company, we strive to enhance profitability and ensure the long-term
appreciation of shareholder value. We will conduct our business in such a manner
as to exert a beneficial influence in the communities we serve, to be a good
corporate citizen, and to offer equal employment opportunities to a competent
and professional staff. The Company's directors, officers, and employees are
proud of the long-standing values and traditions upheld by The Warwick Savings
Bank for more than a century, and we are committed to remaining an independent,
community bank.
[GRAPHIC]
The cover of this annual report features an architectural rendering of Warwick
Savings' new branch office and Commercial Loan Headquarters in the town of
Wallkill. This new facility includes new technology and greater conveniences for
our customers. A focus on customer service is a hallmark of Warwick Savings and
demonstrates the Bank's commitment as Orange County's premiere community bank.
1
<PAGE>
[LOGO]
The Board of Directors of Warwick Community Bancorp, Inc.
and The Warwick Savings Bank
[PHOTO]
1st row (seated l to r): Wilbur L. Smith, Director Emeritus; John W. Sanford,
Jr., Director Emeritus; Dr. Harry C. Sayre, Jr., Director Emeritus. 2nd row
(standing l to r): Fred M. Knipp, President, Warwick Valley Telephone Co.; Emil
R. Krahulik, Bank Counsel, Attorney, Beattie & Krahulik; Henry L. Nielsen, Jr.,
President, Nielsen Construction Co., Inc.; Timothy A. Dempsey, President & CEO,
The Warwick Savings Bank; Thomas F. Lawrence, Jr., Retired President, Warwick
Auto Co.; Frances M. Gorish, Retired Vice President & Corp. Sec., The Warwick
Savings Bank. 3rd row (standing l to r): John W. Sanford, III, President, John
W. Sanford & Son, Inc.; Robert N. Smith, President, Lazear-Smith Funeral Home,
Inc.; R. Michael Kennedy, President, Kennedy Companies, Inc.; Ronald J. Gentile,
Executive Vice President & COO, The Warwick Savings Bank.
The Warwick Savings Foundation Board of Directors
Peter H. Alberghini, Director of Development, Orange County Community College;
Timothy A. Dempsey, President & CEO, The Warwick Savings Bank; Frances M.
Gorish, Retired Vice President & Corp. Sec., The Warwick Savings Bank; Michael
P. Hoffman, Executive Vice President, External Affairs, Franciscan Sisters of
the Poor; Thomas F. Lawrence, Jr., Retired President, Warwick Auto Co.; Sr. Ann
Sakac, President, Mount St. Mary's College; Robert N. Smith, President,
Lazear-Smith Funeral Home, Inc.
2 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
Corporate Highlights
July 1997
o Board of Trustees adopts Plan of Conversion to convert the Bank from a
New York mutual savings bank to a New York stock savings bank.
October 1997
o Received approval from the New Jersey Department of Banking to
establish WSB Mortgage Company of New Jersey, Inc., a mortgage banking
subsidiary.
o Held ground breaking ceremony for new branch facility and Commercial
Loan Headquarters, located at One Industrial Drive, in the Town of
Wallkill.
December 1997
o Completed the conversion from a mutual savings bank to a New York
stock savings bank.
o Began trading on The Nasdaq Stock Market(SM) under the symbol "WSBI."
o Announced the formation of The Warwick Savings Foundation, a
charitable organization in service to the needs of our community.
April 1998
o Announced first earnings release as a public company.
June 1998
o Announced fiscal year-end results highlighting strong loan growth.
o Shareholders approve Stock Option Plan and Recognition and Retention
Plan at Special Shareholders' meeting.
July 1998
o Opened new Wallkill branch office and Commercial Loan Headquarters.
Cassidy Vandervoort and her father, Michael S. Vandervoort,
both of Westtown, joined Warwick Savings Executive Vice
President and Chief Operating Officer Ronald Gentile at the
[PHOTO] Grand Opening celebration of the Bank's new Wallkill Branch
Office. A day of food, fun, music and prizes for the whole
family culminated the week-long festivities at the facility,
which is also the new home of Warwick Savings' Commercial
Loan Department.
3
<PAGE>
President's Letter
[PHOTO]
To Our Shareholders, Customers & Friends:
I am pleased to report that The Warwick Savings Bank has continued on the
path of growth and profitability that you have come to expect from this
institution. Throughout our 123 year history, we have emphasized our commitment
to anticipating and meeting the financial needs of the communities we serve.
While news of bank consolidations and mergers dominate the headlines, Warwick
Savings is committed to remaining a locally-managed, community-oriented
financial institution. Given the challenges presented by competition from these
mega-banks, our success is even more impressive. Balancing the delivery of
personalized service with the implementation of new technology and innovative
products and services has helped us address the changing needs of both consumer
and commercial customers.
The Bank's conversion in December of 1997 from a mutual savings bank to a
stock savings bank has been a catalyst for the outstanding performance
documented in this, our first annual report to shareholders. This landmark event
has enabled us to better address the core of the Bank's mission, to be a leading
financial institution, to emphasize long-term profitability while maintaining
appropriate safety and soundness principles, to ensure long-term appreciation of
shareholder value, and to conduct our business in a manner that enables Warwick
Savings to be a good corporate citizen.
The concurrent issuance and sale of all of the Bank's outstanding capital
stock to the Company and the Company's sale of its common stock to the public at
the time of the conversion raised $64 million in gross proceeds. A total of
6,414,125 shares of common stock were sold at the subscription price of $10.00
per share. The Company's common stock now trades on the Nasdaq Stock Market(SM)
under the symbol "WSBI."
To underscore our commitment to the people of Orange County we established
The Warwick Savings Foundation, a charitable organization in service to the
needs of the community. The Company's contribution of 192,423 shares of common
stock to the Foundation in connection with the Bank's conversion clearly
demonstrates our leadership in this area and will enable the community at large
to share in our continued success.
While details of the Company's financial performance will be discussed more
fully later in this Annual Report, increases in total assets, total loans and
shareholder value are all highlights. The hard work and dedication of everyone
from the Bank's management team to our corporate and branch personnel have been
major factors in these achievements, and my thanks and praise go out to each and
every member of
4 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
the Warwick Savings' staff for their contributions.
An emphasis on service and convenience has long been an integral part of
our approach to community banking, as we seek to attract and retain customers
through extended office hours, low turnover of employees, and prompt, flexible
and personalized production of a variety of loan and deposit products.
In furtherance of this commitment, it is our goal to increase market share
in the communities we serve through the acquisition or establishment of branch
offices and, if appropriate, the acquisition of smaller financial institutions.
Our new Wallkill Branch is a tangible example of our commitment to growth
in accordance with the needs and demands of both consumer and commercial
customers. This facility, which is also the new home of our commercial loan
department, provides a wealth of new branch services including drive-up and ATM
facilities. Its proximity to our former location at The Galleria at Crystal Run
will ensure continued convenience for existing customers, while enabling the
Bank to better serve both new and longtime customers alike.
The expansion of our mortgage banking operations and lending into several
contiguous counties in northern New Jersey also demonstrates our strategy to
enter new markets as we seek to enhance profitability and performance.
As technology continues to change the way we live in dramatic new ways, The
Warwick Savings Bank will remain on the forward edge of innovation in the
banking industry. We are also committed to ensuring Year 2000 compliance. In
1998, we will implement PC banking for commercial customers, along with an
expansion in business products such as sweep accounts and small business
banking.
As we approach the new millennium, I believe The Warwick Savings Bank is
uniquely positioned to serve our expanding marketplace with the right products
and services, excellent facilities, and the most service-oriented staff of any
bank in our marketplace.
We anticipate continued success and growth as we strive to reinforce our
position as the community bank in Orange County. On behalf of the Board of
Directors and the entire Warwick Savings family, I want to thank you for your
support.
/s/ TIMOTHY A. DEMPSEY
Timothy A. Dempsey
President and Chief Executive Officer
[LOGO] 5
<PAGE>
[LOGO]
The Executive Management Team of Warwick Community Bancorp, Inc.
and The Warwick Savings Bank
Experience, expertise and a commitment to a personalized approach to banking are
common characteristics of Warwick Savings' executive management team. The
continued growth of the bank, in terms of both consumer and commercial products
and services, is being overseen on a day-to-day basis by the executive
management team, whose vision is helping to reinforce Warwick Savings' position
as Orange County's community banking leader.
[PHOTO]
(l to r): Ronald J. Gentile, Executive Vice President & COO; Timothy A. Dempsey,
President & CEO; Barbara A. Rudy, Senior Vice President; Arthur W. Budich,
Senior Vice President & CFO; Nancy L. Sobotor-Littell, Corporate Secretary &
Director of Human Resources. (Not pictured: Donna M. Lyons, Senior Vice
President & Auditor; Laurence D. Haggerty, Senior Vice President, Commercial
Loans).
6 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
Department of Mortgage Lending
[PHOTO] Seated: Arthur S. Anderson, Executive Director.
Standing: (l to r) Beverly S. Bates, Chief Underwriter;
Kim Dando, Closing Supervisor;
Stephen A. Carle, Assistant Treasurer & Operations Manager.
[LOGO]
The Warwick Savings Bank has traditionally been a leading mortgage lender in
Orange County, and the Bank continues to expand in this area, including
exploring new opportunities in New Jersey. Additionally, the Bank's expanding
commercial lending activities are earning Warwick Savings a reputation as an
important lending partner for the local business community.
Department of Commercial Lending
Seated: C. Roland Newkirk, Vice President; [PHOTO]
Kathryn Tiedemann, Assistant Treasurer.
Standing: Jill Singer, Assistant Vice President;
Edward Lekis, Assistant Vice President.
Not pictured: Laurence D. Haggerty, Senior Vice President.
7
<PAGE>
[LOGO] SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
At May 31,
-------------------------------------------------------------------------
1998 1997 1996 1995(7) 1994(7)
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total assets $ 410,394 $ 286,545 $ 274,053 $ 258,679 $ 234,048
Loans receivable, net (1) 212,665 138,323 108,897 122,663 108,598
Investment securities 170,749 126,393 144,284 110,333 105,433
Real estate owned, net 409 224 330 493 306
Deposits 222,722 221,211 232,965 229,011 207,527
FHLB advances 62,850 5,250 3,600 -- --
Securities sold
under repurchase agreements 27,190 23,090 4,700 -- --
Stockholders' equity 86,150 28,114 24,770 23,076 21,910
<CAPTION>
For the year ended May 31,
-------------------------------------------------------------------------
1998 1997 1996 1995(7) 1994(7)
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Interest income $ 23,777 $ 20,691 $ 18,333 $ 16,253 $ 15,786
Interest expense 9,972 9,376 8,717 6,828 5,922
--------- --------- --------- --------- ---------
Net interest income 13,805 11,315 9,616 9,425 9,864
Less provision for loan losses (592) (130) (140) (261) (415)
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 13,213 11,185 9,476 9,164 9,449
Other income
Service and fee income 2,134 1,915 1,768 1,369 1,996
Securities transactions 742 816 356 (429) 845
Loan transactions 94 137 119 14 123
Other income (loss) 169 (89) (159) (79) (17)
--------- --------- --------- --------- ---------
Total other income, net 3,139 2,779 2,084 875 2,947
--------- --------- --------- --------- ---------
Other expense
Salaries and employee benefits 5,870 5,256 5,050 3,958 3,877
ESOP benefits 730 -- -- -- --
F.D.I.C. insurance 28 12 53 466 456
Occupancy and equipment 1,219 1,308 1,238 1,202 1,143
Data processing 672 640 484 414 341
Advertising 160 152 129 112 69
Professional fees 583 240 325 222 270
Contribution to
The Warwick Savings Foundation 1,924 -- -- -- --
Other operating expenses 2,001 1,735 1,791 1,722 1,606
--------- --------- --------- --------- ---------
Total other expenses 13,187 9,343 9,070 8,096 7,762
Income before income tax
expense and cumulative
effect of change in
accounting principle 3,165 4,621 2,490 1,943 4,634
Income tax expense 1,304 1,756 1,024 794 2,115
--------- --------- --------- --------- ---------
Income before cumulative effect
of change in accounting principle 1,861 2,865 1,466 1,149 2,519
Cumulative effect of change
in accounting principle -- -- -- (645) --
--------- --------- --------- --------- ---------
Net income $ 1,861 $ 2,865 $ 1,466 $ 504 $ 2,519
========= ========= ========= ========= =========
</TABLE>
8 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended May 31,
-----------------------------------------------------------------
1998 1997 1996 1995(7) 1994(7)
----- ----- ----- -------- -------
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data (2):
Performance Ratios:
Return on average assets 0.57% 1.00% 0.56% 0.21% 1.11%
Return on average
retained earnings 3.72 11.02 6.29 2.32 12.11
Average retained
earnings to average assets 15.40 9.12 8.94 9.18 9.14
Retained earnings to
total assets 20.99 9.81 9.04 8.92 9.36
Core deposits to
total deposits (3) 68.16 66.08 63.28 59.49 77.25
Net interest spread (4) 3.58 3.62 3.48 3.84 3.92
Net interest margin (5) 4.50 4.20 3.98 4.27 4.35
Operating expense to
average assets 4.06 3.28 3.48 3.42 3.41
Average interest-earning assets to
average interest-bearing liabilities 1.28 1.17 1.14 1.14 1.16
Efficiency ratio (6) 81.87 71.10 80.80 75.56 65.54
Regulatory Capital Ratios:
Bank:
Tangible capital 13.91 9.53 9.51 9.79 9.95
Core capital 25.55 19.46 17.52 16.00 20.00
Risk-based capital 26.27 20.33 18.45 16.00 20.00
Company:
Tangible capital 21.44 -- -- -- --
Core capital 40.07 -- -- -- --
Risk-based capital 40.78 -- -- -- --
Asset Quality Ratios:
Non-performing loans
to total loans 0.47 1.02 0.78 1.78 2.02
Non-performing loans
to total assets 0.30 0.50 0.31 0.85 0.95
Non-performing assets
to total assets 0.35 0.58 0.44 1.04 1.08
Allowance for loan losses
to total loans 0.75 0.88 1.18 0.97 0.83
Allowance for loan losses
to non-performing loans 123.61 86.09 151.22 54.77 41.06
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-end 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) The selected financial data of the Bank as of May 31, 1995 and 1994, and
for the year ended May 31, 1994 are not derived from audited financial
statements.
[LOGO] 9
<PAGE>
[LOGO] MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Warwick Community Bancorp, Inc. (the "Company"), is a bank holding company
incorporated in September 1997 under the laws of the State of Delaware and is
registered under the Bank Holding Company Act of 1956, as amended. The Company
was organized at the direction of The Warwick Savings Bank (the "Bank") for the
purpose of acquiring all of the common stock of the Bank issued in connection
with the conversion of the Bank from mutual to stock form ("Conversion"). On
December 23, 1997, the Bank completed its Conversion, and the Company sold
6,414,125 shares of its common stock at a price of $10.00 per share in a
subscription offering ("Offering") to certain depositors of the Bank. In
connection with the Conversion and Offering, the Company established The Warwick
Savings Foundation ("Foundation") and made a charitable contribution of 192,423
shares of the Company's common stock to the Foundation, which resulted in a one
time charge relating to the funding of the Foundation of $1.9 million ($1.2
million net of tax). The net proceeds from the Offering amounted to $61.5
million, and the Company contributed 50% of the net proceeds from the Offering
to the Bank in exchange for all of the issued and outstanding shares of common
stock of the Bank. The remaining net proceeds were retained by the Company and
invested primarily in federal funds, government and federal agency
mortgage-backed securities, other debt securities and equity securities. Prior
to the Offering, the Company had no significant assets, liabilities or
operations. Presently, the only significant assets of the Company are the
capital stock of the Bank, the note evidencing the loan the Company made to the
Warwick Community Bancorp, Inc. Employee Stock Ownership Plan ("ESOP") to allow
the ESOP to purchase 8% of the Company's common stock issued in the Offering and
the investment of the net proceeds of the Offering retained by the Company.
The primary business of the Company is the operation of its wholly owned
subsidiary, the Bank. The Bank's principal business has been and continues to be
attracting retail deposits from the general public in the areas 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 business and real estate loans and
various debt and equity securities.
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, which
are primarily servicing fees received from residential mortgage loans that are
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.
While the following discussion of financial condition and results of operations
includes the collective results of the Company and the Bank, this discussion
reflects primarily the Bank's activities. Unless otherwise disclosed, the
information presented in this Annual Report reflects the financial condition and
results of operations of the Company and the Bank on a consolidated basis.
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 rate-based 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 led to an overall strategy of managed growth in both deposits and
assets. The major elements of the Company's operating strategy are to: (i) grow
and diversify the Bank's loan portfolio by continuing to originate
owner-occupied residential mortgage, commercial business and commercial real
estate, construction and consumer loans in its market area; (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 in order to provide for a reasonable net margin of return. The Bank
also seeks to attract and retain 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 expand into
new markets. For this reason, the Bank has expanded its mortgage banking
operations and lending into New Jersey.
10 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
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.
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, 1998, an aggregate of $178.2 million, or 46.2% of total earning assets, were
invested in such assets. Based upon the assumptions used in the following table,
at May 31, 1998, the Company'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 $26.3 million, representing a one-year
cumulative "gap," as defined below, as a percentage of total assets of negative
6.42%. Accordingly, management views the Company as having a manageable gap
position, but 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 rate-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 checking accounts in its
deposit base. 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 or 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 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 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, 1998, 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, 1998 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 and mortgage-backed securities, assumed average annual
prepayment rates of 17.89% and 18.82%, respectively, were utilized.
[LOGO] 11
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
At May 31, 1998
---------------------------------------------------------------------------------------------
More Than More Than More Than
Three One Three More Than
Three Months to Year to Years to Five
Months Twelve Three Five Years to More Than
or Less Months Years Years Ten Years Ten Years Total
--------- --------- --------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans (1)(5) $ 27,668 $ 12,073 $ 17,151 $ 12,528 $ 2,285 $ 78,808 $ 150,513
Other loans (2) 24,275 1,007 7,520 16,811 12,785 1,572 63,970
Mortgage-backed
securities, fixed (5) 14,792 -- 827 5 1,017 61,954 78,595
Mortgage-backed
securities, variable (5) 2,283 1,274 -- -- -- -- 3,557
Mutual funds and
preferred stock -- 14,931 -- -- -- 1,698 16,629
Investment securities:
held-to-maturity 309 910 1,000 105 -- 5,000 7,324
Investment securities:
available-for-sale -- 7,132 10,278 2,904 4,514 39,815 64,643
--------- --------- --------- --------- --------- --------- ---------
Total interest-
earning assets 69,327 37,327 36,776 32,353 20,601 188,847 385,231
Net deferred loan
fees and costs (3) (34) (21) (39) (44) (21) (133) (292)
--------- --------- --------- --------- --------- --------- ---------
Net interest-
earning assets 69,293 37,306 36,737 32,309 20,580 188,714 384,939
--------- --------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Passbook accounts (4) -- 16,130 -- -- -- 64,520 80,650
Escrow accounts -- -- -- -- -- 2,266 2,266
NOW accounts -- -- -- -- -- 17,558 17,558
Money market
accounts 26,863 -- -- -- -- -- 26,863
Certificates of
deposit 20,052 44,548 3,998 2,308 -- -- 70,906
Borrowed funds 9,380 15,970 50,650 15,000 -- -- 91,000
--------- --------- --------- --------- --------- --------- ---------
Total interest-
bearing liabilities 56,295 76,648 54,648 17,308 -- 84,344 289,243
--------- --------- --------- --------- --------- --------- ---------
Interest rate
sensitivity gap $ 12,998 $ (39,342) $ (17,911) $ 15,001 $ 20,580 $ 104,370 $ 95,696
========= ========= ========= ========= ========= ========= =========
Cumulative interest
rate sensitivity gap $ 12,998 $ (26,344) $ (44,255) $ (29,254) $ (8,674) $ 95,696
========= ========= ========= ========= ========= =========
Cumulative interest
rate sensitivity gap
as a percentage
of total assets 3.17% (6.42)% (10.78)% (7.15)% (2.11)% (23.32)%
Cumulative net
interest-earning assets
as a percentage
of cumulative interest-
bearing liabilities 123.09% 80.18% 76.41% 85.72% 95.77% 133.08%
</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 purposes of the gap analysis, second mortgage loans are included in the
"Other Loans" category.
(3) For purposes of the gap analysis, unearned fees and deferred loan
origination costs are prorated.
(4) 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.
(5) For loans on residential properties an average annual prepayment rate of
17.89% is utilized. Mortgage-backed securities are assumed to prepay at an
average annual rate of 18.82%.
12 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
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,
prepayments 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.
The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the change in net
portfolio value ("NPV") over a range of interest rate change scenarios. NPV is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario. For purposes of the NPV table, prepayment speeds similar to those
used in the "gap" table were used, reinvestment rates were those in effect for
similar products being offered and rates on core deposits were modified to
reflect recent trends. The following table sets forth the Company's NPV as of
May 31, 1998, as calculated by the Company.
<TABLE>
<CAPTION>
Net Portfolio Value Portfolio Value of Assets
- ---------------------- --------------------------------------- ---------------------------
Rate in Basis Points
(Rate Shock)
(Dollars in thousands) $ Amount $ Change % Change NPV Ratio % Change (1)
- ---------------------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
200 $ 81,647 $(13,182) (14)% 20.95% (1.93)%
100 88,741 (6,088) (6) 22.01 (0.87)
Static 94,829 -- 0 22.88 --
(100) 92,472 (2,357) (2) 22.01 (0.88)
(200) 87,583 (7,246) (8) 20.68 (2.21)
</TABLE>
(1) Based upon the portfolio value of the Company's assets assuming no change
in interest rates.
As in the case with the "gap" table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in actual market
interest rates. In this regard, the NPV model presented assumes that the
composition of the Company's interest rate sensitive assets and liabilities
existing at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the NPV measurements and net interest income models provide an indication of the
Company's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Company's net interest income
and will differ from actual results.
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 table on the following page sets forth certain
information relating to the Company for the years ended May 31, 1998, 1997 and
1996. 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 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.
[LOGO] 13
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
For the Year Ended May 31,
-------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ ---------------------------- ------------------------------
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 (1) $131,973 $ 10,191 7.72% $ 90,771 $ 7,152 7.88% $103,854 $ 8,098 7.80%
Consumer and
other loans, net(1) 39,931 3,774 9.45 36,160 3,457 9.56 33,127 3,150 9.51
Mortgage-backed
securities 75,020 5,533 7.38 80,255 5,897 7.35 19,612 1,617 8.24
Federal funds sold 3,130 172 5.50 283 15 5.30 6,058 322 5.32
Interest earning
accounts at banks 635 34 5.35 395 18 4.56 93 5 5.38
Investment securities 56,374 4,073 7.22 61,508 4,152 6.75 78,681 5,141 6.53
-------- -------- -------- ----- -------- --------
Total interest-
earning assets 307,063 23,777 7.74 269,372 20,691 7.68 241,425 18,333 7.59
-------- -------- --------
Non-interest
earning assets 17,846 15,856 19,149
-------- -------- --------
Total assets $324,909 $285,228 $260,574
======== ======== ========
Liabilities and
retained earnings:
Interest-bearing liabilities:
Passbook accounts $ 77,999 $ 2,304 2.95% $ 78,132 $ 2,323 2.97% $ 77,868 $ 2,365 3.04%
Escrow deposits 1,422 94 6.61 1,020 50 4.90 2,345 68 2.90
NOW accounts 15,384 245 1.59 14,117 227 1.61 12,638 215 1.70
Money market
accounts 25,827 849 3.29 27,016 883 3.27 28,674 936 3.26
Certificate accounts 74,618 3,823 5.12 79,155 3,985 5.03 89,831 5,109 5.69
-------- -------- -------- ----- -------- --------
Total deposits 195,250 7,315 3.75 199,440 7,468 3.74 211,356 8,693 4.11
Borrowed funds 44,437 2,657 5.98 31,249 1,908 6.11 489 24 4.91
-------- -------- -------- ----- -------- --------
Total interest-
bearing
liabilities 239,687 9,972 4.16 230,689 9,376 4.06 211,845 8,717 4.11
-------- -------- --------
Non-interest
bearing liabilities 35,174 28,528 25,432
-------- -------- --------
Total liabilities 274,861 259,217 237,277
Retained earnings 50,048 26,011 23,297
-------- -------- --------
Total liabilities
and retained
earnings $324,909 $285,228 $260,574
======== ======== ========
Net interest income/
interest rate spread(2) $ 13,805 3.58% $ 11,315 3.62% $ 9,616 3.48%
======== ==== ======== ==== ======== ====
Net interest-earning assets/
net interest margin(3) $ 67,376 4.50% $ 38,683 4.20% $ 29,580 3.98%
======== ==== ======== ==== ======== ====
Ratio of interest-earning
assets to interest-bearing
liabilities 128.11% 116.77% 113.96%
====== ====== ======
</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.
(3) Net interest margin on interest-bearing assets represents net interest
income as a percentage of average-earning assets.
14 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
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 Company'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, 1998 Year Ended May 31, 1997
Compared to Compared to
Year Ended May 31, 1997 Year Ended May 31, 1996
--------------------------------- ---------------------------------
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 $ 3,246 $ (207) $ 3,039 $(1,020) $ 74 $ (946)
Consumer and other loans, net 361 (44) 317 288 19 307
Mortgage-backed securities (385) 21 (364) 5,000 (720) 4,280
Federal funds sold 151 6 157 (307) -- (307)
Interest earning accounts at banks 11 5 16 16 (3) 13
Investment securities (347) 268 (79) (1,122) 133 (989)
------- ------- ------- ------- ------- -------
Total 3,037 49 3,086 2,855 (497) 2,358
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Passbook accounts (4) (15) (19) 8 (50) (42)
Escrow accounts 20 24 44 (39) 20 (19)
NOW accounts 20 (2) 18 25 (13) 12
Money market accounts (39) 5 (34) (54) 1 (53)
Certificates of deposits (228) 66 (162) (607) (517) (1,124)
Borrowed funds 805 (56) 749 1,510 374 1,884
------- ------- ------- ------- ------- -------
Total 574 22 596 843 (185) 658
------- ------- ------- ------- ------- -------
Net change in net interest income $ 2,463 $ 27 $ 2,490 $ 2,012 $ (312) $ 1,700
======= ======= ======= ======= ======= =======
</TABLE>
Asset Quality
Non-Performing Loans. Management and the Board of Directors perform a monthly
review of delinquent loans. The actions taken by the Bank with respect to the
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 interest or principal payments are 90 days past
due. When a loan is classified as non-accrual, 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.
Other Real Estate Owned. At May 31, 1998, the Bank's OREO, net, which consisted
of five single-family residential properties, totaled $409 thousand and was held
directly by the Bank.
The following table sets forth information regarding non-accrual loans, other
past due loans and OREO. There were no troubled restructurings within the
meaning of SFAS No. 15 at any of the dates presented below.
[LOGO] 15
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
At May 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans delinquent
more than 90 days $ 699 $1,111 $ 582 $1,093 $1,217
Non-accrual other loans delinquent
more than 90 days 186 83 82 131 69
------ ------ ------ ------ ------
Total non-accrual loans 885 1,194 664 1,224 1,286
Total 90 days or more
delinquent and still accruing 133 237 199 978 928
------ ------ ------ ------ ------
Total non-performing loans 1,018 1,431 863 2,202 2,214
Total foreclosed real estate,
net of related allowance for losses 409 224 330 493 306
------ ------ ------ ------ ------
Total non-performing assets $1,427 $1,655 $1,193 $2,695 $2,520
====== ====== ====== ====== ======
Non-performing loans to total loans 0.47% 1.02% 0.78% 1.78% 2.02%
Total non-performing assets to total assets 0.35% 0.58% 0.44% 1.04% 1.08%
</TABLE>
Comparison of Financial Condition at May 31, 1998 and May 31, 1997
Total assets increased $123.9 million to $410.4 million at May 31, 1998, from
$286.5 million at May 31, 1997, reflecting the Company's ongoing strategy of
managed growth. This increase in total assets was primarily the result of
increases in the Company's interest-earning assets, as the Company grew both its
loan and investment securities portfolios. The asset growth was also funded
through borrowings, which increased $61.7 million to $90.0 million at May 31,
1998, and from the $61.5 million in net proceeds raised by the Company in the
Offering. At May 31, 1998, the Company had $27.2 million in securities sold
under repurchase agreements and $62.9 million in term loans from the Federal
Home Loan Bank of New York ("FHLBNY"). Deposit liabilities increased by $1.5
million to $222.7 at May 31, 1998 from $221.2 million at May 31, 1997, primarily
due to increases in demand checking accounts, NOW accounts and money market
accounts, offset by the decline in time certificates.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
================================================================================
Total Assets and Deposits
Total Assets Total Deposits
------------ --------------
(in millions)
5/31/94 $234 $208
5/31/95 $259 $229
5/31/96 $274 $233
5/31/97 $287 $221
5/31/98 $410 $223
================================================================================
Asset growth was concentrated in mortgage loans, net which increased $50.8
million to $148.2 million at May 31, 1998 from $97.4 million at May 31, 1997.
Other loans, net showed an increase of $11.1 million to $47.2 million at May
31,1998 from $36.1 million at May 31, 1997. Total securities were $170.7 million
at May 31, 1998 compared to $126.4 million at May 31, 1997. Securities
held-to-maturity at May 31, 1998 totaled $7.3 million as compared to $6.1
million at May 31,1997. Securities available-for-sale at May 31, 1998 totaled
$163.4 million as compared to $120.3 million at May 31, 1997. This increase is
primarily the result of the Bank's utilization of additional wholesale leverage
transactions in order to enhance earnings.
Other assets increased $2.6 million, or 92.9%, from $2.8 million at May 31, 1997
to $5.4 million at May 31, 1998. This increase was primarily the result of an
increase in capitalizable costs associated with the Bank's new full service
branch office located in the town of Wallkill that opened for business on July
27, 1998. Upon being placed into service, approximate costs of $2.3 million,
relating to land improvements, the construction of the building and the purchase
of furniture and equipment, were reclassified to "Bank premises and equipment,
net."
Total stockholders' equity increased $58.0 million to $86.1 million at May 31,
1998 from $28.1 million at May 31, 1997. This increase was primarily
attributable to the $61.5 million in net proceeds raised by the Company in the
Offering in connection with the Bank's Conversion.
Comparison of Operating Results for the Fiscal Years Ended May 31, 1998 and 1997
General. Net income for the fiscal year ended May 31, 1998, which included a
one-time after-tax charge of $1.2 million for the establishment of the
Foundation, totaled $1.9 million, or $0.30 per share, as compared to $2.9
million
16 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
[THE FOLLOWING TABLES WERE REPRESENTED BY BAR CHARTS IN THE PRINTED MATERIAL.]
================================================================================
Residential Mortgage Loans Originated
For the Year Ended May 31
1998 $124,014
1997 $ 69,026
1996 $ 85,061
1995 $ 21,302
1994 $ 24,044
Consumer Loans Originated
For the Year Ended May 31
1998 $ 13,410
1997 $ 16,774
1996 $ 10,936
1995 $ 8,918
1994 $ 7,150
Commercial Loans Originated *
For the Year Ended May 31
1998 $ 26,628
1997 $ 14,966
1996 $ 12,326
1995 $ 11,585
1994 $ 12,595
* Includes renewals and refinancings.
================================================================================
for the comparable 1997 fiscal year. However, excluding the one-time charge for
the Foundation, net income for the fiscal year ended May 31, 1998 would have
increased 5.2% to $3.1 million, or $0.49 per share. Earnings per share results
are not available for the fiscal year ended May 31, 1997 because the Company did
not complete its Offering until December 1997.
Net Interest Income. Net interest margin is net interest income expressed as a
percentage of total average earning assets. For the fiscal year ended May 31,
1998 the net interest margin was 4.50% as compared to 4.20% for the fiscal year
ended May 31, 1997.This increase was primarily attributable to the $37.7 million
increase in average interest-earning assets from $269.4 million over the fiscal
year ended May 31, 1997 to $307.1 million over the fiscal year ended May 31,
1998, while average interest-bearing liabilities increased $9.0 million from
$230.7 million to $239.7 million over the same period. Supplementing the
increase in average interest-bearing liabilities, funding for the increase in
average interest-earning assets was primarily provided by a $24.0 million
increase in average retained earnings, which included the infusion of capital
derived from the Offering, from $26.0 million for the fiscal year ended May 31,
1997, to $50.0 million for the comparable period ended May 31, 1998.
Net interest income for the fiscal year ended May 31, 1998 increased $2.5
million, or 22.0%, to $13.8 million, from $11.3 million for the fiscal year
ended May 31, 1997.
The increase in interest income resulted primarily from the significant growth
of the mortgage loan portfolio, as home purchasers and existing homeowners
capitalized on the opportunities afforded by lower mortgage loan interest rates.
Concurrently, the more modest increase in interest expense resulted primarily
from an increase in interest on borrowed funds, coupled with a decrease in time
deposit interest expense.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
================================================================================
Net Income
(in millions)
5/31/95 $ 503,765
5/31/96 $1,465,580
5/31/97 $2,865,503
5/31/98 $1,860,945*
* Impacted by $1.9 Million (before tax) contributions to The Warwick Savings
Foundation and initial $730 thousand (before tax) ESOP benefit.
================================================================================
Interest Income. For the fiscal year ended May 31, 1998 interest income totaled
$23.8 million as compared to $20.7 million for the fiscal year ended May 31,
1997. The $3.1 million, or 14.9%, increase in 1998 was primarily attributable to
a $3.0 million, or 42.5%, increase in the amount of interest earned on the
Bank's mortgage loan portfolio, which resulted primarily from an increase in the
average balance of the Company's mortgage loans from $90.7 million for the
fiscal year ended May 31, 1997 to $132.0 million for the fiscal year ended May
31, 1998. Interest earned on other loans and on federal funds sold during the
fiscal year ended May 31, 1998 increased by $317 thousand and $157 thousand,
respectively, compared to the fiscal year ended May 31, 1997. Those increases,
however, were largely offset by a $443 thousand decrease in interest earned on
mortgage-backed and investment securities over the same period.
The increase in the average yield on interest-earning assets to 7.74% for the
fiscal year ended May 31, 1998, as compared to 7.68% for the fiscal year ended
May 31, 1997, resulted in part from the sale of relatively lower yielding
securities, and the purchase of higher yielding securities with portions of the
proceeds from such sales, in connection with the Company's restructuring of its
investment securities portfolio during the summer of 1997. However, the
improvement in yield derived from investments was partially offset by lower
yields earned on the Bank's loan portfolios due to lower long-term interest
rates at the start of 1998.
Interest Expense. Interest expense for the fiscal year ended May 31, 1998 was
$10.0 million, compared to $9.4 million for the fiscal year ended May 31, 1997,
due primarily to an increase of $13.2 million in the average balance of borrowed
funds, a 171 basis point increase in the average rate paid on escrow deposits
and a $402 thousand increase in the average balance of escrow deposits in
connection with the increase in the Company's mortgage loans and additional
wholesale leverage transactions entered into during the 1998 fiscal year. These
increases were partially offset by a $4.2 million decrease in the average
balance of total interest-bearing deposits and by a 13 basis point decrease in
the average rate paid on borrowed funds.
[LOGO] 17
<PAGE>
[LOGO]
Provision For Loan Losses. The provision for loan losses for the fiscal year
ended May 31, 1998 increased to $592 thousand, as compared to $130 thousand for
the fiscal year ended May 31, 1997. This increase resulted from management's
assessment of the growth in the loan portfolio, the level of the Bank's
allowance for possible loan losses and its assessment of the local economy and
market conditions. For the fiscal years ended May 31, 1998 and 1997, loan
charge-offs, net of recoveries, aggregated $311 thousand and $203 thousand,
respectively. At May 31, 1998 and 1997, the allowance for possible loan losses
totaled $1.5 million and $1.2 million, respectively, and the ratio of such
allowance to non-performing loans was 123.61% at May 31, 1998, as compared to
86.09% at May 31, 1997.
Other Income. Other income, consisting of service and fee income and gains and
losses on securities and loan transactions, increased by $360 thousand, or
13.0%, to $3.1 million for the fiscal year ended May 31, 1998, as compared to
$2.8 million for the fiscal year ended May 31, 1997. This increase was primarily
attributable to an increase of $219 thousand in service and fee income due to
the growth in checking account deposits during 1998 and an increase of $258
thousand in other income associated with increased loan and loan servicing
activity, which was partially offset by a $74 thousand reduction on sales of
securities and a $43 thousand reduction on loan sales.
Other Expense. Other expense increased by $3.9 million to $13.2 million for the
fiscal year ended May 31, 1998, as compared to $9.3 million for the fiscal year
ended May 31, 1997. This increase resulted primarily from an expense of $1.9
million relating to the Company's contribution to the Foundation and an expense
of $730 thousand relating to the first year's allocation of shares under the
ESOP which was established in connection with the Conversion and the Offering.
Salaries and employee benefits expense also increased $615 thousand, or 11.7%,
due to higher levels of expenses incurred in connection with the employee
benefit plans established in connection with the Conversion and the Offering and
normal salary increases. Professional fees increased $343 thousand primarily as
a result of various consultation and audit activities in connection with the
Conversion and the Offering.
Provision for Income Taxes. The provision for income taxes decreased $452
thousand from $1.8 million for the fiscal year ended May 31, 1997 to $1.3
million for the fiscal year ended May 31, 1998. This decrease was primarily
attributable to the tax benefit derived from the Company's contribution to the
Foundation.
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 Company'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 Company 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 ("Premium
Certificates"), 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. FHLBNY advances and other borrowings are used
by the Bank as an alternative to traditional retail deposits and take 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) 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 as compared to $7.1
million at May 31, 1996. Securities available-for-sale at May 31, 1997 totaled
$120.3 million as compared to $135.2 million at May 31, 1996. The Company's
available-for-sale portfolio was adjusted for an unrealized gain of $1.1 million
($500 thousand after-tax) for the fiscal year ended May 31, 1997.
Other assets decreased by $4.3 million to $2.8 million at May 31, 1997,
primarily due to the satisfactory liquidation of the Company's $3.9 million
claim against the Superintendent of Banks of the State of New York, as receiver
for Nationar, regarding the Superintendent's seizure of Nationar in early
February, 1995.
As a result of adopting Statement of Financial Accounting Standards No. 122, the
Bank capitalized $444 thousand of originated mortgage servicing rights during
fiscal year 1996.
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 of taxes.
18 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
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 $2.9 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 Company'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 Company'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 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 Company's average interest rate spread of 14 basis points to
3.62%, and a rise in the Company'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 Company
realized a higher overall yield of nine basis points on its average
interest-earning assets, yields on the Company's interest-bearing liabilities
declined by five basis points.
Interest Income. Interest 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 Company's mortgages in April and May of 1996,
offset, in part, by a decrease in the average yield on the Company's
mortgage-backed securities of 89 basis points. The increase in interest was
offset, in part, by a decline of over $600 thousand in interest income on
mortgage and other loans due to the decreased volume of such loans resulting
mainly from such securitization, mitigated somewhat by an increase of 13 basis
points in the average yield on 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 which was attributable to the Company'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 interest expense associated with such accounts, from $5.1 million in
the fiscal year ended May 31, 1996 to $4.0 million in the 1997 fiscal year. As a
result, the Company'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
thousand for the fiscal year ended May 31, 1997 from $140 thousand 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 indicated
that the majority of the non-performing loans were 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.
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 Company's mortgage
banking operation. Total service and fee income increased 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 Company'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.
[LOGO] 19
<PAGE>
[LOGO]
Provision for Income Taxes. The provision for income taxes increased $732
thousand from $1.0 million for the fiscal year ended May 31, 1996 to $1.8
million for the fiscal year ended May 31, 1997. This increase was primarily
attributable 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.
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 Directors, which sets minimum internal guidelines for liquidity
purposes.
As a member of the FHLBNY, the Bank has the availability of two lines of credit
for borrowings in the amounts of $17.0 million each, one on an overnight basis
and the other on a 30-day term basis. In accordance with the FHLBNY's credit
policy, the Bank now has total credit facilities available of nearly $101.9
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.
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
securities and debt and equity securities. During the fiscal years ended May 31,
1998, 1997 and 1996, the Bank's disbursements for loan originations totaled
$164.1 million, $100.6 million and $108.4 million, respectively. Purchases of
mortgage-backed securities totaled $59.6 million, $23.2 million and $12.1
million for the fiscal years ended May 31, 1998, 1997 and 1996, respectively.
Other debt and equity securities purchased during the fiscal years ended May 31,
1998, 1997 and 1996 were $65.1 million, $26.0 million and $23.4 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,
1998 and 1997 by $61.7 million and $20 million, respectively, to fund its
investments.
At May 31, 1998, the Company's total approved loan origination commitments
outstanding totaled $55.5 million and the unadvanced/unused portion of
commercial lines of credit totaled $5.6 million. The Company believes it will
have sufficient funds available to meet its current originations and other
lending commitments. Certificates of deposit scheduled to mature in one year or
less from May 31, 1998 totaled $64.6 million. Based on historical experience and
pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.
At May 31, 1998, the Company had cash and due from banks of $11.2 million and
securities available for sale of $163.4 million. Management believes these
amounts, together with the Company's borrowing capabilities, to be more than
adequate to meet its short-term cash needs.
[THE FOLLWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
================================================================================
Net Worth or Capital Ratios of the Bank
For the Year Ended May 31
1998 26%
1997 20%
1996 18%
1995 16%
1994 20%
Risk-based Ratios of Tier 1 Capital.
================================================================================
Regulatory Capital Position.
The Bank is subject to minimum regulatory capital requirements imposed by the
Federal Deposit Insurance Corporation which vary according to an institution's
capital level and the composition of its assets. An insured institution is
required to maintain Tier I capital of not less than 3.00% of total assets plus
an additional amount of at least 100 to 200 basis points ("leverage capital
ratio"). An insured institution must also maintain a ratio of total capital to
risk-based assets of 8.00%. Although the minimum leverage capital ratio is
3.00%, the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") stipulates that an institution with less than a 4.00% leverage
capital ratio is deemed to be an "undercapitalized" institution, which results
in the imposition of regulatory restrictions. The Bank's capital ratios qualify
it to be deemed "well capitalized" under FDICIA. In addition, the Company's
capital ratios exceed the minimum regulatory capital requirements imposed by the
Federal Reserve Board, which are substantially similar to the requirements of
the FDIC. See Note 13 to the Notes to Consolidated Financial Statements for the
Bank's and the Company's regulatory capital position as of May 31, 1998 and
1997.
20 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
Year 2000 Compliance.
The Year 2000 issue is the result of the inability of certain computer systems
to recognize the year 2000. Many existing computer programs and systems were
initially programmed with six digit dates that provided only two digits to
identify the calendar year in the date field without considering the upcoming
change in the century. As a result, such programs and systems may recognize a
date using "00" as the year 1900 instead of the year 2000, which could result in
system failures or miscalculations. Like most financial service providers, the
Company and its operations may be significantly affected by the Year 2000 issue
due to the nature of financial information. Software, hardware and equipment
both within and outside the Company's direct control and with whom the Company
electronically or operationally interfaces (i.e., third party vendors providing
data processing, information system management, maintenance of computer systems
and credit bureau information) are likely to be affected.
The Company has implemented a plan to respond to the Year 2000 issue and has
initiated formal discussions with all of its significant suppliers to determine
the extent to which the Company is vulnerable to those third parties' failure to
remedy their own Year 2000 issue. The Company presently believes that, with
modifications to existing software and conversions to new software, the Year
2000 issue may be mitigated without causing a material adverse impact on the
operations of the Company or the Bank. However, if such modifications and
conversions are not made, or are not timely completed, the Year 2000 issue could
have an impact on the operations of the Company and the Bank. At this time,
management of the Company does not believe that the impact and any resulting
costs will be material.
Monitoring and managing the Year 2000 issue will result in additional direct and
indirect costs to the Company. Direct costs include the replacement of the
Company's non-compliant computer hardware and software, potential charges by
third party vendors for product enhancements, cost involved in testing software
products for Year 2000 compliance and any resulting costs for developing and
implementing contingency plans for critical software products which are not
enhanced. Indirect costs will principally consist of time devoted by existing
employees in monitoring software vendor progress, testing enhanced software
products and implementing any necessary contingency plans. The Company does not
believe that such costs will have a material effect on its results of
operations. The Company's costs associated with the Year 2000 issue have not
been material to date.
Impact of Inflation and Changing Prices.
The Financial Statements and Notes thereto presented herein have been prepared
in accordance with generally accepted accounting principles, 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. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards.
See Note 1 to Notes to the Consolidated Financial Statements.
Market for Common Stock
The Company's common stock commenced trading on the Nasdaq National Market
System under the symbol "WSBI" following the completion of the Company's
Offering on December 23, 1997. In the period from that date to the close of
business on May 29, 1998, the last trading date in the fiscal year ended May 31,
1998, the stock's low and high sales price was $15.25 and $18.13, respectively.
As of July 31, 1998, there were 6,606,548 shares of the Company's common stock
outstanding and approximately 1,614 holders of record. The holders of record
include banks and brokers who act as nominees, each of whom may represent more
than one stockholder.
The Board of Directors of the Company did not declare any dividends on the
common stock during the fiscal year ended May 31, 1998. The Board of Directors
of the Company may consider a policy of paying cash dividends on the common
stock in the future subject to statutory and regulatory requirements. However,
no decision has been made as to the amount or timing of such dividends.
Declarations of dividends by the Board of Directors, if any, will depend upon a
number of factors, including, but not limited to, investment opportunities
available to the Company or the Bank, capital requirements, regulatory
limitations, the Company's and the Bank's financial condition and results of
operations, tax considerations and general economic conditions. No assurance can
be given, however, that any dividends will be paid or, if commenced, will
continue to be paid.
[LOGO] 21
<PAGE>
[LOGO]
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MAY 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
ASSETS:
Cash on hand and in banks $ 11,190,124 $ 10,366,711
Federal funds sold -- 1,315,000
Securities-
Available-for-sale, at fair value 163,425,416 120,301,288
Held-to-maturity, at amortized cost (fair value of
$7,276,933 and $6,116,184 in 1998 and 1997, respectively) 7,323,818 6,091,684
------------- -------------
Total securities 170,749,234 126,392,972
------------- -------------
Mortgage loans, net 148,242,725 97,440,203
Mortgage loans held-for-sale 17,237,483 4,831,500
Other loans, net 47,184,643 36,051,438
Mortgage servicing rights 1,051,496 835,079
Accrued interest receivable 2,462,632 2,096,627
Federal Home Loan Bank stock 3,392,500 1,731,300
Bank premises and equipment, net 3,105,380 2,425,831
Other real estate owned, net 409,363 223,782
Other assets 5,368,319 2,834,743
------------- -------------
Total assets $ 410,393,899 $ 286,545,186
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILiTIES:
Deposits $ 222,721,609 $ 221,211,137
Mortgage escrow funds 2,265,878 1,397,584
Securities sold under agreements to repurchase 27,190,000 23,090,000
Federal Home Loan Bank advances 62,850,000 5,250,000
Accrued expenses and other liabilities 9,216,802 7,482,034
------------- -------------
Total liabilities 324,244,289 258,430,755
============= =============
COMMITMENTS AND CONTINGENCIES (NOTE 14)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued -- --
Common stock, $.01 par value; 15,000,000
shares authorized; 6,606,548 shares issued 66,065 --
Additional paid-in capital 63,386,358 --
Retained earnings--subject to restrictions 29,355,454 27,494,509
Unrealized appreciation on securities, net of taxes 1,164,946 619,922
Less- Unallocated common stock held by ESOP (7,823,213) --
------------- -------------
Total stockholders' equity 86,149,610 28,114,431
------------- -------------
Total liabilities and stockholders' equity $ 410,393,899 $ 286,545,186
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
22 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on mortgage loans $ 10,191,223 $ 7,151,702 $ 8,098,219
Interest on other loans 3,772,844 3,457,460 3,149,131
Interest on securities 9,605,844 10,049,163 6,728,913
Interest on federal funds sold 172,638 14,504 321,903
Interest on short-term money market instruments 34,116 18,290 34,870
------------ ------------ ------------
Total interest income 23,776,665 20,691,119 18,333,036
------------ ------------ ------------
INTEREST EXPENSE:
Time deposits 3,822,525 3,984,829 5,108,712
Money market deposits 848,801 882,979 936,218
Savings deposits 2,549,228 2,550,704 2,580,121
Mortgagors' escrow funds 93,689 49,588 68,165
Borrowed funds 2,657,220 1,908,062 23,882
------------ ------------ ------------
Total interest expense 9,971,463 9,376,162 8,717,098
------------ ------------ ------------
Net interest income 13,805,202 11,314,957 9,615,938
PROVISION FOR LOAN LOSSES (592,450) (130,000) (140,000)
------------ ------------ ------------
Net interest
income after provision for loan losses 13,212,752 11,184,957 9,475,938
------------ ------------ ------------
OTHER INCOmE (LOSS):
Service and fee income 2,134,419 1,915,139 1,767,610
Securities transactions 742,248 816,304 356,266
Net gain on sale of loans 94,036 137,403 118,807
Other income (loss) 169,198 (89,079) (158,713)
------------ ------------ ------------
Total other income, net 3,139,901 2,779,767 2,083,970
------------ ------------ ------------
OTHER EXPENSES:
Salaries and employee benefits 5,870,423 5,255,869 5,049,942
ESOP benefits 729,529 -- --
FDIC insurance 27,836 12,447 53,226
Occupancy 1,219,397 1,307,727 1,237,485
Data processing 672,484 639,654 483,572
Advertising 159,797 152,529 129,227
Professional fees 583,311 240,513 325,392
Contribution to The Warwick Savings Foundation 1,924,230 -- --
Other 2,000,434 1,734,616 1,791,244
------------ ------------ ------------
Total other expenses 13,187,441 9,343,355 9,070,088
------------ ------------ ------------
Income before provision for income taxes 3,165,212 4,621,369 2,489,820
PROVISION FOR INCOME TAXES 1,304,267 1,755,866 1,024,240
------------ ------------ ------------
Net income $ 1,860,945 $ 2,865,503 $ 1,465,580
============ ============ ============
WEIGHTED AVERAGE:
Common shares 6,112,610 N/A N/A
Dilutive stock options -- N/A N/A
------------
6,112,610 N/A N/A
============
EARNINGS PER SHARE SINCE CONVERSION:
Basic $ .10 N/A N/A
============
Diluted $ .10 N/A N/A
============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
[LOGO] 23
<PAGE>
[LOGO]
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Unrealized
Appreciation
Unallocated (Depreciation)
Common on Securities
Common Additional Stock Held by Retained Available-
Stock Paid-in Capital ESOP Earnings for-Sale, Net Total
------------ --------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, MAY 31, 1995 $ -- $ -- $ $ 23,163,426 $ (87,288) $ 23,076,138
Net income -- -- -- 1,465,580 -- 1,465,580
Unrealized appreciation
on securities
available-for-sale, net -- -- -- -- 228,755 228,755
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, MAY 31, 1996 -- -- -- 24,629,006 141,467 24,770,473
Net income -- -- -- 2,865,503 -- 2,865,503
Unrealized appreciation on
securities
available-for-sale, net -- -- -- -- 478,455 478,455
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, May 31, 1997 -- -- -- 27,494,509 619,922 28,114,431
Net income -- -- -- 1,860,945 1,860,945
Unrealized appreciation
on securities
available-for-sale, net -- -- -- -- 545,024 545,024
Issuance of 6,414,125 shares of
$.01 par value common stock in
initial public offering, net of
conversion related expenses 64,141 61,421,084 -- -- -- 61,485,225
Issuance of 192,423 shares
of $.01 par value common
stock to The Warwick
Savings Foundation 1,924 1,922,306 -- -- -- 1,924,230
Purchase of common
stock by ESOP -- -- (8,509,774) -- -- (8,509,774)
Allocation of ESOP stock -- 42,968 686,561 -- -- 729,529
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, MAY 31, 1998 $ 66,065 $ 63,386,358 $ (7,823,213) $ 29,355,454 $ 1,164,946 $ 86,149,610
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
24 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MAY 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,860,945 $ 2,865,503 $ 1,465,580
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 455,354 459,171 428,008
Charitable contribution of Warwick Community
Bancorp, Inc. common stock to The
Warwick Savings Foundation 1,924,230 -- --
Amortization of premium on investment securities 70,641 264,120 497,342
Accretion of discount on investment securities (893,335) (189,667) (509,755)
Net (increase) decrease in accrued interest receivable (366,005) (154,589) 140,166
Net (increase) decrease in mortgage
servicing rights and other assets (2,935,574) 4,111,000 (2,165,524)
Provision for loan losses 592,450 130,000 140,000
Net (gain) on sales of loans (94,036) (137,403) (118,807)
Net (gain) on sale of securities (742,249) (816,304) (356,266)
Net increase (decrease) in accrued interest payable 274,104 10,496 (174,460)
Net increase in accrued expenses and other liabilities 1,460,664 706,750 1,539,027
------------- ------------- -------------
Net cash provided by operating activities 1,607,189 7,249,077 885,311
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities 32,800,000 12,424,922 39,576,296
Purchases of securities (155,073,028) (70,743,474) (108,398,408)
Proceeds from sales of trading securities
and securities available-for-sale 63,117,707 66,376,202 31,727,463
Principal repayments from mortgage-backed securities 16,446,960 10,469,393 3,637,431
Purchases of Federal Home Loan Bank stock (1,661,200) (553,200) (267,600)
Net (increase) decrease in loans (74,341,710) (29,187,635) 14,537,389
Purchases of banking premises and equipment, net (1,128,283) (240,610) 60,174
------------- ------------- -------------
Net cash used in investing activities (119,839,554) (11,454,402) (19,127,255)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,510,472 (11,649,533) (882,800)
Net increase (decrease) in mortgage escrow funds 868,294 395,059 3,051,380
Increase in borrowed funds 61,700,000 20,040,000 8,300,000
Purchase of common stock by ESOP (8,509,774) -- --
ESOP allocation 686,561 -- --
Proceeds from issuance of common stock 64,141,250 -- --
Payments for conversion costs (2,656,025) -- --
------------- ------------- -------------
Net cash provided by financing activities 117,740,778 8,785,526 10,468,580
------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (491,587) 4,580,201 (7,773,364)
CASH AND CASH EQUIVALENTS, beginning of year 11,681,711 7,101,510 14,874,874
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 11,190,124 $ 11,681,711 $ 7,101,510
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest on deposits and borrowed funds $ 9,697,360 $ 9,365,666 $ 8,891,558
Income taxes 1,312,041 2,117,500 --
Reclassification from held-to-maturity to available-for-sale -- -- 26,180,452
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
[LOGO] 25
<PAGE>
[LOGO] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the significant accounting policies followed
by Warwick Community Bancorp, Inc. and subsidiary (the "Company") in the
preparation of its consolidated financial statements:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, The Warwick Savings Bank (the "Bank").
All significant intercompany balances and transactions are eliminated in
consolidation.
As more fully discussed in Note 2, Warwick Community Bancorp, Inc., a Delaware
corporation, was organized by the Bank for the purpose of acquiring all of the
capital stock of the Bank pursuant to the conversion of the Bank from a New York
chartered mutual savings bank to a New York chartered stock savings bank. The
Company is subject to the financial reporting requirements of the Securities
Exchange Act of 1934, as amended.
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 Company 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 Company 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 which the Company 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 stockholders' equity (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 Company 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 non-accrual 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 loan
is classified as non-accrual, 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.
26 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is a significant estimate based upon management's
periodic evaluation of the loan portfolio under current economic conditions,
considering factors such as the Company'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 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 Company 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, 1998 and
1997, in addition to the non-accrual loans discussed in Notes 4 and 5, there
were $630,946 and $504,265, respectively, of loans identified by the Company as
impaired, as defined under SFAS No. 114 with no specific 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
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 Company 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 Company's earnings are affected
by changes in market interest rates and the economic factors beyond its control.
Decreases in the Company's average interest rate spread could adversely affect
the Company's net interest income.
[LOGO] 27
<PAGE>
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.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company follows AICPA Statement of Position 93-6, "Employers' Accounting for
Employee Stock Ownership Plans" ("SOP 93-6"), to account for the Warwick
Community Bancorp, Inc. Employee Stock Ownership Plan ("ESOP"). SOP 93-6
requires that compensation expense be recognized for shares committed to be
released to directly compensate employees equal to the fair value of the shares
committed. In addition, SOP 93-6 requires that leveraged ESOP debt and related
interest expense be reflected in the employer's financial statements. The
application of SOP 93-6 will result in fluctuations in compensation expense as a
result of changes in the fair value of the Company's common stock; however, any
such compensation expense fluctuations will result in an offsetting adjustment
to paid-in capital. Therefore, total capital will not be affected.
EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings Per Share." Basic earnings per share
excludes dilution and is computed by dividing net income by the weighted average
number of common shares outstanding for the period. Diluted earnings per share,
which reflects the potential dilution that could occur if outstanding stock
options were exercised and resulted in the issuance of common stock that then
shared in the earnings of the Company, is computed by dividing net income by the
weighted average number of common shares and dilutive instruments. As of May 31,
1998, the Company has no securities that could be converted into common stock
nor does the Company have any contracts that could result in the issuance of
common stock.
RECLASSIFICATIONS
Certain reclassifications were made to the accompanying 1997 and 1996 financial
statements to conform to 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
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 Company's results of operations or
financial condition.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures About
Pensions and Other Post-retirement Benefits." SFAS No. 132 supercedes the
disclosure requirements for pension and other post-retirement plans as set forth
in SFAS No. 87 "Employers' Accounting for Pensions," SFAS No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits," and SFAS No. 106 "Employers' Accounting for
Post-retirement Benefits Other Than Pensions." SFAS No. 132 does not address
measurement or recognition for pension and other post-retirement benefit plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available, in which case the
notes to the financial statements shall include all available information and a
description of the information not available. The provision of this statement
will not affect the Company's results of operations or financial condition.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999 and should not be applied
retroactively to financial statements of prior periods. The provisions of this
statement will not affect the Company's results of operations or financial
condition.
28 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
2. CONVERSION TO STOCK FORM OF OWNERSHIP
On July 10, 1997, the Board of Trustees of the Bank 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 the
Company. The Company completed its initial public offering on December 23, 1997
and sold 6,414,125 shares of common stock resulting in proceeds of $61,485,225
net of expenses totaling $2,656,025. The Company used $30,742,613, or 50%, of
the net proceeds to purchase all of the outstanding stock of the Bank. The
Company also loaned $8,509,774 to the ESOP, which purchased 528,523 shares of
the Company's stock.
As part of the Plan, the Bank and the Company formed The Warwick Savings
Foundation and donated 192,423 shares of the Company's common stock valued at
$1,924,230. The Company recorded a contribution expense charge and a
corresponding deferred tax benefit of $769,692 for this donation. The formation
of this private charitable foundation is to further the Bank's commitment to the
communities that it serves.
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.
3. SECURITIES
A summary of securities at May 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Securities available-for-sale:
Debt securities-
U.S. Government and agency
obligations $ 44,464,532 $ 433,987 $ (664,499) $ 44,234,020
Industrial and financial 822,419 28,270 -- 850,689
Collateralized mortgage obligations 19,592,884 6,060 (40,380) 19,558,564
Mortgage-backed securities 81,097,563 1,192,142 (137,495) 82,152,210
------------ ------------ ------------ ------------
Total debt securities 145,977,398 1,660,459 (842,374) 146,795,483
Common stock 582,215 -- (5,678) 576,537
Preferred stock 1,101,654 20,346 -- 1,122,000
Mutual fund shares 13,822,573 1,122,698 (13,875) 14,931,396
------------ ------------ ------------ ------------
Total securities available-for-sale 161,483,840 2,803,503 (861,927) 163,425,416
------------ ------------ ------------ ------------
Securities held-to-maturity:
U.S. Government and agency
obligations 6,658,864 14,551 (63,450) 6,609,965
Obligations of state and political
subdivisions 664,954 2,014 -- 666,968
------------ ------------ ------------ ------------
Total securities held-to-maturity 7,323,818 16,565 (63,450) 7,276,933
------------ ------------ ------------ ------------
Total securities $168,807,658 $ 2,820,068 $ (925,377) $170,702,349
============ ============ ============ ============
</TABLE>
[LOGO] 29
<PAGE>
[LOGO]
<TABLE>
<CAPTION>
1997
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses 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>
A summary of the carrying value of debt securities at May 31, 1998 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 $ 1,015,000 $ 3,148,120 $ 19,813,760 $ 20,257,140 $ 44,234,020
Industrial and financial 19,836 830,853 -- -- 850,689
Collateralized mortgage
obligations -- -- -- 19,558,564 19,558,564
Mortgage-backed securities -- 1,024,722 1,252,674 79,874,814 82,152,210
------------ ------------ ------------ ------------ ------------
Total available-for-sale $ 1,034,836 $ 5,003,695 $ 21,066,434 $119,690,518 $146,795,483
============ ============ ============ ============ ============
Held-to-maturity-
U.S. Government and
agency obligations $ 309,218 $ 1,349,646 $ -- $ 5,000,000 $ 6,658,864
Obligations of state and
political subdivisions 560,000 104,954 -- -- 664,954
------------ ------------ ------------ ------------ ------------
Total held-to-maturity $ 869,218 $ 1,454,600 $ -- $ 5,000,000 $ 7,323,818
============ ============ ============ ============ ============
Proceeds from sales of securities (trading and available-for-sale) are
summarized as follows:
<CAPTION>
Years Ended May 31
---------------------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Proceeds from sales $63,117,707 $66,376,202 $31,727,463
=========== =========== ===========
Gross gains on sales $ 922,582 $ 1,046,199 $ 545,577
=========== =========== ===========
Gross losses on sales $ 180,333 $ 229,895 $ 189,311
=========== =========== ===========
</TABLE>
No securities held-to-maturity were sold during the three years ended May 31,
1998.
30 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
4. MORTGAGE LOANS
A summary of mortgage loans at May 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Conventional 1-4 family residential loans originated $ 127,812,039 $ 79,096,961
Conventional 1-4 family residential loans purchased 2,103,550 2,706,457
Loans partially guaranteed by VA or insured by FHA 594,827 748,520
Home equity loans 15,875,753 13,449,077
Construction loans 6,703,046 4,109,840
------------- -------------
153,089,215 100,110,855
Undisbursed portion of construction loans (3,939,460) (2,117,833)
Net deferred loan fees (535,434) (328,740)
Allowance for loan losses (371,596) (224,079)
------------- -------------
$ 148,242,725 $ 97,440,203
============= =============
</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 $144,283,000 and
$122,311,000 at May 31, 1998 and 1997, respectively.
Mortgage loans in arrears three months or more were approximately $970,000 and
$1,214,000 at May 31, 1998 and 1997, respectively. Mortgage loans on non-accrual
status at May 31, 1998 and 1997 were approximately $699,000 and $1,111,000,
respectively. Interest income that would have been recorded if the loans had
been performing in accordance with their original terms aggregated approximately
$100,000, $93,000 and $54,000 during the years ended May 31, 1998, 1997 and
1996, respectively.
5. OTHER LOANS
A summary of other loans at May 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Commercial $ 34,113,671 $ 23,417,939
Automobile 8,351,918 7,738,516
Student 1,352,784 1,331,569
Credit card 1,239,391 1,334,548
Other consumer loans 3,025,549 3,053,852
------------ ------------
48,083,313 36,876,424
Net deferred loan fees 242,704 182,590
Allowance for loan losses (1,141,374) (1,007,576)
------------ ------------
$ 47,184,643 $ 36,051,438
============ ============
</TABLE>
Commercial loans in arrears three months or more were approximately $292,000 and
$121,000 at May 31, 1998 and 1997, respectively. Commercial loans on non-accrual
status at May 31, 1998 and 1997 were approximately $159,000 and $26,000,
respectively. Consumer loans in arrears three months or more were approximately
$27,000 and $96,000 at May 31, 1998 and 1997, respectively.
[LOGO] 31
<PAGE>
[LOGO]
6. ALLOWANCE FOR LOAN LOSSES
The activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Years Ended May 31
--------------------------------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Balance at beginning of period $ 1,231,655 $ 1,304,765 $ 1,206,486
Provision for loan losses 592,450 130,000 140,000
Charge-offs (325,524) (213,042) (149,877)
Recoveries 14,389 9,932 108,156
----------- ----------- -----------
Balance at end of period $ 1,512,970 $ 1,231,655 $ 1,304,765
=========== =========== ===========
</TABLE>
7. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights as of May 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Mortgage Servicing Rights $ 1,180,858 $ 885,992
Less-Accumulated amortization (129,362) (50,913)
----------- -----------
$ 1,051,496 $ 835,079
=========== ===========
</TABLE>
The Bank capitalized originated mortgage servicing rights of $342,720 and
$216,047 for the years ended May 31, 1998 and 1997, respectively.
8. BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at May 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land $ 1,169,109 $ 340,587
Buildings and improvements 2,745,075 2,720,751
Equipment 2,684,039 2,522,432
Furniture and fixtures 647,091 584,896
----------- -----------
7,245,314 6,168,666
Less-Accumulated depreciation (4,139,934) (3,742,835)
----------- -----------
$ 3,105,380 $ 2,425,831
=========== ===========
</TABLE>
9. DEPOSITOR ACCOUNTS
Deposit account balances and stated interest rates at May 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
Stated Stated
Rates 1998 Rates 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Demand checking accounts -- % $26,743,222 -- % $ 23,854,838
Negotiable order of
withdrawal accounts (NOW) 1.00 - 2.25 17,557,881 1.00 - 2.25 15,023,912
Savings accounts 2.00 - 3.25 80,650,580 3.00 80,175,311
Money market accounts 2.35 - 3.50 26,863,318 2.35 - 3.50 27,119,239
Time certificates 4.50 - 5.00 70,906,608 4.30 - 5.50 75,037,837
------------ ------------
Total deposits $222,721,609 $221,211,137
============ ============
</TABLE>
32 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
Time certificate balances at May 31, 1998 and 1997 are summarized by remaining
period to contractual maturity as follows:
1998 1997
----------- -----------
Under one year $64,599,733 $69,248,768
One year to under three years 3,998,068 3,792,718
Three years and over 2,308,807 1,996,351
----------- -----------
$70,906,608 $75,037,837
=========== ===========
The aggregate amount of time certificates in denominations of $100,000 or more
was approximately $6,107,000 and $5,174,000 at May 31, 1998 and 1997,
respectively.
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, 1998 and 1997, are as follows:
1998 1997
----- -----
(000's omitted)
Deferred tax assets:
Charitable contribution benefit $ 496 $ --
Allowance for loan losses 620 504
Accrued post-retirement benefits 646 618
Other deductible temporary differences 49 141
------ ------
Total gross deferred tax assets 1,811 1,263
------ ------
Deferred tax liabilities:
Bad debt reserves for income tax purposes in
excess of the base-year reserves 289 289
Net unrealized gain on securities available-for-sale 755 438
Other taxable temporary differences 170 479
------ ------
Total gross deferred tax liabilities 1,214 1,206
------ ------
Net deferred tax asset (included in other assets) $ 597 $ 57
====== ======
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:
Years Ended May 31
--------------------------------------------------
1998 1997 1996
----------- ----------- ------------
Current:
Federal $ 1,636,872 $ 1,302,494 $ 945,021
State 445,276 450,864 350,741
----------- ----------- -----------
2,082,148 1,753,358 1,295,762
----------- ----------- -----------
Deferred:
Federal (614,224) 109,410 (198,026)
State (163,657) (106,902) (73,496)
----------- ----------- -----------
(777,881) 2,508 (271,522)
----------- ----------- -----------
$ 1,304,267 $ 1,755,866 $ 1,024,240
=========== =========== ===========
[LOGO] 33
<PAGE>
[LOGO]
The provision for income taxes for the three years ended May 31, 1998 differs
from that computed at the federal statutory rate as follows:
<TABLE>
<CAPTION>
Years Ended May 31
--------------------------------------------------
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Tax at federal statutory rate $ 1,076,172 $ 1,571,265 $ 846,539
State taxes, net of federal income tax benefit 218,379 322,566 182,981
Reversal of New York State Deferred Taxes -- (164,817) --
Other 9,716 26,852 (5,280)
----------- ----------- -----------
Total income tax expense $ 1,304,267 $ 1,755,866 $ 1,024,240
=========== =========== ===========
Effective rate 41.21% 37.99% 41.14%
</TABLE>
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 non-qualifying 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 non-qualifying 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 non-qualifying 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.
34 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
The funded status of the Bank's pension plan was as follows at May 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$3,474,680 and $3,188,237 at May 31, 1998 and 1997, respectively $(3,513,332) $(3,203,156)
Effect of projected future compensation levels (1,038,139) (915,896)
----------- -----------
Projected benefit obligation (4,551,471) (4,119,052)
----------- -----------
Plan assets at fair value, primarily fixed income and equity funds 5,820,424 4,990,430
----------- -----------
Excess of plan assets over projected benefit obligation 1,268,953 871,378
Unrecognized net gain from past experience different from that assumed
and effect of changes in assumptions (1,096,860) (515,120)
Unrecognized past service liability (38,937) (45,471)
Unrecognized net transition asset -- (19,099)
----------- -----------
Net prepaid pension cost (included in other assets) $ 133,156 $ 291,688
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended May 31
--------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net pension cost includes the following components:
Service costs--benefits earned during the period $ 277,347 $ 228,068 $ 176,483
Interest cost on projected benefit obligation 302,451 275,763 266,739
Actual return on assets (393,466) (357,442) (321,582)
Amortization of transition assets (21,266) (33,311) (33,311)
Amortization of prior service cost (6,534) (6,534) (6,024)
--------- --------- ---------
Net pension cost $ 158,532 $ 106,544 $ 82,305
========= ========= =========
Major assumptions utilized as follows:
Discount rate 7.50% 7.50% 7.50%
Rate of increase in compensation levels 5.50 5.50 5.50
Expected long-term rate of return on Plan assets 8.00 8.00 8.00
</TABLE>
Post-retirement Benefits Other Than Pensions
The Bank also provides post-retirement health care (medical and dental) benefits
and life insurance benefits to certain retirees if they meet certain age and
length of service requirements prior to retirement. For retirees who retire
after April 24, 1996, the continuation of such benefits is conditioned upon the
retiree contributing a portion of the cost of such benefits. For retirees who
retire before April 25, 1996, such benefits are not conditioned upon retiree
contributions.
The Bank adopted SFAS No. 106 in fiscal 1995 and changed its method of
accounting for these post-retirement benefits. Under SFAS No. 106, the cost of
post-retirement health care and life insurance benefits is recognized on an
accrual basis as such benefits is earned by active employees. Prior to the
adoption of SFAS No. 106, the Bank recognized the cost of these benefits on a
cash basis.
[LOGO] 35
<PAGE>
[LOGO]
At May 31, 1998 and 1997, the actuarial and accrued liabilities for
post-retirement health care and life insurance benefits, none of which have been
funded, were as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Accumulated post-retirement benefit obligations:
Retirees $ 540,033 $ 629,490
Other active participants 733,962 654,434
----------- -----------
Accumulated post-retirement benefit obligation 1,273,995 1,283,924
Unrecognized (gain) loss (303,975) (200,486)
----------- -----------
Accrued post-retirement benefit cost (including in other liabilities) $ 1,577,970 $ 1,484,410
=========== ===========
Effect of 1% increase in health care cost trend rate--
accumulated post-retirement benefit obligation $ 194,887 $ 154,095
=========== ===========
</TABLE>
Net periodic post-retirement benefit cost is included in the following
components:
<TABLE>
<CAPTION>
Years Ended May 31
---------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits attributed to service during period $ 63,209 $ 59,341 $ 72,156
Interest cost on accumulated post-retirement benefit obligation 91,391 101,806 102,074
Amortization of prior service cost (35,240) -- --
Amortization of (gains) losses 4,904 (17,141) 13,845
--------- --------- ---------
Net periodic post-retirement benefit cost $ 124,264 $ 144,006 $ 188,075
========= ========= =========
</TABLE>
The accumulated post-retirement benefit obligation was determined using the
projected unit cost method, as required by SFAS No. 106, and a discount rate of
7.2% in 1998, 8.00% in 1997 and 7.50% in 1996. The assumed rate of increase in
future health care costs was 9.0% in 1998, 9.50% in 1997 and 10.0% in 1996,
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 full-time employees who satisfy
the eligibility requirement and elect to participate in the plan. The Plan
provides for employer matching contributions subject to a specified maximum.
Amounts charged to operations for the years ended May 31, 1998, 1997 and 1996
were approximately $110,000, $86,000 and $65,000, respectively.
Benefit Restoration Plan
The Bank adopted the Benefit Restoration Plan of The Warwick Savings Bank
("BRP") to provide certain designated 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 Internal Revenue Code. Expense related
to the BRP included in the consolidated statements of income is approximately
$70,000 for the year ended May 31, 1998.
Employee Stock Ownership Plan
The Company has established an ESOP for eligible employees. Generally full-time
employees of the Company or the Bank who have been credited with at least 1,000
hours during a twelve-month period are eligible to participate.
The ESOP borrowed $8,509,774 at an interest rate of 8.00% from the Company and
used the funds to purchase 528,523 shares of the Company's common stock issued
in the Conversion. Generally, the loan is repaid principally from the Bank's
discretionary contributions to the ESOP over a 10-year period. At May 31, 1998,
the loan had an outstanding balance of $8,014,720. Interest expense for the
obligations was $262,095 for the year ended May 31, 1998. Shares purchased with
the loan proceeds are held in a suspense account for allocation among
participants as the loan is paid. Contributions to the ESOP and shares released
from the loan collateral in an amount proportional to the repayment of the ESOP
loan are allocated among participants on the basis of compensation, as described
in the plan, in the year of allocation. Benefits generally become 100% vested
after seven years of vesting service and are immediately vested on death,
retirement or disability. In addition, in the event of a change in control, as
defined in the plan, any unvested portion of benefits shall vest immediately.
Forfeitures are used to reduce employer contributions. Benefits are payable upon
death, retirement, disability, or separation from service based on vesting
status and share allocations made.
36 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
As of May 31, 1998, 31,016 shares were allocated to participants and 13,213
shares were committed to be released. As shares are released from collateral,
the shares become outstanding for earnings per share computations. As of May 31,
1998, the fair market value of the 484,294 unearned shares was $8,232,998.
12. BORROWED FUNDS AND REPURCHASED AGREEMENTS
Securities sold under agreements to repurchase at May 31, 1998 and 1997 which
were transacted with a major securities firm are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------ -----------------------------------------------------
Amount Rate Maturity Amount Rate Maturity
------------- ------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 490,000 5.64% 06/15/98 $ 705,000 5.69% 06/18/97
4,000,000 5.64 06/15/98 4,685,000 5.69 06/18/97
1,300,000 5.95 06/19/98 1,300,000 6.00 06/19/97
1,300,000 6.40 06/19/98 1,300,000 6.40 06/19/98
5,000,000 5.69 06/30/98 4,700,000 6.65 07/01/98
4,700,000 6.32 05/24/99 1,000,000 6.65 06/19/99
1,000,000 6.65 06/19/99 4,700,000 6.32 05/24/99
4,700,000 6.65 06/30/99 4,700,000 6.53 08/01/99
4,700,000 6.53 08/01/99 -----------
----------- $23,090,000
$27,190,000 ===========
===========
</TABLE>
Information relating to borrowings under repurchase agreements is summarized as
follows:
<TABLE>
<CAPTION>
Years Ended May 31
-----------------------------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Average balance during the year $24,056,648 $19,685,315 $ 101,075
Average interest rates during the year 6.18% 6.20% 6.32%
Maximum month-end balance during the year 27,500,000 23,300,000 4,700,000
Securities underlying agreement at year-end:
Amortized cost 37,729,203 25,470,851 5,000,000
Estimated market value 38,071,150 25,508,437 4,981,000
</TABLE>
Federal Home Loan Bank advances are as follows at May 31, 1998 and 1997:
<TABLE>
<CAPTION>
Available Outstanding Rate Maturity
--------- ----------- -------- --------
<S> <C> <C> <C> <C>
1998:
Revolving line of credit $16,982,150 $ 7,600,000 5.81% Daily
Repricing line of credit 16,982,150 -- Monthly
Term loans 250,000 6.96 06/19/00
5,000,000 5.79 12/18/01
20,000,000 5.02 01/30/08
10,000,000 5.79 02/26/08
5,000,000 5.26 04/30/08
5,000,000 5.63 04/30/08
10,000,000 5.47 05/29/01
-----------
$62,850,000
===========
1997:
Revolving line of credit $14,417,000 $ -- -- Daily
Repricing line of credit 14,417,000 -- -- Monthly
Term loans 250,000 6.96 6/19/00
5,000,000 5.79 12/18/01
-----------
$ 5,250,000
===========
</TABLE>
In addition, the Bank has a $5 million line of credit from a commercial bank and
a $10 million line of credit from a securities investment company which expire
on November 30, 1998. As of May 31, 1998 and 1997 the credit lines were unused.
[LOGO] 37
<PAGE>
[LOGO]
13. REGULATORY CAPITAL REQUIREMENTS
The Company 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
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance sheet items calculated under
regulatory accounting practices. The Company'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 Company and 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,
1998, that the Company and the Bank meet 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 presented in the following
table (000's omitted):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------- ------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of May 31, 1998:
Total Capital
(to risk weighted assets) $54,910 26.27% $16,721 >8.0% $20,901 >10.0%
Tier 1 Capital
(to risk weighted assets) 53,397 25.55 8,360 >4.0 12,540 >6.0
Tier 1 Capital
(to average assets) 53,397 13.91 15,352 >4.0 19,190 >5.0
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
</TABLE>
38 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
The Company's actual capital amounts and ratios are presented in the following
table (000's omitted):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------- -------------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of May 31, 1998:
Total Capital
(to risk weighted assets) $86,498 40.78% $16,968 >8.0% $21,211 >10.0%
Tier 1 Capital
(to risk weighted assets) 84,985 40.07 8,484 >4.0 12,726 >6.0
Tier 1 Capital
(to average assets) 84,985 21.44 15,855 >4.0 19,818 >5.0
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rental expense included in the statements of income was approximately $281,000,
$267,000 and $249,000 for the years ended May 31, 1998, 1997 and 1996,
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, 1998 are as follows
(with comparative totals as of May 31, 1997):
<TABLE>
<CAPTION>
Commitments Unused
to Originate Lines of
Loans Credit Total
-------------- ------------ -------------
<S> <C> <C> <C>
Mortgage loans $ 42,034,747 $ -- $ 42,034,747
Construction loans 7,047,106 -- 7,047,106
Commercial loans -- 5,558,603 5,558,603
Other loans 6,414,805 -- 6,414,805
------------- ------------ -------------
Total as of May 31, 1998 $ 55,496,658 $ 5,558,603 $ 61,055,261
============= ============ =============
Total as of May 31, 1997 $ 30,011,669 $ 4,275,202 $ 34,286,871
============= ============ =============
</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.
[LOGO] 39
<PAGE>
[LOGO]
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.
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.
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.
40 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
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, 1998 and 1997
(000's omitted):
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash on hand and in banks $ 11,190 $ 11,190 $ 10,367 $ 10,367
Federal funds sold -- -- 1,315 1,315
Securities 170,749 170,702 126,393 126,417
Loans, net 212,665 215,186 138,323 139,126
Accrued interest receivable 2,463 2,463 2,097 2,097
Federal Home Loan Bank stock 3,393 3,393 1,731 1,731
Financial liabilities:
Demand, NOW, statement savings and
passbook, and money market accounts $ 151,815 $ 151,815 $ 146,173 $ 146,173
Time certificate accounts 70,907 70,998 75,038 75,003
Mortgage escrow funds 2,266 2,266 1,398 1,398
Borrowed funds 90,040 90,040 28,340 28,340
Accrued interest payable 1,486 1,486 1,211 1,211
</TABLE>
[LOGO] 41
<PAGE>
[LOGO]
16. WARWICK COMMUNITY BANCORP, INC.-PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following statement of financial condition as of May 31, 1998, the statement
of income for the year ended May 31, 1998, and the related statements of cash
flows for the year ended May 31, 1998, reflect the Company's investment in its
wholly owned subsidiary, the Bank, using the equity method of accounting.
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION
MAY 31, 1998
(000's omitted except share amounts)
ASSETS
<S> <C>
Assets:
Cash and cash equivalents $ 19,976
Investment securities available for sale 2,901
Accrued interest receivable 262
Other assets 783
ESOP loan to the trustee of the ESOP 8,015
Investment in The Warwick Savings Bank 54,503
--------
Total assets $ 86,440
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities $ 252
Income taxes payable 39
--------
Total liabilities 291
--------
Stockholders' equity:
Preferred stock, $.01 par value;
5,000,000 shares authorized; none issued --
Common stock, $.01 par
value; 15,000,000 shares authorized,
6,606,548 shares issued 66
Additional paid-in capital 63,386
Less-Unallocated common stock held by ESOP (7,823)
Retained earnings - subject to restrictions 29,355
Unrealized appreciation on securities available for sale, net 1,165
--------
Total stockholders' equity 86,149
--------
Total liabilities and stockholders' equity $ 86,440
========
STATEMENT OF INCOME
FOR THE YEAR ENDED MAY 31, 1998
(000'S OMITTED)
Interest income:
ESOP loan to the trustee of the ESOP $ 262
Investment securities 24
--------
Total interest income 286
Interest expense --
--------
Net interest income before provision for loan losses 286
Provision for loan losses --
--------
Net interest income after provision for loan losses 286
--------
Non-interest income:
Gain on sale of investment securities 28
Equity in undistributed net income of subsidiary bank 2,941
--------
2,969
Non-interest expense 2,054
--------
Income before provision for income taxes 1,201
Income tax benefit (660)
--------
Net income $ 1,861
========
</TABLE>
42 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MAY 31, 1998
(000's omitted)
<S> <C>
Cash flows from operating activities:
Net income $ 1,861
Adjustments to reconcile net income to net cash
provided by operating activities-
Undistributed earnings of subsidiary bank (2,941)
Charitable contribution to The Warwick Savings Foundation 1,924
Gain on sale of securities (30)
(Increase) decrease in assets-
Accrued interest receivable (262)
Other assets (783)
Increase in liabilities-
Other liabilities 252
Income taxes payable 39
---------
Net cash provided by operating activities 60
---------
Cash flows from investing activities:
Payment made to purchase 100% of the outstanding stock of the Bank (30,743)
Purchases of securities available for sale (4,592)
Proceeds from sale of securities available for sale 1,781
---------
Net cash used in investing activities (33,554)
---------
Cash flows from financing activities:
(Increase) in ESOP loan receivable (8,015)
Proceeds from issuance of common stock 61,485
---------
Net cash provided by financing activities 53,470
---------
Net increase in cash and cash equivalents 19,976
Cash and cash equivalents, beginning of year --
---------
Cash and cash equivalents, end of year $ 19,976
=========
</TABLE>
[LOGO] 43
<PAGE>
[LOGO]
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended May 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
May 31, February 28, November 30, August 31,
1998 1998 1997 1997
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total interest income $ 7,046 $ 6,208 $ 5,291 $ 5,232
Total interest expense 2,844 2,335 2,434 2,359
Net interest income 4,202 3,873 2,857 2,873
Provision for loan losses 125 104 60 303
Non-interest income 987 764 711 678
Non-interest expense and
provision for income taxes 3,835 5,133 2,814 2,710
Net income (loss) 1,229 (600) 694 538
Basic earnings (loss) per common share .20 (.10) N/A N/A
Diluted earnings (loss) per common share .20 (.10) N/A N/A
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
May 31, February 28, November 30, August 31,
1997 1997 1996 1996
-------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Total interest income $ 5,274 $ 5,356 $ 5,150 $ 4,911
Total interest expense 2,400 2,342 2,354 2,280
Net interest income 2,874 3,014 2,796 2,631
Provision for loan losses 50 30 30 20
Non-interest income 574 539 683 984
Non-interest expense and provision
for income taxes 2,751 2,832 2,769 2,747
Net income 647 691 680 848
Basic earnings per common share N/A N/A N/A N/A
Diluted earnings per common share N/A N/A N/A N/A
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors & Stockholders of
Warwick Community Bancorp, Inc:
We have audited the accompanying consolidated statements of financial condition
of Warwick Community Bancorp, Inc. and subsidiaries as of May 31, 1998 and 1997,
and the related consolidated statements of income, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended May
31, 1998. These financial statements are the responsibility of the Company'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 Warwick Community Bancorp, Inc.
and subsidiaries as of May 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended May 31, 1998, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
June 19, 1998
44 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
Shareholder Information
Stock Information
Warwick Community Bancorp, Inc. common stock trades on The Nasdaq Stock
Market(SM) under the symbol WSBI. When trades occur, the stock is listed as
either Warwick or WSBI in The Nasdaq Stock Market(SM) section of the Times
Herald Record, Wall Street Journal and other leading newspapers.
The Company's common stock commenced trading on December 23, 1997. The table
below shows the reported high and low sales price of the common stock from
December 23, 1997 to the close of business on May 29, 1998, the last trading
date of the fiscal year ended May 31, 1998.
Fiscal Year Quarter Ending High Low Dividends Paid
- --------------------------------------------------------------------------------
1998 Feb. 28 $17.38 $15.25 N/A
May 31 $18.13 $15.94 N/A
Shareholder Relations Contact:
Margaret Sgombick
The Warwick Savings Bank
18 Oakland Avenue
P.O. Box 591
Warwick, NY 10990
914-986-2206, ext. 265
Shareholders wishing to change the name, address or ownership of stock, to
report lost certificates or to consolidate accounts are asked to contact the
Company's stock registrar and transfer agent directly:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016
1-800-368-5948
[LOGO] 45
<PAGE>
[LOGO]
Executive Officers
Executive Staff
Timothy A. Dempsey, President & CEO
Ronald J. Gentile, Executive
Vice President, COO & CRA Officer
Nancy L. Sobotor-Littell, Corporate Secretary
Lois E. Ulatowski, Assistant Secretary
Auditing
Donna M. Lyons, Senior Vice President/Auditor
Abigail M. Opper, Assistant Auditor
Branch Administration
Mary Ann More, Assistant Treasurer/
Branch Administrator
Barbara A. Ligarzewski, Assistant Manager
Carol A. Green, Assistant Manager
Commercial Lending
Laurence D. Haggerty, Senior Vice President
C. Roland Newkirk, Vice President
Jill A. Singer, Assistant Vice President
Edward F. Lekis, Assistant Vice President
Kathryn A. Tiedemann, Assistant Treasurer
Compliance
Thomas C. Gargan, Vice President, BSA
& Security Officer
Consumer Lending
Barbara D. Forman, Assistant Treasurer
Mary K. Serringer, Assistant Manager
Carla A. Harris, Assistant Manager
Facilities
Dominic P. Mazza, Vice President,
Facilities Manager
Finance
Arthur W. Budich, Senior Vice President,
Treasurer & CFO
Donna F. Parisi, Assistant Treasurer
Kathleen A. Faith-Schott, Assistant Treasurer
Karen J. Hall, Assistant Treasurer
Information Systems
Rosemary Kosinski, M.I.S. Director
Loan Servicing
Barbara A. Rudy, Senior Vice President
Edson E. Moore, Assistant Vice President
Deborah K. Langlitz, Assistant Treasurer
Mary Kearney, Manager
Marketing & Shareholder's Relations
Margaret E. Sgombick, Assistant Vice
President/Marketing Director
Mortgage Lending
Arthur S. Anderson, Executive Director
Stephen J. Howe, Sales Manager
Lana M. Neilan, Assistant Treasurer
Stephen A. Carle, Assistant Treasurer &
Operations Manager
Beverly S. Bates, Chief Underwriter
46 Warwick Community Bancorp, Inc. o Annual Report
<PAGE>
WARWICK COMMUNITY BANCORP, INC. AND SUBSIDIARIES
Branch Locations
Warwick Office
18 Oakland Avenue
Pamela A. Pinnavaia, Branch Manager
Shelley M. Kirk, Customer Service Manager
Monroe Office
591 Route 17M
Michelle L. Mabee-Pawliczak,
Assistant Treasurer/Branch Manager
Delvia L. Alsina, Assistant Branch Manager
Jean A. Kennedy, Assistant Branch Manager
Catherine A. Casson, Customer Service
Manager
Woodbury Office
556 Route 32
Erica J. Leampreau, Branch Manager
Christine Manson, Assistant
Branch Manager
Shivali Jaggi, Customer Service Manager
Wallkill Office
One Industrial Drive
Gerard T. Loughren, Assistant Vice
President/Branch Manager
Lisette D. Cuba, Assistant Branch Manager
Cheryl M. Meyer, Assistant Branch
Manager
Barbara E. Szydlowski, Customer
Service Manager
[LOGO] 47
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
WARWICK COMMUNITY BANCORP, INC. - owns 100% of The Warwick Savings Bank
THE WARWICK SAVINGS BANK - owns 100% of the following subsidiary corporations
1. WSB Financial Services, Inc. (New York)
2. Warsave Development, Inc. (New York)
3. WSB Mortgage Company of New Jersey, Inc. (New Jersey)
LOGO
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
August 21, 1998
Dear Shareholder:
You are cordially invited to attend the 1998 Annual Meeting of
Shareholders ("Annual Meeting") of Warwick Community Bancorp, Inc. ("Company"),
the holding company for The Warwick Savings Bank ("Bank"), which will be held at
The Inn at Central Valley, Smith Clove Road, Central Valley, New York 10917, on
September 22, 1998 at 9:30 a.m., Eastern time.
The attached Notice of the 1998 Annual Meeting of Shareholders and
Proxy Statement describe the formal business to be transacted at the Annual
Meeting. Directors and officers of the Company, as well as a representative of
Arthur Andersen LLP, the accounting firm appointed by the Board of Directors to
be the Company's independent auditors for the period beginning June 1, 1998 and
ending December 31, 1998, will be present at the Annual Meeting to respond to
appropriate questions from our shareholders.
The Board of Directors of the Company has determined that an
affirmative vote on each matter to be considered at the Annual Meeting is in the
best interests of the Company and its shareholders and unanimously recommends a
vote "FOR" each of these matters.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS
URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THIS WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE ANNUAL MEETING, BUT WILL ASSURE THAT YOUR VOTE IS
COUNTED IF YOU ARE UNABLE TO ATTEND. IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE
NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM
YOUR RECORD HOLDER TO ATTEND AND TO VOTE PERSONALLY AT THE ANNUAL MEETING.
EXAMPLES OF SUCH DOCUMENTATION INCLUDE A BROKER'S STATEMENT, LETTER OR OTHER
DOCUMENT CONFIRMING YOUR OWNERSHIP OF SHARES OF THE COMPANY.
On behalf of the Board of Directors and the employees of the Company
and the Bank, thank you for your continued support.
Sincerely yours,
[Facsimile signature]
Timothy A. Dempsey
President and Chief Executive Officer
<PAGE>
LOGO
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
NOTICE OF THE 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 22, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Warwick Community Bancorp, Inc. ("Company") will be held at The Inn at Central
Valley, Smith Clove Road, Central Valley, New York 10917, on September 22, 1998
at 9:30 a.m., Eastern time, for the following purposes:
1. To elect three directors, each to serve for a three-year term;
2. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the Company for the period beginning June 1, 1998
and ending December 31, 1998; and
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment or postponement thereof. As of
the date hereof, the Board of Directors of the Company is not
aware of any such other business.
The Board of Directors has fixed the close of business on August 12,
1998 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual Meeting and any adjournment or postponement
thereof. A list of shareholders entitled to vote at the Annual Meeting will be
available for inspection at 18 Oakland Avenue, Warwick, New York, for a period
of ten days prior to the Annual Meeting and will also be available at the Annual
Meeting.
A copy of the 1998 Annual Report to Shareholders of the Company, which
for purposes of the regulations of the Federal Deposit Insurance Corporation
serves as the Annual Disclosure Statement of The Warwick Savings Bank, a wholly
owned subsidiary of the Company, accompanies this Notice of the 1998 Annual
Meeting of Shareholders. Shareholders may obtain, free of charge, an additional
copy of the Annual Report by writing to Margaret Sgombick, Marketing Director,
The Warwick Savings Bank, P.O. Box 591, Warwick, New York 10990-0591.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, THE BOARD OF DIRECTORS
URGES YOU TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE. RETURNING THE PROXY CARD WILL
NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors
[Facsimile signature]
Nancy L. Sobotor-Littell
Corporate Secretary
Warwick, New York
August 21, 1998
<PAGE>
LOGO
18 OAKLAND AVENUE
WARWICK, NEW YORK 10990-0591
(914) 986-2206
------------------------
PROXY STATEMENT FOR THE
1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 22, 1998
GENERAL INFORMATION
GENERAL
This Proxy Statement and accompanying Proxy Card are being mailed to
shareholders of Warwick Community Bancorp, Inc. ("Company") on or about August
21, 1998 in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of Shareholders of the
Company to be held at The Inn at Central Valley, Smith Clove Road, Central
Valley, New York 10917, on September 22, 1998 at 9:30 a.m., Eastern time, and at
any adjournment or postponement thereof ("Annual Meeting").
On December 23, 1997, The Warwick Savings Bank ("Bank") completed its
conversion from a New York State mutual savings bank to a New York State stock
savings bank ("Conversion"). The Company, a Delaware corporation, operates as a
bank holding company for the Bank, its wholly owned subsidiary.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business
on August 12, 1998 as the record date ("Record Date") for the determination of
the holders of the Company's issued and outstanding common stock, par value $.01
per share ("Common Stock"), entitled to notice of and to vote at the Annual
Meeting. Only holders of record of Common Stock at the close of business on the
Record Date will be entitled to vote at the Annual Meeting. At the close of
business on the Record Date, there were 6,606,548 shares of Common Stock
outstanding. The presence, in person or by proxy, of the holders of at least a
majority of the total number of outstanding shares of Common Stock entitled to
vote at the Annual Meeting is necessary to constitute a quorum thereat.
Each holder of shares of Common Stock outstanding on the Record Date
will be entitled to one vote for each share held of record (except for Excess
Shares, if any, as defined below) upon each matter to be voted upon at the
Annual Meeting. As provided in the Company's Certificate of Incorporation, if
any person beneficially owns, directly or indirectly, shares of Common Stock in
excess of 10% of the then issued and outstanding shares of Common Stock, all
such shares beneficially owned by such person in excess of the 10% threshold
shall be deemed to be "Excess Shares," and the holder thereof shall be entitled
to cast only one one-hundredth (1/100) of a vote per share for each Excess
Share. A person or entity is deemed to beneficially own shares owned by an
affiliate or associate as well as persons acting in concert with such person or
entity. The Company's Certificate of Incorporation authorizes the Board of
Directors (i) to interpret and apply the
<PAGE>
provisions of the Certificate of Incorporation governing Excess Shares and to
determine, on the basis of information known to them after reasonable inquiry,
all facts necessary to ascertain compliance with such provisions and (ii) to
demand that any person who is reasonably believed to beneficially own Excess
Shares supply information to the Company to enable the Board of Directors to
implement and apply such provisions.
If the enclosed Proxy Card is properly executed and received by the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions indicated thereon. IF
NO INSTRUCTIONS ARE GIVEN, EXECUTED PROXIES WILL BE VOTED FOR THE PROPOSALS
IDENTIFIED IN THE NOTICE OF THE 1998 ANNUAL MEETING.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. The holders of Common Stock may not vote their
shares cumulatively for the election of directors. Ratification of the
appointment of Arthur Andersen LLP as the Company's independent auditors
requires the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock represented in person or by proxy at the Annual Meeting
and entitled to vote thereon. ACCORDINGLY, SHARES AS TO WHICH THE "ABSTAIN" BOX
HAS BEEN SELECTED ON THE PROXY CARD WITH RESPECT TO THE APPOINTMENT OF ARTHUR
ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE COMPANY WILL BE COUNTED AS PRESENT
AND ENTITLED TO VOTE AND WILL HAVE THE EFFECT OF A VOTE AGAINST THAT PROPOSAL.
IN CONTRAST, SHARES UNDERLYING BROKER NON-VOTES WILL NOT BE COUNTED AS PRESENT
AND ENTITLED TO VOTE AND WILL HAVE NO EFFECT ON THE VOTE FOR SUCH PROPOSAL.
REVOCABILITY OF PROXIES
The presence of a shareholder at the Annual Meeting will not
automatically revoke such shareholder's proxy. However, a shareholder may revoke
a proxy at any time before it is voted by (1) filing a written notice of
revocation with the Corporate Secretary of the Company prior to the Annual
Meeting, (2) delivering to the Corporate Secretary prior to the Annual Meeting a
duly executed proxy bearing a later date or (3) attending the Annual Meeting,
filing a written notice of revocation with the secretary of the Annual Meeting
and voting in person.
IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED APPROPRIATE DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER
TO BE ADMITTED TO THE ANNUAL MEETING AND TO VOTE AT THE ANNUAL MEETING. Examples
of such documentation include a broker's statement, letter or other document
that will confirm your ownership of shares of the Company.
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from its
shareholders. In addition to the solicitation of proxies by mail, Kissel-Blake
Inc., a proxy solicitation firm, will assist the Company in soliciting proxies
for the Annual Meeting and will be paid a fee estimated to be $2,500, plus
out-of-pocket expenses. Proxies may also be solicited personally, by telephone,
facsimile or other means by directors, officers and employees of the Company or
its subsidiaries, without additional compensation. The Company will also request
persons, firms and corporations holding shares in their names or in the name of
their nominees, which are beneficially owned by others, to forward proxy
materials to and obtain proxies from such beneficial owners, and will reimburse
such holders for reasonable expenses incurred in connection therewith.
2
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as to those persons
believed by management to be beneficial owners of more than 5% of the Company's
outstanding shares of Common Stock as of July 31, 1998. Other than those persons
listed below, the Company is not aware of any person who is the beneficial owner
of more than 5% of the Company's outstanding shares of Common Stock as of July
31, 1998. Except as otherwise indicated, the information provided in the
following table was obtained from filings with the Securities and Exchange
Commission ("SEC") and with the Company pursuant to the Securities Exchange Act
of 1934, as amended ("Exchange Act"). For purposes of the following table and
the table set forth under "Stock Ownership of Management," in accordance with
Rule 13d-3 under the Exchange Act, a person is deemed to "beneficially own" any
shares of Common Stock (a) over which such person has, directly or indirectly,
sole or shared voting or investment power or (b) of which such person has the
right to acquire beneficial ownership, including the right to acquire beneficial
ownership by the exercise of stock options, at any time within 60 days after
July 31, 1998. As used herein, "voting power" includes the power to vote, or
direct the voting of, such shares, and "investment power" includes the power to
dispose, or direct the disposition of, such shares.
<TABLE>
<CAPTION>
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF COMMON STOCK
OF SECURITY BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
----------- ---------------- -------------------- -----------
<S> <C> <C> <C>
Common Stock Warwick Community Bancorp, Inc. 528,523(1) 8.0%
Employee Stock Ownership Plan and
Trust ("ESOP")
18 Oakland Avenue
Warwick, New York 10990-0591
Common Stock Bay Pond Partners, L.P. 364,000(2) 5.5%
75 State Street
Boston, Massachusetts 02109
</TABLE>
- ----------------------
(1) The ESOP is administered by the Bank as Plan Administrator and by a
committee established pursuant to the ESOP ("ESOP Committee"). The
assets of the ESOP are held in a trust ("ESOP Trust") for which Marine
Midland Bank serves as trustee ("ESOP Trustee"). The ESOP Trust
purchased such shares following the Bank's Conversion with funds
borrowed from the Company. The Common Stock acquired by the ESOP is
released from a suspense account and allocated annually to the accounts
of participants based upon the contributions made to the ESOP by the
Company. The ESOP Committee may instruct the ESOP Trustee regarding
investment of assets held in the ESOP Trust. The ESOP Trustee generally
votes all allocated shares held in the ESOP Trust in accordance with
the instructions of participants. As of December 31, 1997, 31,016 of
the 528,523 shares were allocated to participants. Pursuant to the
terms of the ESOP, unallocated shares are generally voted by the ESOP
Trustee in a manner calculated to most accurately reflect the voting
instructions received from participants regarding the allocated shares
so long as such vote is in accordance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended. Each
member of the ESOP Committee disclaims beneficial ownership of the
shares of Common Stock held in the ESOP.
(2) Based on information in a Schedule 13G, dated April 7, 1998, filed on
behalf of Bay Pond Partners, L.P. ("Bay Pond"), a Delaware limited
partnership, Wellington Hedge Management LLC ("WHML"), a Massachusetts
limited liability company which is the sole general partner of Bay
Pond, and Wellington Hedge Management, Inc., a Massachusetts
corporation which is the managing member of WHML. Bay Pond has shared
voting and shared dispositive power over all of the shares shown.
3
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information with respect to the shares
of Common Stock beneficially owned by each director of the Company, by each
executive officer of the Company identified in the Summary Compensation Table
included on page 13 of this Proxy Statement and by all directors and executive
officers of the Company or the Bank as a group as of July 31, 1998. Except as
otherwise indicated, each person and each group shown in the table has sole
voting and investment power with respect to the shares of Common Stock
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF COMMON
BENEFICIAL OWNERSHIP STOCK OUTSTANDING
NAME TITLE (1) (2)(3)(4)(5)(6) (7)
---- --------- ---------------------- ---
<S> <C> <C>
Timothy A. Dempsey President, Chief Executive 84,878 1.3%
Officer and Director
Executive Vice President,
Ronald J. Gentile Chief Operating Officer 71,380 1.1%
and Director
Frances M. Gorish Director 14,920 *
R. Michael Kennedy Director 44,920 *
Fred M. Knipp Director 23,920 *
Emil R. Krahulik Director 13,920 *
Thomas F. Lawrence, Jr. Director 10,920 *
Henry L. Nielsen, Jr. Director 27,920 *
John W. Sanford III Director 12,420 *
Robert N. Smith Director 24,420 *
All directors and executive officers
as a group (15 persons) 482,856 7.3%
</TABLE>
- ---------------------
* Less than 1.0% of outstanding Common Stock.
(1) Titles are for both the Company and the Bank.
(2) The figures shown include shares held in trust pursuant to the ESOP that
have been allocated as of December 31, 1997 to individual accounts of ESOP
participants as follows: Mr. Dempsey, 986 shares; Mr. Gentile, 1,041
shares; and all executive officers as a group, 5,357 shares. Such persons
have voting power (subject to the duties of the ESOP Trustee) but no
investment power, except in limited circumstances, as to such shares. The
figures shown do not include 497,507 shares held in trust pursuant to the
ESOP that have not been allocated to any individual's account and as to
which the members of the Company's ESOP Committee (consisting of Messrs.
Dempsey, Gentile and Budich, Ms. Sobotor-Littell and Ms. Rudy) and each of
the participants identified in the table may be deemed to share investment
power, except in limited circumstances, thereby causing each such person to
be deemed a beneficial owner of such shares. Each of the members of the
ESOP Committee and the participants identified in the table disclaims
beneficial ownership of such shares and, accordingly, such shares are not
attributed to the members of the ESOP Committee or the participants
identified in the table individually. See "Election of Directors --
Executive Compensation -- Employee Stock Ownership Plan and Trust."
(3) The figures shown include shares held pursuant to The Warwick Savings Bank
401(k) Savings Plan ("401(k) Plan") that have been allocated as of July 31,
1998 to individual accounts as follows: Mr. Dempsey, 216 shares; Mr.
Gentile, 3,238 shares; and all executive officers as a group, 13,787
shares. Such persons have shared voting and investment power as to such
shares. See "Election of Directors -- Executive Compensation -- 401(k)
Plan."
(FOOTNOTES CONTINUED ON NEXT PAGE)
4
<PAGE>
(4) The figures shown include shares held under the Recognition and Retention
Plan of Warwick Community Bancorp, Inc., over which each individual has
sole voting but no investment power, as follows: Mr. Dempsey, 52,854
shares; Mr. Gentile, 36,998 shares; each of Mrs. Gorish and Messrs.
Kennedy, Knipp, Krahulik, Lawrence, Nielsen, Sanford and Smith, 8,919
shares; and all directors and executive officers as a group, 240,479
shares. See "Election of Directors -- Executive Compensation -- Recognition
and Retention Plan."
(5) The figures shown include shares held pursuant to the Benefit Restoration
Plan of The Warwick Savings Bank ("BRP") as to which each person identified
has no voting power, but may be deemed to share investment power, as
follows: Mr. Dempsey, 821 shares; Mr. Gentile, 102 shares; and all
executive officers as a group, 923 shares. See "Election of Directors --
Executive Compensation -- Benefit Restoration Plan."
(6) The figures shown include shares over which individuals may be deemed to
share voting and investment power (other than as disclosed in notes 2, 3, 4
and 5) as follows: Mr. Dempsey, 15,000 shares; Mr. Gentile, 15,000 shares;
Mr. Kennedy, 17,000 shares; Mr. Knipp, 15,000 shares; Mr. Lawrence, 1,000
shares; Mr. Sanford, 2,500 shares; Mr. Smith, 5,500 shares; and all
directors and executive officers as a group, 83,500 shares.
(7) Percentages with respect to each person or group of persons have been
calculated on the basis of 6,606,548 shares of Common Stock, the number of
shares of Common Stock outstanding as of July 31, 1998. No officer or
director has the right to acquire beneficial ownership of additional shares
of Common Stock within 60 days after July 31, 1998.
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
The Certificate of Incorporation and By-Laws of the Company provide
that the Board of Directors shall be divided into three classes. The directors
of each class serve for a term of three years, with one class elected each year.
In all cases, directors serve until their successors are duly elected and
qualified. Currently, the Board of Directors of the Company consists of 10
members.
The terms of three directors expire at the Annual Meeting. Each of the
three incumbent directors, Timothy A. Dempsey, Fred M. Knipp and Henry L.
Nielsen, Jr., has been nominated by the Board of Directors to be re-elected at
the Annual Meeting, each to serve for a three-year term expiring at the 2001
Annual Meeting and until their successors are otherwise duly elected and
qualified. Each nominee has consented to being named in this Proxy Statement and
to serve if elected. However, if any nominee should become unable to serve, the
proxies received in response to this solicitation that were voted in favor of
such nominee will be voted for the election of such other person as shall be
designated by the Board of Directors of the Company, unless the Board of
Directors shall determine to reduce the number of directors pursuant to the
By-Laws of the Company. In any event, proxies cannot be voted for a greater
number of persons than the three nominees named.
INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS
The following table sets forth certain information with respect to each
nominee for election as a director and each continuing director whose term does
not expire at the Annual Meeting. There are no arrangements or understandings
between the Company and any director or nominee pursuant to which such person
was elected or nominated to be a director of the Company. For information with
respect to security ownership of directors, see "General Information -- Stock
Ownership of Management."
5
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE(1) END OF TERM POSITION HELD WITH THE COMPANY SINCE(2)
- ---- ------ ----------- ------------------------------ --------
NOMINEES FOR A THREE-YEAR
TERM EXPIRING IN 2001
<S> <C> <C> <C> <C>
Timothy A. Dempsey 64 1998 President, Chief Executive
Officer and Director 1974
Fred M. Knipp 67 1998 Director 1992
Henry L. Nielsen, Jr. 72 1998 Director 1962
CONTINUING DIRECTORS
Ronald J. Gentile 49 1999 Executive Vice President, Chief
Operating Officer and Director 1990
Frances M. Gorish 71 2000 Director 1979
R. Michael Kennedy 46 2000 Director 1997
Emil R. Krahulik 64 1999 Director 1984
Thomas F. Lawrence, Jr. 70 1999 Director 1965
John W. Sanford III 61 2000 Director 1986
Robert N. Smith 49 2000 Director 1994
</TABLE>
(1) At July 31, 1998.
(2) Includes terms as trustee of the Bank and of predecessor affiliated
institutions prior to the incorporation of the Company on September 10,
1997.
The principal occupation and business experience of each nominee for
election as director and each continuing director are set forth below.
NOMINEES FOR ELECTION AS DIRECTORS
TIMOTHY A. DEMPSEY serves as the President, Chief Executive Officer and
a director of the Company. 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 director since 1974. He
also serves as President, Chief Executive Officer and a director of the Bank's
wholly owned subsidiaries, including Warsave Development, Inc. ("Warsave"), WSB
Financial Services, Inc. ("WSB Financial") and WSB Mortgage Company of New
Jersey, Inc. ("WSB Mortgage"). In addition, he serves as 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.
6
<PAGE>
FRED M. KNIPP has served as a director of the Bank since 1984. He is
the President, Chief Executive Officer and a director of the Warwick Valley
Telephone Company and a director of Centrex Communications Corporation.
HENRY L. NIELSEN, JR. has served as a director 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. Mr. Nielsen also serves
as a director of Warsave, WSB Financial and WSB Mortgage.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE NOMINEES FOR ELECTION AS DIRECTORS.
CONTINUING DIRECTORS
RONALD J. GENTILE serves as the Executive Vice President, Chief
Operating Officer and a director of the Company. Mr. Gentile joined the Bank and
has been a director 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 Federal Deposit Insurance Corporation. He is also a member of
the 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 director
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. Mrs.
Gorish also serves as a director of Warsave, WSB Financial and WSB Mortgage.
R. MICHAEL KENNEDY became a director 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.
EMIL R. KRAHULIK has served as a director 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 director 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 also
serves as a director of Warsave, WSB Financial and WSB Mortgage. Mr. Lawrence is
Nancy L. Sobotor-Littell's father.
JOHN W. SANFORD III has been a director 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 director 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.
7
<PAGE>
BOARD AND COMMITTEE MEETINGS
The Board of Directors meets on a monthly basis and may have additional
special meetings from time to time. During the fiscal year ended May 31, 1998,
the Board of Directors met 19 times. No current director attended fewer than 75%
of the total number of Board meetings and committee meetings of which such
director was a member. There is no standing nominating committee of the Board of
Directors. For the part of the fiscal year ended May 31, 1998 during which the
Company was not yet in existence, the information contained in this section
reflects information for the Bank.
The Board of Directors of the Company maintains the following standing
committees:
The EXECUTIVE COMMITTEE consists of Mr. Dempsey, Mr. Nielsen, Mr.
Lawrence, Mrs. Gorish, Mr. Krahulik and Mr. Sanford. The Executive Committee
generally oversees the affairs of the 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
Executive Committee met 23 times during the fiscal year ended May 31, 1998.
The AUDIT COMMITTEE consists of Messrs. Knipp, Sanford, Kennedy,
Lawrence and Smith. The Audit Committee meets periodically with its independent
certified public accountants to arrange the Company'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 performances
of the Company's internal auditing staff. The Audit Committee met 2 times during
the fiscal year ended May 31, 1998.
The COMPENSATION COMMITTEE consists of Mr. Nielsen, Mrs. Gorish,
Mr. Kennedy and Mr. Smith. The Compensation Committee is responsible for
overseeing the development, implementation and conduct of the Company's
employment and personnel policies, notices and procedures, including the
administration of the Company's and the Bank's compensation and benefit
programs. The Compensation Committee met 1 time during the fiscal year ended May
31, 1998.
DIRECTORS' COMPENSATION
FEE ARRANGEMENTS. Currently, each director of the Bank who is not an
employee of the Bank or the Company 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 of the Bank each receive an annual fee of
$250. Directors of the Company are not separately compensated for their services
as such.
OPTION PLAN AND RRP. The Stock Option Plan of Warwick Community
Bancorp, Inc. ("Option Plan") and the Recognition and Retention Plan of Warwick
Community Bancorp, Inc. ("RRP") were adopted by the Board of Directors of the
Company and subsequently approved by the Company's shareholders at a special
meeting held on June 24, 1998 ("Special Meeting"). On June 24, 1998, the
effective date of the Option Plan, each non-officer director of the Company was
granted a non-qualified stock option to purchase 19,819 shares of Common Stock.
These options are scheduled to vest at the rate of 20% per year over a five-year
period beginning on June 24, 1999 and will become immediately exercisable upon
the director's death or disability. Similarly, on June 24, 1998, the effective
date of the RRP, stock awards were granted to each non-officer director with
respect to 8,919 shares of Common Stock. These awards are also scheduled to vest
in 20% annual increments over a five-year period beginning on June 24, 1999,
with accelerated vesting to occur in the event of the director's death or
disability.
8
<PAGE>
EXECUTIVE OFFICERS
The following individuals are the executive officers of the Company and
have the titles set forth across from 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. The Company has
entered into employment agreements with certain of its executive officers which
set forth the terms of their employment. See "-- Executive Compensation --
Employment Agreements."
Biographical information of the executive officers of the Company who
are not directors is set forth below.
ARTHUR W. BUDICH, age 47, has served as the Senior Vice President,
Treasurer and Chief Financial Officer of the Bank since 1992. He 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, WSB
Financial and WSB Mortgage.
LAURENCE D. HAGGERTY, age 54, has served as Senior Vice President in
the Commercial Lending department of the Bank since joining the Bank in 1991.
DONNA M. LYONS, age 43, has served as Senior Vice President of the
Bank since 1992 and has served as Auditor of the Bank since joining the Bank in
1989.
BARBARA A. RUDY, age 45, has served as Senior Vice President in the
Loan Servicing department of the Bank since 1991. She has been employed by the
Bank in various capacities since 1972.
NANCY L. SOBOTOR-LITTELL, age 41, has served as the Corporate Secretary
and Director of Human Resources of the Bank 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 Mr. Lawrence's daughter.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THE FOLLOWING REPORT OF THE COMPANY'S COMPENSATION COMMITTEE IS
PROVIDED IN ACCORDANCE WITH THE RULES AND REGULATIONS OF THE SEC. PURSUANT TO
SUCH RULES AND REGULATIONS, THIS REPORT SHALL NOT BE DEEMED "SOLICITING
MATERIAL" FILED WITH THE SEC SUBJECT TO REGULATION 14A OR 14C OF THE SEC OR
SUBJECT TO SECTION 18 OF THE EXCHANGE ACT.
9
<PAGE>
Under the rules and regulations of the Securities and Exchange
Commission, the Company is required to provide certain information with respect
to the compensation and benefits provided to the Company's chief executive
officer ("CEO") and other executive officers of the Company for the year ended
May 31, 1998. Compensation for the Company's CEO and other executive officers is
generally determined on a calendar year basis, rather than a fiscal year basis.
Because the Company had no significant assets, liabilities or operations until
December 23, 1997, the discussion below reflects the policies of the
Compensation Committee (previously, the Budget Committee) of the Bank prior to
such date and the Compensation Committee of the Company subsequent to such date.
The Compensation Committee annually reviews and makes
recommendations to the Board of Directors of the Company regarding the policies
that govern executive compensation and stock ownership programs, including the
compensation of Mr. Dempsey, the President and CEO of the Company. The
Compensation Committee of the Company is comprised of four members of the Board
of Directors of the Company who are not officers of the Bank or the Company and
for calendar year 1998 consists of Mr. Nielsen, Mrs. Gorish, Mr. Kennedy and Mr.
Smith.
The overall compensation structure of the Company is aimed at
establishing a compensation package that rewards both individual performance and
the Company's performance and is competitive with compensation levels at
comparable banking institutions. In connection with the conversion of the Bank
from mutual to stock form and the initial public offering of the Company in
1997, the Bank retained a nationally recognized compensation consulting firm as
an independent compensation expert with respect to the Company's plans and
programs. Based upon published professional survey data of similarly situated
publicly-traded financial institutions operating in relevant markets, such firm
rendered an opinion to the Bank that, with respect to the total cash
compensation for executive officers, such compensation, viewed as a whole and on
an individual basis, was reasonable and proper in comparison to the compensation
provided to the executive officers at similarly situated publicly-traded
financial institutions, and that the shares of stock to be reserved under the
ESOP, the RRP and the Stock Option Plan, as a whole, were reasonable in
comparison to similar publicly-traded financial institutions.
BASE SALARY. In 1997, the Compensation Committee compared the salaries
of the Company's officers with those of nine other peer banks (Catskill Savings
Bank, Cayuga Savings Bank, Cortland Savings Bank, Fulton Savings Bank, Oneida
Savings Bank, Oswego City Savings Bank, The Rome Savings Bank, Skaneatles
Savings Bank and Watertown Savings Bank) and a group of nine other banks located
in the same geographical area as the Bank (Goshen Savings Bank, MSB Bank,
Pawling Savings Bank, Putnam County Savings Bank, Rhinebeck Savings Bank,
Rondout Savings Bank, Sawyer Savings Bank, Ulster Savings Bank and Walden
Savings Bank), taking into account asset size and relative performance. The
relative performance was measured using financial performance factors for the
year 1996 and the first six months of 1997. The peer group and the group of
banks in the Bank's geographical area are different than the companies included
in the Nasdaq Composite Index and Nasdaq Bank Composite Index used in the
Performance Graph on page 12 of this Proxy Statement since these two indices
reflect the stock performance of a significantly broader group of companies and
financial institutions.
Based upon such comparison, the Compensation Committee concluded that,
in order to give the Company's executive officers incentives to keep performing
at their current and higher levels, the salary levels for the Company's CEO and
other executive officers should reflect the level of performance achieved by the
Bank and should be aligned with the interests of the Company's shareholders. In
addition, the Compensation Committee concluded that salary level should take
into account the officer's individual responsibility and performance as well.
10
<PAGE>
STOCK OWNERSHIP PROGRAMS. The Compensation Committee believes that
providing executive officers with significant stock ownership and stock options
aligns the interests of executive officers with the interests of the Company's
shareholders. In this regard, the Company adopted the ESOP at the time of the
Company's initial public offering in 1997. In addition, as contemplated during
the Bank's Conversion and the Company's initial public offering, in April 1998
the Board of Directors of the Company adopted, and in June 1998 the Company's
shareholders approved, the Stock Option Plan and the RRP.
In April 1998, the Board of Directors granted, subject to shareholder
approval, stock options under the Stock Option Plan to certain officers,
including Messrs. Dempsey and Gentile, at an exercise price equal to the fair
market value of the Company's shares on the date of shareholder approval of the
Stock Option Plan. These grants were awarded to provide an incentive for future
performance by giving the grantees, including the executive officers, equity
interests in the Company. The size of the grants to executive officers were
based in part on the practices of other similar institutions and in part on the
performance and position of the executive officer of the Company. Such stock
options are generally granted for a term of 10 years and generally vest (that
is, become exercisable) 20% upon the first anniversary of the date the Stock
Option Plan was approved by shareholders, and 20% more on each subsequent
anniversary thereof.
In April 1998, the Board of Directors also granted, subject to
shareholder approval, awards of shares of the Company's stock under the RRP to
certain officers, including Messrs. Dempsey and Gentile. The number of shares
awarded to the executive officers were based in part on the practices of other
similar institutions and in part on the performance and position of the
executive officer of the Company. Such stock awards generally vest (that is,
become distributable to the officer) 20% upon the first anniversary of the date
the RRP was approved by shareholders, and 20% more on each subsequent
anniversary thereof.
CHIEF EXECUTIVE OFFICER. The Compensation Committee reviewed the
performance of Mr. Dempsey as President and CEO of the Bank and the Company over
the past year. The Compensation Committee concluded that his performance was
excellent, in terms of the continued development and achievement of the Bank's
and the Company's overall strategic goals and objectives as set forth in the
Bank's business plan, the successful Conversion of the Bank and the initial
public offering of the Company, and the Bank's and the Company's financial
results. Mr. Dempsey also actively participated in a variety of outside
organizations and causes, including various community and industry
organizations, which served to benefit the Company. Based upon the foregoing,
the Compensation Committee recommended, and the Board of Directors approved, an
increase in Mr. Dempsey's annual rate of salary from $200,000 for calendar year
1997 to $210,000 for calendar year 1998. In addition, based on the
considerations discussed above, Mr. Dempsey was granted options to purchase
100,000 shares of the Company's stock under the Stock Option Plan and was
awarded 52,854 shares of the Company's stock under the RRP.
The Compensation Committee:
Henry L. Nielsen, Jr., Chairman
Frances M. Gorish
R. Michael Kennedy
Robert N. Smith
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee consisted of Mr. Nielsen,
Mrs. Gorish, Mr. Kennedy and Mr. Smith. There are no interlocks, as defined
under the rules and regulations of the SEC, between members of the Compensation
Committee or executive officers of the Company and corporations with respect to
which such persons are affiliated, or otherwise.
11
<PAGE>
PERFORMANCE GRAPH
Pursuant to the rules and regulations of the SEC, the graph below,
prepared by SNL Securities, L.C., compares the performance of the Company's
Common Stock with that of the Nasdaq Composite Index (U.S. Companies) and the
Nasdaq Bank Composite Index (banks and bank holding companies, over 99% of which
are based in the United States) from December 23, 1997, the date of the
Company's initial public offering, through May 31, 1998. The graph is based on
an investment of $100 in the Company's Common Stock at its closing price of
$15.625 on December 23, 1997 and, with respect to each Nasdaq index, the graph
assumes the reinvestment of all dividends paid in additional shares of the same
class of equity securities as those below.
[OBJECT OMITTED]
<TABLE>
<CAPTION>
Period Ending
-----------------------------------------------
Index 12/23/97 1/31/98 2/28/98 3/31/98 4/30/98 5/31/98
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warwick Community Bancorp, Inc. 100.00 100.50 102.40 113.60 112.80 108.80
NASDAQ - Total US 100.00 107.32 117.40 121.74 123.80 117.03
NASDAQ - Banks 100.00 98.45 103.88 108.84 110.24 106.54
</TABLE>
Note: There can be no assurance that the performance of Warwick Community
Bancorp, Inc. will continue into the future with the same or similar
trends depicted in the graph above.
12
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid to the Chief
Executive Officer and all executive officers of the Company who received
compensation in excess of $100,000 for services rendered in all capacities to
the Company and the Bank during the fiscal year ended May 31, 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS(1)
------------------- ----------------------
OTHER ALL
ANNUAL RESTRICTED OTHER
COMPEN STOCK LTIP COMPEN-
NAME AND SALARY BONUS -SATION ON AWARDS OPTIONS PAY- SATION
PRINCIPAL POSITION YEAR ($)(2) ($) ($)(3) ($)(4) (#)(4) OUTS (5)($)
- ------------------ ---- ------ ------ ------ ------- --------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Timothy A. Dempsey
President and 1998 208,067 -- -- -- -- -- 37,430
Chief Executive Officer 1997 189,750 -- -- -- -- -- 5,052
Ronald J. Gentile
Executive Vice President and 1998 135,282 -- -- -- -- -- 23,717
Chief Operating Officer 1997 123,862 -- -- -- -- -- 3,618
</TABLE>
(1) For the fiscal year ended May 31, 1998 the Bank had no long-term incentive
plan in existence.
(2) Salary includes the amount of each individual's salary deferrals under the
401(k) Plan.
(3) For the fiscal year ended May 31, 1998, 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.
(4) During the fiscal year ended May 31, 1998 there were no grants made under
the RRP or the Option Plan.
(5) Includes the matching contributions made by the Bank under the 401(k) Plan,
which for the fiscal year ended May 31, 1998 totaled $4,922 for Mr. Dempsey
and $4,247 for Mr. Gentile. Also includes the value of allocations under
the ESOP, which for the fiscal year ended May 31, 1998 totaled $16,762 for
Mr. Dempsey and $17,697 for Mr. Gentile. Also includes the Bank's
contributions to the trust established for the BRP (excluding amounts
contributed with respect to supplemental retirement benefits thereunder)
with respect to supplemental 401(k) Plan benefits and supplemental ESOP
benefits, which for the fiscal year ended May 31, 1998 totaled $15,746 for
Mr. Dempsey and $1,773 for Mr. Gentile. The dollar amounts with respect to
allocations under the ESOP and contributions under the BRP with respect to
supplemental ESOP benefits are based on $17.00 per share, the closing price
of the Common Stock as reported on the Nasdaq Stock Market on May 31, 1998.
See " -- 401(k) Plan," " -- Employee Stock Ownership Plan and Trust" and "
-- Benefit Restoration Plan."
EMPLOYMENT AGREEMENTS. Effective upon the Conversion of the Bank, the
Company entered into Employment Agreements with each of Mr. Dempsey, Mr.
Gentile, Mr. Budich and Ms. Sobotor-Littell ("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, and, in any event, will terminate on the last day of the month
following the Senior Executive's 68th birthday. 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 of Directors, 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
Employment Agreements also provide for, among other things, entitlement to
participation in stock, retirement and welfare benefit plans and
13
<PAGE>
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 Employment Agreements
provide for termination by the Company at any time for "cause" as defined in the
Employment Agreements.
In the event that (i) the Company terminates a Senior Executive's
employment for reasons other than for cause, (ii) a Senior Executive resigns
from the Company for certain reasons specified in the Employment Agreements or
(iii) a "change of control" as defined in the Employment Agreements occurs, 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 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 cashout 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 term of the Employment Agreement. Reasons specified
as grounds for resignation for purposes of the Employment Agreements include:
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 re-nominate or re-elect such
Senior Executive to such Board; any material breach of contract by the Bank or
the Company that is not cured within 30 days after written notice thereof; or a
change in the Senior Executive's principal place of employment to a location 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 certain mergers or consolidations 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.
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 Internal Revenue Code of 1986, as amended
("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
entered into Retention Agreements with each of Mr. Haggerty, Ms. Lyons, Ms. Rudy
and Mr. Anderson ("Contract Employees"). The purpose of the Retention Agreements
is to secure the Contract Employees' 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
Agreements. The Retention Agreements provide for one-year terms, with automatic
daily extensions such that the remaining term shall be one year unless written
notice of
14
<PAGE>
non-renewal is given by the Bank or the Contract Employee, and, in any
event, will end on the last day of the month following the Contract Employee's
68th birthday. The Retention Agreements provide for an initial Assurance Period
of one year commencing on the date of a change of control during the term of the
Retention Agreement. 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 the 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 for certain specified reasons, the Contract Employee (or, in the event of
the Contract Employee's death, such Contract 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. Reasons specified as grounds for resignation for purposes of the
Retention Agreements include: 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 re-nominate or re-elect such Contract Employee to such Board; certain
reduction in salary or material reduction in benefits; any material breach of
contract by the Bank or the Company that is not cured within 30 days after
written notice thereof; or a change in the Contract Employee's principal place
of employment to a location in excess of 50 miles from the Bank's principal
office in Warwick, New York.
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 any 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.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Company established, and
the Bank adopted, for the benefit of eligible employees, an ESOP and related
trust, which became effective upon completion of the Conversion. Substantially
all employees of the Bank or the Company who have completed 1,000 hours of
service during a consecutive twelve-month period will be eligible to become
participants in the ESOP.
Generally, shares held in the ESOP trust are allocated among the
accounts of participants who are employees of the Bank or the Company on the
last day of the plan year 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. The ESOP generally provides that, upon certain changes of
control as described in the ESOP, unallocated shares in the ESOP will be sold to
repay any outstanding loan and all remaining unallocated shares or proceeds
thereof will be allocated among participants who were employed immediately
preceding the change of control in proportion to compensation for that part of
the year prior to the change of control.
15
<PAGE>
A participant who terminates employment prior to the end of a plan year
for reasons other than death, retirement or disability will not receive an
allocation under the ESOP for that plan year. Forfeitures will be reallocated
among remaining participating employees in the same proportion as the annual
allocation that is made on the basis of compensation. 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.
The ESOP is administered by a committee of the Company's Board of
Directors ("ESOP Committee") and by the Bank as the Plan Administrator. Marine
Midland Bank has been appointed as the trustee for the ESOP. The ESOP Committee
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 generally 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").
STOCK OPTION PLAN. The Option Plan was adopted by the Board of
Directors of the Company and subsequently approved by the Company's shareholders
at the Special Meeting. Subject to the terms of the Option Plan, employees,
directors and officers of the Company, the Bank and its affiliates are eligible
to participate in the Option Plan. The Option Plan is not subject to ERISA and
is not a tax-qualified plan under the Code. The Company has reserved 660,654
shares of Common Stock ("Option Shares") for issuance upon exercise of stock
options granted under the Option Plan.
The Board of Directors and the members of the Compensation Committee
who are disinterested directors ("Option Committee") administer the Option Plan.
The Option Committee determines, subject to the terms of the Option Plan and
Rule 16b-3 promulgated under the Exchange Act, the officers and employees to
whom Options will be granted, the number of shares subject to each Option, the
terms of such Options (including provisions regarding exercisability and
acceleration of exercisability) and the procedures by which the Options may be
exercised.
Options granted under the Option Plan may be either "incentive stock
options," which qualify for favorable federal income tax treatment, or
non-qualified stock options, which do not so qualify. Options granted under the
Option Plan will generally vest at a rate of 20% per year beginning on the first
anniversary of the grant date and generally remain exercisable until the tenth
anniversary of the grant date, subject to earlier expiration upon termination of
employment as defined in the Option Plan. In the case of termination due to
death or disability, all options granted become immediately exercisable.
Subject to certain specific limitations and restrictions set forth in
the Option Plan and such limitations as may be imposed from time to time by the
Board of Directors, the Option Committee has authority to interpret the Option
Plan, to prescribe, amend and rescind rules and regulations, if any, relating to
the Option Plan and to make all determinations necessary or advisable for the
administration of the Option Plan.
RECOGNITION AND RETENTION PLAN. The RRP was adopted by the Board of
Directors of the Company and subsequently approved by the Company's shareholders
at the Special Meeting. The RRP provides for stock awards ("Awards") to eligible
officers, employees, outside directors and directors emeritus of the Company,
the Bank and its affiliates. The RRP is not subject to ERISA and is not a
tax-qualified plan under the Code.
The Board of Directors and the members of the Compensation Committee
who are disinterested directors ("RRP Committee") administer the RRP. The Board
of Directors or the RRP Committee will determine at the time of the grant the
number of shares of Common Stock subject to an Award and the vesting
16
<PAGE>
schedule applicable to the Award and may, in its discretion, establish other
terms and conditions applicable to the Award.
The Company has established a trust ("RRP Trust") and has contributed,
or will cause to be contributed to the Trust, from time to time, such amounts of
money or property as shall be determined by the Board of Directors, in its
discretion. A trustee will invest the assets of the RRP Trust in Common Stock
and in such investments as shall be determined by the RRP Committee. The assets
of the RRP Trust will be used to purchase, in the aggregate, no more than
264,261 shares of Common Stock. Shares of Common Stock subject to an Award are
held in the RRP Trust until the Award vests, at which time the shares of Common
Stock attributable to the portion of the Award that have vested are distributed
to the Award holder. An individual to whom an Award is granted is entitled to
exercise voting rights and receive dividends with respect to stock subject to
Awards granted to him or her whether or not vested.
Generally, shares granted to outside directors or directors emeriti
will vest and become distributable at a rate of 20% per year, over a five-year
period, subject to accelerated vesting in the case of death or disability. The
shares granted to eligible officers and employees will vest according to a
schedule established by the RRP Committee, but in no event at a rate of more
than 20% per year, subject to accelerated vesting in the case of death or
disability.
Subject to certain specific limitations and restrictions set forth in
the RRP and such limitations as may be imposed from time to time by the Board of
Directors, the RRP Committee has authority to interpret the RRP, to prescribe,
amend and rescind rules and regulations, if any, relating to the RRP and to make
all determinations necessary or advisable for the administration of the RRP.
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, subject to the limits prescribed by the
401(k) Plan and a limit imposed under the Code (which is $10,000 for 1998). 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
five years.
The Bank 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 is held by an independent trustee and allocated to the
accounts of individual participants. Participants control the exercise of voting
and tender rights relating to the Common Stock held in their accounts.
PENSION PLAN. The Bank maintains The Warwick Savings Bank Defined
Benefit Pension Plan ("Pension Plan"), a non-contributory, tax-qualified defined
benefit 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 twelve-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
17
<PAGE>
participant's average annual compensation, multiplied by the participant's years
of credited service, up to a maximum of 30 years.
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. In connection with the Conversion, the Bank
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 and BRP benefits to be provided with respect to the ESOP
and the 401(k) Plan are reflected in the Summary Compensation Table.
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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE(1)
AVERAGE ANNUAL
COMPENSATION YEARS OF CREDITED SERVICE AT RETIREMENT
------------ ---------------------------------------
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 or her 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 under the Pension Plan 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 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.
18
<PAGE>
The following table sets forth the years of credited service and the
average annual compensation (as defined above), determined as of May 31, 1998,
for each of the individuals named in the Summary Compensation Table.
YEARS OF CREDITED SERVICE AVERAGE ANNUAL
YEARS MONTHS COMPENSATION
----- ------ ------------
Mr. Dempsey 25 3 $193,473
Mr. Gentile 8 0 $121,806
TRANSACTIONS WITH CERTAIN RELATED PERSONS
From time to time the Bank makes loans or extends credit to its
executive officers and to certain persons related to its executive officers and
directors, to the extent consistent with applicable laws and regulations. All
such loans are made by the Bank in the ordinary course of business and on the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons, and do not and will not
involve more than the normal risk of collectibility or present other unfavorable
features. The outstanding principal balance of such loans to executive officers
and their associates totaled $448,610 as of May 31, 1998. In addition, the Bank
has committed a line of credit of $2.5 million to the Warwick Valley Telephone
Company, of which $700 thousand was outstanding at May 31, 1998. 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, 1998, the Bank paid $128,082 for legal services provided during such period.
In addition, the firm received fees in the amount of approximately $543,535 from
third parties pursuant to its representation of the Bank in loan closings and
other legal matters for the fiscal year ended May 31, 1998. WSB Mortgage and
Beattie & Krahulik are co-tenants on the lease for WSB Mortgage's office in West
Milford, New Jersey.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's
directors, its executive officers, and any person holding more than ten percent
of the Company's Common Stock are required to file initial reports of ownership
of the Company's Common Stock and reports of changes in that ownership to the
SEC. Specific due dates for these reports have been established and the Company
is required to disclose in this Proxy Statement any failure to file by these
dates during the fiscal year ended May 31, 1998. All of such filing requirements
of the Company's directors and executive officers were satisfied during the
fiscal year ended May 31, 1998, based upon their written representations and
copies of the reports that they have filed with the SEC.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
On July 21, 1998, the Company changed its fiscal year from the
twelve-month period ending May 31st to the twelve-month period ending December
31st. The Board of Directors also appointed the firm of Arthur Andersen LLP to
continue as independent auditors for the Company for the period beginning June
1, 1998 and
19
<PAGE>
ending December 31, 1998, subject to ratification of such appointment by the
Company's shareholders. Representatives of Arthur Andersen LLP are expected to
be present at the Annual Meeting. The representatives will have an opportunity
to make a statement if they desire to do so and will be available to respond to
questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" THE RATIFICATION OF THE APPOINTMENT
OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE COMPANY
ADDITIONAL INFORMATION
NOTICE OF BUSINESS TO BE CONDUCTED AT ANNUAL MEETING
The By-Laws of the Company provide an advance notice procedure for a
shareholder to properly bring business before an Annual Meeting or to nominate
any person for election to the Board of Directors. The shareholder must be a
shareholder of record and have given timely notice thereof in writing to the
Corporate Secretary of the Company. To be timely, a shareholder's notice must be
delivered to or received by the Corporate Secretary not later than the following
dates: (i) with respect to an annual meeting of shareholders, 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 annual meeting of shareholders held at a time other than within
the time periods set forth in the immediately preceding clause (i), or with
respect to a special meeting of shareholders for the election of directors, the
close of business on the 10th day following the date on which notice of such
meeting is first given to shareholders. 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 the Dow Jones News Services,
Associated Press or comparable national news service, or in a document publicly
filed by the Company with the SEC pursuant to Section 13, 14 or 15(d) of the
Exchange Act. A shareholder's notice to the Corporate Secretary shall set forth
such information as required by the By-Laws of the Company. Nothing in this
paragraph shall be deemed to require the Company to include in its proxy
statement and proxy card relating to an annual meeting any shareholder proposal
or nomination which does not meet all of the requirements for inclusion
established by the SEC in effect at the time such proposal or nomination is
received. See "-- Date For Submission of Shareholder Proposals."
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Pursuant to the proxy soliciting regulations of the SEC, any
shareholder proposal intended for inclusion in the Company's proxy statement and
proxy card relating to the Company's 1999 Annual Meeting of Shareholders must be
received by the Company a reasonable time before the Company makes its proxy
solicitation in connection with such meeting. Nothing in this paragraph shall be
deemed to require the Company to include in its proxy statement and proxy card
for such meeting any shareholder proposal which does not meet the requirements
of the SEC in effect at the time. Any such proposal will be subject to 17 C.F.R.
ss.240.14a-8 of the rules and regulations promulgated by the SEC under the
Exchange Act.
20
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any other matters to be brought before the shareholders
at the Annual Meeting. If, however, any other matters not now known are properly
brought before the meeting, the persons named in the accompanying Proxy Card
will vote the shares represented by all properly executed proxies on such
matters in such manner as shall be determined by a majority of the Board of
Directors.
FINANCIAL STATEMENTS
A copy of the Company's Annual Report for the fiscal year ended May 31,
1998, containing consolidated statements of financial condition as of May 31,
1998 and May 31, 1997 and related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the fiscal years ended May 31,
1998, 1997 and 1996, prepared in conformity with generally accepted accounting
principles, accompanies this Proxy Statement. The consolidated financial
statements have been audited by Arthur Andersen LLP whose report thereon appears
in the Annual Report. The Annual Report serves as the Bank's Annual Disclosure
Statement for purposes of the regulations of the Federal Deposit Insurance
Corporation. Upon request, shareholders will be furnished, free of charge, an
additional copy of the Annual Report.
The Company is required to file an annual report on Form 10-K for the
fiscal year ended May 31, 1998 with the SEC. Shareholders may obtain, free of
charge, a copy of such annual report (excluding exhibits) by writing to Margaret
Sgombick, Marketing Director, The Warwick Savings Bank, P.O. Box 591, Warwick,
New York 10990-0591. A copy of the Form 10-K is also available on the SEC's
Electronic Data Gathering Analysis and Retrieval ("EDGAR") System at the SEC's
website, www.sec.gov.
By Order of the Board of Directors,
[Facsimile signature]
Nancy L. Sobotor-Littell
Corporate Secretary
Warwick, New York
August 21, 1998
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed statement of financial condition and the consolidated
condensed statement of income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> MAY-31-1997
<PERIOD-END> MAY-31-1998
<CASH> 10,185
<INT-BEARING-DEPOSITS> 1,005
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,425
<INVESTMENTS-CARRYING> 7,324
<INVESTMENTS-MARKET> 7,277
<LOANS> 196,940
<ALLOWANCE> 1,513
<TOTAL-ASSETS> 410,394
<DEPOSITS> 222,722
<SHORT-TERM> 27,190
<LIABILITIES-OTHER> 11,483
<LONG-TERM> 62,850
0
0
<COMMON> 63,452
<OTHER-SE> 22,697
<TOTAL-LIABILITIES-AND-EQUITY> 410,394
<INTEREST-LOAN> 13,964
<INTEREST-INVEST> 9,606
<INTEREST-OTHER> 207
<INTEREST-TOTAL> 23,777
<INTEREST-DEPOSIT> 7,221
<INTEREST-EXPENSE> 9,972
<INTEREST-INCOME-NET> 13,805
<LOAN-LOSSES> 592
<SECURITIES-GAINS> 742
<EXPENSE-OTHER> 13,187
<INCOME-PRETAX> 3,165
<INCOME-PRE-EXTRAORDINARY> 3,165
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,861
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
<YIELD-ACTUAL> 7.74
<LOANS-NON> 885
<LOANS-PAST> 133
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 631
<ALLOWANCE-OPEN> 1,232
<CHARGE-OFFS> 325
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 1,513
<ALLOWANCE-DOMESTIC> 1,513
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
