<PAGE>
As filed with the Securities and Exchange Commission on October 2, 1997
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
RICHMOND COUNTY FINANCIAL CORP.
RICHMOND COUNTY SAVINGS BANK
401(k) SAVINGS PLAN
(exact name of registrant as specified in its charter)
DELAWARE 6036 Being applied for
(state or other jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Identification No.)
Classification Code
Number)
1214 Castleton Avenue
Staten Island, New York 10310
(718) 448-2800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Michael F. Manzulli
President and Chief Executive Officer
Richmond County Savings Bank
Staten Island, New York 10310
(718) 448-2800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Douglas P. Faucette, Esquire
Lawrence M.F. Spaccasi, Esquire
Marc P. Levy, Esquire
Geoffrey W. Ryan, Esquire
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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Calculation of Registration Fee
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price(2) Fee
- - - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 26,423,550 $10.00 $264,235,500 $80,072
$.01 par value(1) Shares
- - - -------------------------------------------------------------------------------------------------------
Participation 286,347 -------- -------- (3)
Interests Shares
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</TABLE>
(1) Includes shares of Common Stock to be issued to the Richmond County Savings
Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The securities of Richmond County Financial Corp. to be purchased by
Richmond County Savings Bank 401(k) Savings Plan are included in the amount
shown for Common Stock. Accordingly, no separate fee is required for the
participation interests. In accordance with Rule 457(h) of the Securities
Act, as amended, the registration fee has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[To be used in connection with sales to Participants in the RICHMOND COUNTY
SAVINGS BANK 401(k) Savings Plan]
PROSPECTUS SUPPLEMENT
- - - ---------------------
RICHMOND COUNTY FINANCIAL CORP.
RICHMOND COUNTY SAVINGS BANK
286,347 Participation Interests
RICHMOND COUNTY SAVINGS BANK
401(k) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Richmond County Savings Bank 401(k) Savings Plan in
RSI Retirement Trust (the "Plan") of participation interests and shares of
common stock, par value $.01 per share of Richmond County Financial Corp. (the
"Common Stock"), as set forth herein.
In connection with the proposed conversion of Richmond County Savings
Bank (the "Bank") from a mutual savings bank to a stock savings bank (the
"Conversion") the Plan has been amended to permit the investment of Plan assets
in Common Stock of Richmond County Financial Corp. (the "Holding Company"). The
amended Plan will permit Participants to direct the trustee of the Plan (the
"Trustee") to invest in Common Stock with amounts in the Plan attributable to
such Participants. Such investments in Common Stock would be made by means of
the Richmond County Financial Corp. Stock Fund (the "Employer Stock Fund").
Based upon the value of the Plan assets at June 30, 1997, 286,347 shares of
Common Stock could be purchased with Plan assets (assuming a purchase price of
$10.00 per share). This Prospectus Supplement relates to the initial election of
Participants to direct that all or a portion of their accounts be invested in
the Employer Stock Fund in connection with the Conversion and also to elections
by Participants to direct that all or a portion of their accounts be invested in
the Employer Stock Fund after the Conversion.
The Prospectus dated ____________________, 1997 of the Holding Company
(the "Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Bank. This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus and should be
retained for future reference.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1997.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER STATE OR FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION OR OTHER AGENCY OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of
an offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct
as of any time subsequent to the date hereof.
<PAGE>
TABLE OF CONTENTS
THE OFFERING .................................................... 1
Securities Offered.......................................... 1
Election to Purchase Common Stock in the Conversion......... 1
Value of Participation Interests............................ 1
Method of Directing Transfer................................ 2
Time for Directing Transfer................................. 2
Irrevocability of Transfer Direction........................ 2
Direction to Purchase Common Stock After the Conversion..... 2
Purchase Price of Common Stock.............................. 3
Nature of a Participant's Interest in the Common Stock...... 3
Voting and Tender Rights of Common Stock.................... 3
DESCRIPTION OF THE PLAN.......................................... 4
Introduction................................................ 4
Eligibility and Participation............................... 5
Contributions Under the Plan................................ 5
Limitations on Contributions................................ 6
Investment of Contributions................................. 8
Benefits Under the Plan..................................... 11
Withdrawals and Distributions From the Plan................. 11
Administration of the Plan.................................. 12
Reports to Plan Participants................................ 13
Plan Administrator.......................................... 13
Amendment and Termination................................... 13
Merger, Consolidation or Transfer........................... 14
Federal Income Tax Consequences............................. 14
ERISA and Other Qualification............................... 16
Restrictions on Resale...................................... 16
SEC Reporting and Short-Swing Profit Liability.............. 17
EXPERTS.......................................................... 18
LEGAL OPINIONS................................................... 18
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan.
Up to 286,347 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Holding Company is the issuer of the Common Stock. Only salaried employees
of the Bank (hereinafter referred to as the "Employer") may participate in the
Plan. The Common Stock to be issued hereby is conditioned on the consummation of
the Conversion. A Participant's investment in units in the Employer Stock Fund
in the Conversion is subject to the priority set forth in the Plan of
Conversion.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus. The address of the principal executive office of the Bank
is 1214 Castleton Avenue, Staten Island, New York 10310. The Bank's telephone
number is (718) 448-2800.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Plan has been amended to
permit each Participant to direct that all or part of the funds which represent
his or her beneficial interest in the assets of the Plan may be transferred to
an investment fund that will invest in Common Stock (the Employer Stock Fund)
and, to the extent shares are available to use such funds to purchase Common
Stock issued in connection with the Conversion, and to purchase Common Stock in
the open market. If there is not enough Common Stock in the Conversion to fill
all subscriptions, the Common Stock would be apportioned and the Plan may not
be able to purchase all of the Common Stock requested by the Participants. In
such case, the Trustee will purchase shares in the open market after the
Conversion to fulfill Participants' requests. Such purchases may be at prices
higher than the purchase price in the Conversion. The ability of each
Participant to invest in the Employer Stock Fund in the Conversion pursuant
to directions to transfer all or a portion of their beneficial assets in the
Plan will be based on such Participant's status as an Eligible Account Holder
or Supplemental Eligible Account Holder pursuant to the Plan of Conversion, the
subscription priorities set forth in the Plan of Conversion and the
availability of Common Stock. The Trustee of the Plan will follow the
Participants' directions. Funds not transferred to the Employer Stock Fund
will remain in the other investment funds of the Plan as directed by the
Participant on the attached Enrollment and Investment Application.
VALUE OF PARTICIPATION INTERESTS
The market value of the assets of the Plan, as of June 30, 1997, was
$2,863,477 and each Participant was informed of the value of his or her
beneficial interest in the Plan. This value
1
<PAGE>
represented the past contributions to the Plan by the Employers and the
Participants and any earnings or losses thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a
transfer to the Employer Stock Fund (the "Investment Form"). If a Participant
wishes to transfer all or part (in multiples of not less than 1%) of his or her
beneficial interest in the assets of the Plan to the Employer Stock Fund being
established in connection with the Conversion, he or she should indicate that
decision in part 2 of the Investment Form. If a Participant does not wish to
make such an election, he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund which will purchase Common Stock issued in connection with
the Conversion is ten days prior to the Expiration Date of the Offering. The
Investment Form should be returned to the Bank's Human Resources Department by
_:__ p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in connection with
the Conversion shall be irrevocable. Participants, however, will be able to
direct the investment of their accounts ("Accounts") after the Conversion under
the Plan as explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant shall be able to direct that a
certain percentage (in multiples of not less than 1%) of the net value of such
Participant's interests in the trust find established for the Plan (the "Trust
Fund") be transferred to the Employer Stock Fund and invested in Common Stock,
or to the other investment funds available under the Plan. Alternatively, a
Participant may direct that a certain percentage of such Participant's interest
in the Employer Stock Fund be transferred to the Trust Fund to be invested in
accordance with the terms of the Plan. Participants will be permitted to direct
that future contributions made to the Plan by or on their behalf will be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed once each
calendar quarter in any plan year by filing a written notice with the plan
administrator at least ten days before the effective date of the change. Special
restrictions apply to transfers directed by those Participants who are officers,
directors and principal shareholders of the Bank who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act").
2
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PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of Common Stock. The price to be paid by the Trust Fund for such
shares of Common Stock will be the same price as is paid by all persons who
purchase shares of Common Stock in the Conversion.
Common Stock purchased by the Trustee after the Conversion will be
acquired in open market transactions. The prices paid by the Trustee for shares
of Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Transaction fees associated with purchase, sale or transfer of the
Common Stock after the Conversion will be paid by ______.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan,
as trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of shares of Common Stock will not be directly attributable to
the account of any Participant. Earnings, e.g., gains and losses, are allocated
to the Account of a Participant based on units in the Employer Stock Fund held
by the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights
attributable to all Common Stock held by the Trust Fund as directed by
Participants with interests in the Employer Stock Fund. With respect to each
matter as to which holders of Common Stock have a right to vote, each
Participant will be allocated a number of voting instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund. The number
of shares of Common Stock held in the Employer Stock Fund that are voted in the
affirmative and negative on each matter shall be proportionate to the number of
voting instruction rights exercised in the affirmative and negative,
respectively. In the event of a tender offer for Common Stock, the Plan provides
that each Participant will be allotted a number of tender instruction rights
reflecting such Participant's proportionate interest in the Employer Stock Fund.
The percentage of shares of Common Stock held in the Employer Stock Fund that
will be tendered will be the same as the percentage of the total number of
tender instruction rights that are exercised in favor of tendering. The
remaining shares of Common Stock held in the Employer Stock Fund will not be
tendered. The Plan makes provision for Participants to exercise their voting
instruction rights and tender instruction rights on a confidential basis.
3
<PAGE>
DESCRIPTION OF THE PLAN
I. INTRODUCTION
The Plan was established effective January 1, 1992 as Richmond County
Savings Bank 401(k) Savings Plan in the Retirement System for Savings
Institutions (the "Plan"). The Plan is a cash or deferred arrangement
established in accordance with the requirements under Section 401(a) and
Section 401(k) of the Internal Revenue Code of 1986 (the "Code"). The Plan
will be submitted to the Internal Revenue Service (the "IRS") in a timely
manner for a determination that the Plan, as amended and restated, is qualified
under Section 401(a) of the Code, and that its related trust(s) are qualified
under Section 501(a) of the Code.
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank
will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
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account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS
MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER
TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries
------------------------------
of certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan. Copies of the Plan are available to
all employees by filing a request with the Plan Administrator, Dorothy
Episcopia, Richmond County Savings Bank, 207 Taylor Street, Staten Island, New
York 10310. The Plan Administrator's telephone number is (718) 448-2800. Each
employee is urged to read carefully the full text of the Plan.
4
<PAGE>
II. ELIGIBILITY AND PARTICIPATION
Any salaried employee of the Employer is eligible to participate in the
Plan as soon as the employee reaches age 21 and completes one year of service
with the Employer. In order to commence participation, an employee must submit
an enrollment form at least 10 days in advance of the date he desires to enter
the Plan. Employees compensated on an hourly, daily, commission, fee or retainer
basis, leased employees (within the meaning of Section 414(n) of the Code) and
employees covered by a collective bargaining agreement which does not expressly
provide for their coverage under the Plan, are not eligible to participate in
the Plan.
As of June 30, 1997, there were approximately 201 employees eligible to
participate in the Plan, and 192 employees had elected to participate in the
Plan.
III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Subject to certain limitations on
-------------------------
contributions, each Participant in the Plan is permitted to elect to reduce such
Participant's Compensation (as defined below) pursuant to a "Compensation
Reduction Agreement" by an amount not less than 2% and not more than 9% and have
that amount contributed to the Plan on such Participant's behalf. Such amounts
are credited to the Participant's "Basic Contribution Account." See "Section IV
Limitations on Contributions" below. For purposes of the Plan, "Compensation"
means the base compensation receivable by an Employee from the Employer for the
calendar year prior to any reductions pursuant to the Compensation Reduction
Agreement. Compensation includes salary, Basic Contributions, wages, overtime
and wage continuation payments to an employee who is absent due to an illness or
disability of a short-term nature. "Compensation" does not include commissions,
expense allowances, severance pay, fees, bonuses, incentive payments,
contributions other than Basic Contributions made to the Plan and contributions
made by the Employer to any other pension, insurance welfare or other employee
benefit plan. As of January 1, 1997, the annual compensation of each Participant
taken into account under the Plan is limited to $160,000 (adjusted for increases
in the cost of living as permitted by the Code). Generally, a Participant may
elect to modify the amount contributed to the Plan under such participant's
Compensation Reduction Agreement not more often than once in any calendar
quarter by providing notice to the Plan Administrator at least 10 days before
commencement of the first day of the payroll period for which the modification
is to become effective. However, special restrictions apply to persons subject
to Section 16 of the 1934 Act. Basic Contributions are transferred by the
Employer to the Trustee of the Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a Compensation Reduction Agreement or have matching
contributions made on his behalf for a period of twelve (12) months after the
receipt of the hardship distribution.
5
<PAGE>
Employer Contributions. The Employer contributes to the Plan for each
----------------------
Plan Year 50% of the Participant's Basic Contributions, up to a 6% of the
Participant's Compensation for the Plan Year. Such amounts are credited to the
Participant's "Matching Contribution Account." After the Conversion, at the
discretion of the Bank, the Employer contributions may be credited to the
Participant's Account in Richmond County Savings Bank Employee Stock Ownership
Plan. At its discretion, the Employer may make an additional contribution to the
Plan as of the end of the Plan Year in an amount determined by the Employer for
the purpose of ensuring that the Plan complies with Section 401(k) of the Code.
Such amounts are credited to Participants' "Special Contribution Accounts" based
on each Participant's compensation. Special Contributions may be made only to
the accounts of non-highly compensated employees.
IV. LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the
--------------------------------------------
requirements of the Code, the Plan provides that the amount of contributions
allocated to each Participant's Basic Contribution Account and Matching
Contribution Account during any Plan Year may not exceed the lesser of 25% of
the Participant's (s)415 Compensation for the Plan Year or $30,000 (adjusted for
increases in the cost of living as permitted by the Code). A Participant's
(s)415 Compensation is a Participant's Compensation, excluding any Employer
contribution to the Plan or to any other plan of deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions shall be limited to the extent necessary to prevent the limitations
set forth in the Code for all of the qualified defined benefit plans and defined
contribution plans maintained by the Bank from being exceeded. To the extent
that these limitations would be exceeded by reason of excess annual additions
with respect to a Participant, such excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to
reduce the Employer's contributions for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(ii) If, an excess amount still exists, and the Participant is not
---
covered by the Plan at the end of the Limitation Year, the excess amount will be
held unallocated in a suspense account which will then be applied to reduce
future Employer contributions for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
---------------------------------------
Compensation under a Compensation Reduction Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation
for 1997 is $9,500). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are
6
<PAGE>
made. In addition, any such excess deferral will again be subject to federal
income tax when distributed by the Plan to the Participant, unless the excess
deferral (together with any income allocable thereto) is distributed to the
Participant not later than the first April 15th following the close of the
taxable year in which the excess deferral is made. Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of Deferred Compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of Deferred Compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average of the ratios,
calculated separately for each eligible employee in each group, by dividing the
amount of Deferred Compensation credited to the Basic Contribution Account of
such eligible employee by such eligible employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (i) 125%
of the actual deferral percentage of all other eligible employees, or (ii) the
lesser of (x) 200% of the actual deferral percentage of all other eligible
employees, or (y) the actual deferral percentage of all other eligible employees
plus two percentage points. In addition, the actual contribution percentage for
such Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Matching Contribution
Account and Special Contribution Account of such eligible employee by such
eligible employee's compensation for the Plan Year) of the Highly Compensated
Employees may not exceed the greater of (i) 125% of the actual contribution
percentage of all other eligible employees, or (ii) the lesser of (x) 200% of
the actual contribution percentage of all other eligible employees, or (y) the
actual contribution percentage of all other eligible employees plus two
percentage points.
In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so such year. The dollar amounts in the foregoing
sentence are for 1997. Such amounts are adjusted annually to reflect increases
in the cost of living.
In addition, the compensation of an employee who is a family member of a
5% owner, or one of the ten most highly compensated employees during the
relevant period is aggregated with that of the Highly Compensated Employee. All
such family members are treated as a single employee with respect to the
application of the limitations on Highly Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer
7
<PAGE>
will be subject to a 10% excise tax on any excess contributions unless such
excess contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2-1/2 months
following the Plan Year to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a
---------------------------
Top-Heavy Plan (as defined below), then (i) the Bank may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance
of the Accounts of Participants who are Key Employees exceeds 60% of the
aggregate balance of the Accounts of all Participants. Key Employees generally
include any employee who, at any time during the Plan Year or any of the four
preceding Plan Years, is (1) an officer of the Bank having annual compensation
in excess of $60,000 who is in an administrative or policy-making capacity, (2)
one of the ten employees having annual compensation in excess of $30,000 and
owning, directly or indirectly, the largest interests in the Bank, (3) a 5%
owner of the Bank, (i.e., owns directly or indirectly more than 5% of the stock
of the Bank, or stock possessing more than 5% of the total combined voting
power of all stock of the Bank) or (4) a 1% owner of the Bank having annual
compensation in excess of $150,000. The dollar amounts in the foregoing
sentence are for 1997.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held
in the Plan Trust (the "Trust") which is administered by the Trustee appointed
by the Bank's Board of Trustees.
Prior to [insert date of Prospectus here], the Accounts of a Participant
held in the Trust have been invested by the Trustee at the direction of the
Participant in the following funds:
a. Core Equity Fund;
b. Emerging Growth Equity Fund;
c. Value Equity Fund;
d. Actively Managed Bond Fund;
e. Intermediate - Term Bond Fund;
f. Short-Term Investment Fund; and
g. International Fund.
The Plan, as amended effective _______, 1997, now provides that in
addition to the Funds specified above, a Participant who is employed by the Bank
may direct the Trustee to invest all or a portion of his Basic Contribution
Account and Rollover Account in the Employer Stock Fund.
8
<PAGE>
Participants in the Plan may direct the Trustee to invest all or a
portion of his Basic Contribution Account, Matching Contribution Account,
Rollover Account and Special Contribution Account in the Employer Stock Fund.
Once in any calendar quarter a Participant may elect (in increments of
1%), to have both past and future contributions and additions to the
Participant's Basic Contribution Account and Rollover Account invested either in
the Employer Stock Fund or among such other Funds. Participants may also elect
to have past contributions to their Matching Contribution Accounts invested in
either the Employer Stock Fund or among such other Funds. Participants Matching
Contribution Accounts may be invested in Employer Stock under the proposed terms
of The Richmond County Savings Bank Employee Stock Ownership Plan being
implemented by the Bank. These elections will be effective on the effective date
of the Participant's written notice to the plan administrator, provided such
notice is filed with the administrator at least 10 days before it is to become
effective. Any amounts credited to a Participant's Account for which investment
directions are not given will be invested in the Short-Term Investment Fund in
accordance with the terms of the Plan. Because investment allocations only are
required to be made in increments of 1%, Participants can invest their Accounts
in each of the 8 available investment funds. Diversification with respect to the
investment of a Participant's Account may be achieved through the 8 investment
options available to Participants and the opportunity for Participants to make
investment designations up to four times each year.
A Participant who receives a loan from the Plan has a separate account
established under the Plan. The amount of the loan is obtained from the
Investment Accounts in which the Borrower's accounts are invested on a pro-rata
basis according to the terms of the Plan. The balance of a Participant's loan
account represents the unpaid principal and interest (if any) of such
participant's loan from the Plan. Repayments of principal and payments of
interest on loans are invested by the Trustee in the same manner as if the
repayment were a contribution.
The Participants interest in the Employer Stock Fund consists of units
whose value is related to a pro rata portion of the net asset value ("NAV") of
the Employer Stock Fund. The NAV is determined daily and all realized and
unrealized gains, dividends, and expenses are used to calculate the NAV. For
purposes of such valuation, all assets of the Trust are valued at their fair
market value.
9
<PAGE>
A. Previous Funds.
--------------
Prior to _________________________, contributions under the Plan were
invested in the seven Funds specified above. The annual percentage return on
these funds for the prior three years was:
1996 1995 1994
--------------------
a. Core Equity Fund 21.53% 40.17% 1.31%
b. Emerging Growth Equity Fund 27.09 42.83 3.53
c. Value Equity Fund 25.90 33.96 (1.14)
d. Actively Managed Bond Fund 3.15 17.70 (4.21)
e. Intermediate-Term Bond Fund 4.02 13.99 (2.54)
f. Short-Term Investment Fund 4.70 5.39 3.40
g. International Equity Fund 10.86 12.46 0.77
B. The Employer Stock Fund.
-----------------------
The Employer Stock Fund will consist of investments in Common Stock made
on and after the effective date of the Conversion. Each Participant's
proportionate undivided beneficial interest in the Employer Stock Fund is
measured by units. Each day a unit value will be calculated by determining the
market value of the Common Stock actually held and adding to that any cash held
by the Trustee. This total will be divided by the number of units outstanding to
determine the unit value of the Employer Stock Fund.
On the occasion of the payment of a cash dividend, the unit value will
be determined before the dividend is distributed. The Trustee may use the
dividend to purchase additional shares of Common Stock, thereby increasing the
total value of the Employer Stock Fund, and the value of each unit. The Board of
Directors of the Holding Company may consider a policy of paying cash dividends
on the Common Stock in the future; however, no decision as to the amount or
timing of cash dividends, if any, has been made. The Trustee will, to the extent
practicable, use all amounts held by it in the Employer Stock Fund to purchase
shares of Common Stock of the Bank. It is expected that all purchases will be
made at prevailing market prices. Under certain circumstances, the Trustee may
be required to limit the daily volume of shares purchased. Pending investment in
Common Stock, assets held in the Employer Stock Fund will be placed in bank
deposits and other short-term investments.
Any brokerage commissions, transfer fees and other expenses incurred in
the sale and purchase of Common Stock for the Employer Stock Fund will be paid
out of a cash account managed by the trustee. Therefore, although Participants'
accounts will not be directly adjusted for such fees, the market value of their
accounts will be reduced.
10
<PAGE>
As of the date of this Prospectus Supplement, none of the shares of
Common Stock have been issued or are outstanding and there is no established
market for the Common Stock. Accordingly, there is no record of the historical
performance of the Employer Stock Fund. Performance will be dependent upon a
number of factors, including the financial condition and profitability of the
Holding Company and the Bank and market conditions for the Common Stock
generally. See "Market for the Common Stock" in the Prospectus.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS
IN INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
VI. BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Basic Contribution Account and the earnings thereon under the
Plan. A Participant vests in his Matching Contribution Account under the Plan
according to the following schedule:
Period of Service Vested Percentage
----------------- -----------------
less than 2 years 0%
2 years 20
3 years 40
4 years 60
5 years 80
6 years or more 100
For purposes of vesting, years of service from age 18 are counted.
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. Subject to the hardship
----------------------------------------------
distribution rules under the Plan, a Participant may withdraw all or a portion
of his (i) Basic Contribution Account, (ii) Rollover Contribution Account and
(iii) the vested interest in his Matching Contribution Account. The hardship
distribution requirements ensure that Participants have a true financial need
before a withdrawal may be made.
A Participant may make a withdrawal from his Basic Contribution Account,
Rollover Contribution Account, and Matching Contribution Account after he turns
59-1/2. A Participant after attaining age 59-1/2 may withdraw contributions to
his Basic Contribution Account, contributions to his Rollover Contribution
Account or the vested portion of his Matching Contribution Account at any time.
However, such withdrawals may not be made more often than two times during any
Plan Year.
11
<PAGE>
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any Valuation Date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement
age. At the request of the Participant, the distribution may include an in
kind distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the Employer
Stock Fund. Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
Participant's: (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event later than the April 1 following the calendar year in which the
Participant attains age 70-1/2. However, if the vested portion of the
Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the
Participant elects to receive an earlier distribution.
Distribution upon Death. A Participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the Participant elected prior to his death or the beneficiary so
elects within 90 days of the Participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the Participant's death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock in
the same manner described above as to a Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations
order (as defined in the Code), benefits payable under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights
to benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan
for purposes of Section 402 of ERISA.
12
<PAGE>
Trustees. The Trustee is appointed by the Board of Trustees of the Bank
--------
to serve at its pleasure. The current Trustee of the Plan is the RSI Retirement
Trust. However, an additional Trustee is being appointed to hold funds invested
in the Employer Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The
Trustee is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Administrator (as defined below) will furnish to each Participant a
statement at least quarterly showing (i) the balance in the Participant's
Account as of the end of that period, (ii) the amount of contributions
allocated to such participant's Account for that period, and (iii) the
adjustments to such participant's Account to reflect earnings or losses (if
any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by one or
more persons who are appointed by and who serve at the pleasure of the Bank (the
"Administrator"). Currently, the Administrator is Dorothy Episcopia, Vice
President and Human Resources Officer of the Bank. The address and telephone
number of the Administrator is c/o 207 Taylor Street, Staten Island, New York
10310; (718) 448-2800. The Administrator is responsible for the administration
of the Plan, interpretation of the provisions of the Plan, prescribing
procedures for filing applications for benefits, preparation and distribution of
information explaining the Plan, maintenance of Plan records, books of account
and all other data necessary for the proper administration of the Plan, and
preparation and filing of all returns and reports relating to the Plan which are
required to be filed with the U.S. Department of Labor and the IRS, and for all
disclosures required to be made to Participants, Beneficiaries and others under
Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the
Plan, each employee affected by such termination shall have a fully vested
interest in his Accounts. The Bank reserves the right to make, from time to
time, any amendment or amendments to the Plan which do not cause any part of
the Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of Participants or their beneficiaries; provided, however, that the
Bank may make any amendment it determines necessary or desirable, with or
without retroactive effect, to comply with ERISA.
13
<PAGE>
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust assets to another plan, the Plan requires
that each Participant would (if either the Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or transfer (if
the Plan had then terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following: (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) Participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code. Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code. Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.
Lump Sum Distribution. A distribution from the Plan to a Participant or
---------------------
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation
14
<PAGE>
from service, or after the Participant attains age 59-1/2; and (iii) consists of
the balance to the credit of the Participant under this Plan and all other
profit sharing plans, if any, maintained by the Bank. The portion of any Lump
Sum Distribution that is required to be included in the Participant's or
beneficiary's taxable income for federal income tax purposes (the "total taxable
amount") consists of the entire amount of such Lump Sum Distribution less the
amount of after-tax contributions, if any, made by the Participant to any other
profit sharing plans maintained by the Bank which is included in such
distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or
in any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's
participation in this Plan or any other profit-sharing plan maintained by the
Employers), may elect to have the ordinary income portion of such Lump Sum
Distribution taxed according to a special averaging rule ("five-year
averaging"). The election of the special averaging rules may apply only to one
Lump Sum Distribution received by the Participant or beneficiary, provided such
amount is received on or after the Participant turns 59-1/2 and the recipient
elects to have any other Lump Sum Distribution from a qualified plan received
in the same taxable year taxed under the special averaging rule. Under a
special grandfather rule, individuals who turned 50 by 1986 may elect to have
their Lump Sum Distribution taxed under either the five-year averaging rule or
under the prior law ten-year averaging rule. Such individuals also may elect
to have that portion of the Lump Sum Distribution attributable to the
participant's pre-1974 participation in the Plan taxed at a flat 20% rate as
gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum
----------------------------------------------
Distribution includes Common Stock, the distribution generally will be taxed in
the manner described above, except that the total taxable amount will be reduced
by the amount of any net unrealized appreciation with respect to such Common
Stock, i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the Participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
Common Stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations to
be issued by the IRS.
15
<PAGE>
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
-----------------------------------------------------------------------
or to an IRA. Pursuant to a change in the law, effective January 1, 1993,
- - - ------------
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a Lump
Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant does
not elect to have an "eligible rollover distribution" transferred directly to
another qualified plan or to an IRA, the distribution will be subject to an
mandatory federal withholding tax equal to 20% of the taxable distribution. An
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution that is (a) one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lines of the Participant and his or
her designated beneficiary, or (b) for a specified period of ten years or more;
(2) any amount that is required to be distributed under the minimum distribution
rules; and (3) any other distributions excepted under applicable federal law.
The tax law change described above did not modify the special tax treatment of
Lump Sum Distributions, that are not rolled over or transferred i.e., forward
averaging, capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of the
Employee Retirement Income Security Act of 1974, as amended, and will be
submitted to the IRS for a determination that it is qualified under
Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT
INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
before transferring any Common Stock owned by him. In addition, Participants are
advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.
16
<PAGE>
Persons who are not deemed to be "affiliates" of the Bank at the time of
resale will be free to resell any shares of Common Stock to them under the
Plan, either publicly or privately, without regard to the Registration and
Prospectus delivery requirements of the Securities Act or compliance with the
restrictions and conditions contained in the exemptive rules thereunder. An
"affiliate" of the Bank is someone who directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control,
with the Bank. Normally, a director, principal officer or major shareholder of
a corporation may be deemed to be an "affiliate" of that corporation. A person
who may be deemed an "affiliate" of the Bank at the time of a proposed resale
will be permitted to make public resales of the Bank's Common Stock only
pursuant to a "reoffer" Prospectus or in accordance with the restrictions and
conditions contained in Rule 144 under the Securities Act or some other
exemption from registration, and will not be permitted to use this Prospectus
in connection with any such resale. In general, the amount of the Bank's
Common Stock which any such affiliate may publicly resell pursuant to Rule 144
in any three-month period may not exceed the greater of one percent of the
Bank's Common Stock then outstanding or the average weekly trading volume
reported on the National Association of Securities Dealers Automated Quotation
System during the four calendar weeks prior to the sale. Such sales may be
made only through brokers without solicitation and only at a time when the Bank
is current in filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements
on officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as purchases,
sales, gifts and participation in savings and retirement plans must be reported
periodically, either on a Form 4 within ten days after the end of the month in
which a change occurs, or annually on a Form 5 within 45 days after the close of
the Bank's fiscal year. Participation in the Employer Stock Fund of the Plan by
officers, directors and persons beneficially owning more than ten percent of
Common Stock of the Holding Company must be reported to the SEC annually on a
Form 5 by such individuals. At ____________, 1997, _____% of the Plan assets
were allocated to executive officers.
In addition to the reporting requirements described above, Section 16(b)
of the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit
recovery provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally
17
<PAGE>
involve restrictions upon the timing of elections to acquire or dispose of
employer securities for the accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
EXPERTS
The financial statements and schedule of Richmond County Savings Bank
401(k) Savings Plan as of December 31, 1996 and 1995 and for the years then
ended have been included herein in reliance upon the report of Ernst & Young
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Bank's Conversion from a mutual
savings bank to a stock based organization.
18
<PAGE>
RICHMOND COUNTY SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Investment Form
Name of Plan Participant:
-----------------------------------
Social Security Number:
-----------------------------------
1. INSTRUCTIONS. In connection with the proposed Conversion of
------------
Richmond County Savings Bank from a mutual savings bank to a stock based
organization (the "Conversion"), Richmond County Savings Bank 401(k) Savings
Plan in RSI Retirement Trust ("Plan") has been amended to permit participants to
direct their current account balances for their Basic Contribution Account,
Company Contribution Account and Rollover Account into a new fund: the Employer
Stock Fund. The percentage of a participant's account transferred at the
direction of the participant into the Employer Stock Fund will be used to
purchase shares of common stock of Richmond County Financial Corp. (the "Common
Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering (__________________, 1997.) A representative for the Plan
Administrator will retain a copy of this form and return a copy to you. If you
need any assistance in completing this form, please contact Dorothy Episcopia at
(718) 448-2800, extension 291 . If you do not complete and return this form to
the Plan Administrator by ______________, the funds credited to your accounts
under the Plan will continue to be invested in accordance with your prior
investment direction, or in accordance with the terms of the Plan if no
investment direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
_%) of my Basic Contribution Account, Company Contribution Account and Rollover
Account in the Employer Stock Fund:
a. Core Equity Fund ____%
b. Emerging Growth Fund ____%
c. Value Equity Fund ____%
d. Actively Managed Bond Fund ____%
e. Intermediate - Term Investment Fund ____%
f. Short-Term Investment Fund ____%
g. International Equity Fund ____%
NOTE: The total percentage of directed investments, above, may not exceed 100%.
3. STATUS. Enter information below for all accounts you had at the
Eligibility Record Date (June 30, 1996) and the Supplemental Eligibility Record
Date (September 30, 1997).
============================================================
Account Title
(Names on Account) Account Number Date Opened
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
============================================================
If additional space is needed, please use the back of this form.
19
<PAGE>
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
- - - ----------------------------- -----------------
Signature of Participant Date
- - - -------------------------------------------------------------------------------
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received by
the Plan Administrator and will become effective on the date noted below.
- - - ----------------------------- -----------------
By:______________ Date
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY
ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
20
<PAGE>
Financial Statements
and Supplemental Schedules
Richmond County Savings Bank
401(k) Savings Plan
in RSI Retirement Trust
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Financial Statements
and Supplemental Schedules
Years ended December 31, 1996 and 1995
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.......................................... F-1
Financial Statements
Statement of Net Assets Available for Plan Benefits
with Fund Information.................................................. F-2
Statement of Changes in Net Assets Available for Plan Benefits
with Fund Information.................................................. F-3
Notes to Financial Statements........................................... F-5
Supplemental Schedules
Assets Held for Investment.............................................. F-13
Reportable Transactions................................................. F-14
</TABLE>
A schedule of party-in-interest transactions has not been presented because
there were no party-in-interest transactions which are prohibited by ERISA
Section 406 and for which there are no statutory or administrative
exemptions.
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Trustees
Richmond County Savings Bank
We have audited the accompanying statements of net assets available for Plan
benefits with fund information of the Richmond County Savings Bank 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") as of December 31, 1996 and
1995, and the related statements of changes in net assets available for Plan
benefits with fund information for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for Plan benefits at December
31, 1996 and 1995, and the changes in its net assets available for Plan benefits
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment as of December 31, 1996 and reportable transactions for the
year then ended are presented for purposes of complying with the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974, and are not a required part of the
financial statements. The Fund Information in the statement of net assets
available for Plan benefits with fund information and the statement of changes
in net assets available for Plan benefits with fund information is presented for
purposes of additional analysis rather than to present the net assets available
for Plan benefits with fund information and changes in net assets available for
Plan benefits of each fund. The supplemental schedules and Fund Information have
been subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
July 14, 1997
F-1
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Statement of Net Assets Available for Plan Benefits with Fund Information
<TABLE>
<CAPTION>
Emerging Actively
Core Growth Value Short-Term Intermediate- Managed International
Equity Equity Equity Investment Term Bond Bond Equity
Fund Fund Fund Fund Fund Fund Fund Loans Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Investments, at fair
value (Note 4) $1,018,580 $453,008 $366,136 $312,458 $146,299 $149,890 $13,282 $ -- $2,459,653
Loans receivable from
participants -- -- -- -- -- -- -- 79,839 79,839
------------------------------------------------------------------------------------------------------
Net assets available
for Plan benefits $1,018,580 $453,008 $366,136 $312,458 $146,299 $149,890 $13,282 $79,839 $2,539,492
======================================================================================================
December 31, 1995:
Investments, at fair
value (Note 4) $ 651,533 $284,997 $238,678 $304,269 $ 67,040 $139,201 $ -- $ -- $1,685,718
Loans receivable from
participants -- -- -- -- -- -- -- 47,360 47,360
------------------------------------------------------------------------------------------------------
Net assets available
for Plan benefits $ 651,533 $284,997 $238,678 $304,269 $ 67,040 $139,201 $ -- $47,360 $1,733,078
======================================================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information
Year ended December 31, 1996
<TABLE>
<CAPTION>
Emerging Actively
Core Growth Value Short-Term Intermediate- Managed International
Equity Equity Equity Investment Term Bond Bond Equity
Fund Fund Fund Fund Fund Fund Fund Loans Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions
Employee contributions $ 154,864 $ 80,434 $ 63,749 $ 38,066 $ 15,517 $ 29,269 $ 1,751 $ -- $ 383,650
Employee rollover
contributions -- -- -- 17,718 -- -- -- -- 17,718
Employer contributions 56,449 29,255 22,704 14,597 5,792 10,720 598 -- 140,115
Interest on loans -- -- -- -- -- -- -- 5,501 5,501
Net realized and
unrealized appreciation
in fair value of
investments 168,055 85,663 72,808 12,804 3,557 4,523 446 -- 347,856
--------------------------------------------------------------------------------------------------------
Total additions 379,368 195,352 159,261 83,185 24,866 44,512 2,795 5,501 894,840
Benefits distributed (24,658) (13,881) (11,640) (7,512) (10,117) (20,618) -- -- (88,426)
Transfers between funds 12,337 (13,460) (20,163) (67,484) 64,510 (13,205) 10,487 26,978 --
--------------------------------------------------------------------------------------------------------
Increase in net assets
available for Plan
benefits 367,047 168,011 127,458 8,189 79,259 10,689 13,282 32,479 806,414
Net assets available for
Plan benefits,
beginning of year 651,533 284,997 238,678 304,269 67,040 139,201 -- 47,360 1,733,078
--------------------------------------------------------------------------------------------------------
Net assets available for
Plan benefits, end of
year $1,018,580 $453,008 $366,136 $312,458 $146,299 $149,890 $13,282 $79,839 $2,539,492
========================================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information
Year ended December 31, 1995
<TABLE>
<CAPTION>
Core Emerging Value Short-Term Intermediate-
Equity Growth Equity Equity Investment Term Bond
Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions
Employee contributions $105,639 $ 49,404 $ 46,108 $ 39,893 $ 14,204
Employee rollover
contributions - 531 531 3,185 -
Employer contributions 47,951 22,299 20,855 18,351 6,540
Interest on loans - - - - -
Net realized and
unrealized appreciation
in fair value of
investments 167,454 76,917 55,294 12,540 7,146
--------------------------------------------------------------------------------
Total additions 321,044 149,151 122,788 73,969 27,890
Benefits distributed (23,106) (11,770) (10,481) (11,497) (2,118)
Transfers between funds 4,346 (28,258) (26,448) 58,075 (5,398)
--------------------------------------------------------------------------------
Increase in net assets
available for Plan
benefits 302,284 109,123 85,859 120,547 20,374
Net assets available for
Plan benefits,
beginning of year 349,249 175,874 152,819 183,722 46,666
--------------------------------------------------------------------------------
Net assets available for
Plan benefits, end of
year $651,533 $ 284,997 $ 238,678 $ 304,269 $ 67,040
================================================================================
<CAPTION>
Actively International
Managed Equity
Bond Fund Fund Loans Total
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Additions
Employee contributions $ 28,210 $ - $ - $ 283,458
Employee rollover
contributions - - - 4,247
Employer contributions 13,001 - - 128,997
Interest on loans - - 3,237 3,237
Net realized and
unrealized appreciation
in fair value of
investments 18,268 - - 337,619
-------------------------------------------------------------
Total additions 59,479 - 3,237 757,558
Benefits distributed (4,296) - (1,335) (64,603)
Transfers between funds (9,744) - 7,427 -
-------------------------------------------------------------
Increase in net assets
available for Plan
benefits 45,439 - 9,329 692,955
Net assets available for
Plan benefits,
beginning of year 93,762 - 38,031 1,040,123
-------------------------------------------------------------
Net assets available for
Plan benefits, end of
year $ 139,201 $ - $47,360 $1,733,078
=============================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements
December 31, 1996
1. Description of the Plan
The following brief description of the Richmond County Savings Bank 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") provides only general
information. Participants should refer to the Plan document for more complete
information.
General
The Plan is a defined contribution plan covering all eligible employees of
Richmond County Savings Bank (the "Bank"). The Plan was created on January 1,
1992, as subsequently amended through August 30, 1995, and is administered by
RSI Retirement Trust (the "Trust"). The Trust is a multiple employer trust,
subject to the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA"), that provides retirement benefits for the employees of savings
banks and their allied organizations. The assets of all participating member
organizations are held in this common trust and are collectively invested and
reinvested by the Trust in its capacity as Trustee.
Eligibility
Any full time, salaried employee who reaches the age of 21 who is not covered by
a collective bargaining agreement shall be eligible to participate as of the
first day of any payroll period of any calendar month following one year of
employment.
Contributions
Employee contributions are made in accordance with salary deduction agreements
pursuant to Internal Revenue Code Section 401(k). Subject to certain limitations
set forth in the Plan document, the amount of contributions authorized by
eligible employees prior to August 30, 1995 shall not be less than 2% nor
greater than 6% of an employee's base salary (limited to $9,240). Effective
August 30, 1995, eligible employees may contribute up to 9% of their base salary
(limited to $9,500). The Bank makes matching contributions in an amount equal to
50% of an employee's contributions up to 6%.
F-5
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
New employees joining the Bank may be eligible to deposit any distributions from
a previous employer's tax-qualified defined contribution plan as set forth in
the Plan document and continue to defer income taxes on that distribution. These
rollover contributions can be made even if the employee is not yet eligible to
join the Plan.
Prior to May 24, 1995, participants in the Plan could invest their voluntary
contributions, rollover contributions and the Bank's matching contributions in
multiples of 25% in accordance with any one of the available investment options.
Those who first elect to participate or, if applicable, make a rollover
contribution on or after May 24, 1995 may direct that their contributions be
made to specific investment accounts in multiples of 1%. Investment direction
changes and transfers among the various Plan investment options are limited to
once each calendar quarter, but any participant in the Plan on May 24, 1995 may
redirect his investment one additional time if it is done within 60 days of May
24, 1995. The Plan utilizes the following RSI Retirement Trust investment funds:
Core Equity Fund--The Core Equity Fund is an equity based securities fund.
Investments are made primarily in common stocks of a broadly diversified
group of large, high quality, competitively strong companies that in the view
of the investment manager exhibit sustainable growth and dividend earnings.
It offers investors the potential for long-term capital appreciation, with
income as a secondary goal. The Core Equity Fund is managed by Retirement
System Investors, Inc.
Emerging Growth Equity Fund--The Emerging Growth Equity Fund is an aggressive
growth equity fund that seeks capital appreciation by investing in rapidly
growing emerging companies that, in the view of the investment manager, have
higher than average potential for earnings growth. The Emerging Growth Equity
Fund is managed by The Putnam Advisory Company, Inc. and Friess Associates,
Inc.
F-6
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Value Equity Fund--The Value Equity Fund is a growth and income equity based
securities fund that seeks capital appreciation over the longer term. It
invests in financially strong companies with medium to large market
capitalizations. (In the view of the investment manager, these companies are
currently out of favor with investors but have had good earnings growth
records in the past and offer prospects for significant earnings and dividend
growth. In the view of the investment manager, these stocks are currently
undervalued and selling below their potential value.) The Value Equity Fund
is managed by Retirement System Investors, Inc.
Intermediate-Term Bond Fund--The Intermediate-Term Bond Fund invests in a
high quality, diversified portfolio of debt securities that mature within ten
years, or have expected average lives of ten years or less. At least 65% of
the investments in this fund are in U.S. Government or U.S. Government Agency
issues which have the highest credit rating. At the time of purchase, at
least 75% of the holdings must have a quality rating of "AA" or better, with
a minimum quality rating of "A" for other holdings. This investment fund's
goal is to achieve income and price appreciation. The Intermediate-Term Bond
Fund is managed by Retirement System Investors, Inc.
Actively Managed Bond Fund--The Actively Managed Bond Fund invests in high
quality fixed-income securities (bonds and other debt securities), with
maturities that could range from three months to 30 years. The fund's
investment managers frequently adjust the maturity structure of the portfolio
to respond to perceived changes in the relative attractiveness of the
fixed-income market. At the time of purchase, at least 75% of the investments
in this fund must have a rating of "AA" or better, with a minimum rating of
"A" for other holdings, and at least 65% of the investments must be in U.S.
Government or U.S. Government Agency issues. The fund seeks to achieve both
income and price appreciation. The Actively Managed Bond Fund is managed by
Retirement System Investors, Inc.
Short-Term Investment Fund--The Short-Term Investment Fund invests in high
quality cash equivalent types of securities normally maturing in one year or
less. While the fund may invest in U.S. Government instruments with
maturities up to two years, the maximum average maturity of the fund's
holdings will not exceed one year. This investment fund offers substantial
liquidity and capital preservation. The Short-Term Investment Fund is managed
by Retirement System Investors, Inc.
F-7
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
International Equity Fund--The International Equity Fund seeks capital
appreciation and income by investing in stocks of companies headquartered in
foreign countries. Each selection is based on companies whose current prices,
in the view of the investment manager, do not reflect the true earnings
potential and, therefore, are selling at "undervalued" prices. Investments in
foreign markets with unacceptable political or economic risks are avoided.
Holdings are concentrated in the larger markets of Europe, Australia and the
Far East. In addition, the portfolio manager will invest in emerging markets,
as opportunities arise. The International Equity Fund is managed by Morgan
Grenfell Investment Services Limited.
Loans/Hardship Withdrawals
Upon application of any participant, the Bank may direct the Trustee of the Plan
to make a loan from the participant's employee contribution account, vested
matching contribution account and rollover contribution account. All loans are
limited to the lesser of 50% of the participant's accounts or $50,000 and bear
interest at a fixed rate of prime plus 1% (rounded to the nearest 1/4% of 1%)
determined at the time of borrowing and fixed for the life of the loan. Further
restrictions on the principal amount and term of loans do exist and are
discussed in the Plan document.
In addition, participants may obtain withdrawals based on immediate financial
needs as outlined in the Plan document.
Participant's Accounts
Separate accounts are maintained for each participant to accumulate values
resulting from Bank, employee and rollover contributions. Participant's accounts
are credited with contributions made on their behalf in accordance with employee
salary deduction arrangements, the Bank's matching contributions and Plan
earnings. Plan earnings and losses are allocated based on account balances and
investment options which the participant chooses.
F-8
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Vesting
Participants are fully vested in their accrued benefits in all accounts other
than their employer matching accounts at all times and such accrued benefits are
nonforfeitable at all times. Employer matching contributions become vested and
nonforfeitable as follows:
<TABLE>
<CAPTION>
Number of Years of Service as Defined % Vested and
in the Plan Document Nonforfeitable
------------------------------------- ---------------------------
<S> <C>
Less than 2 years 0%
2 years but less than 3 years 20
3 years but less than 4 years 40
4 years but less than 5 years 60
5 years but less than 6 years 80
6 or more years 100
</TABLE>
For participants hired prior to January 1, 1994, their vesting period commences
on date of enrollment in the Plan, regardless of prior periods of service at the
Bank. For employees hired on or subsequent to January 1, 1994, their vesting
period begins upon date of hire, provided the employee has attained the age of
18.
A participant, upon leaving the Bank prior to achieving two years of employment,
forfeits the value of all matching contributions and earnings on those
contributions made by the employer. The forfeited amount is deducted from the
amount due from the Bank for the employer contribution in the following quarter.
Payment of Benefits
Upon retirement, a participant may elect to receive their vested account balance
either in a lump-sum amount or in monthly, quarterly, semi-annual or annual
installments.
F-9
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Administrative Expenses
All administrative expenses of the Plan are paid by the Bank, except expenses
directly related to the managing of each fund (such as investment management
fees, commissions and other transaction costs) which are charged against the
assets of the total applicable fund to which such expenses directly relate.
2. Summary of Accounting Policies
Basis of Accounting and Presentation
The financial statements have been prepared on the accrual basis of accounting.
Valuation
Investments consist of unit shares of funds offered by RSI Retirement Trust, a
registered investment company. Valuation of these shares by the Trust is based
on the underlying value of the net assets of each fund.
Except for debt securities with remaining maturities of 60 days or less which
are valued at book value, investments within each fund for which markets are
available are valued at their last available quote.
Investment transactions within each fund are recorded on a trade date basis.
Dividend income is recognized on the ex-dividend date or when the dividend
information is known; interest income, including, where applicable, amortization
of discount and premium on investments and zero coupon bonds, is recognized on
the accrual basis.
F-10
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
2. Summary of Accounting Policies (continued)
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
The Plan sponsor believes that the estimates utilized in preparing its financial
statements are reasonable and prudent. Actual results could differ from these
estimates.
3. Plan Termination
Although it has not expressed any intent to do so, the Bank has the right under
the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of a Plan termination,
participants become 100% vested in all matching contributions.
4. Investments
Investments in the Plan as of December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
Units Fair Value Units Fair Value
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Core Equity Fund 16,866 $1,018,580 13,111 $ 651,533
Emerging Growth Equity Fund 6,701 453,008 5,358 284,997
Value Equity Fund 8,349 366,136 6,852 238,678
Short-Term Investment Fund 15,256 312,458 15,555 304,269
Intermediate-Term Bond Fund 4,876 146,299 2,324 67,040
Actively Managed Bond Fund 4,719 149,890 4,520 139,201
International Equity Fund 289 13,282 - -
-------------- ---------------
Total $2,459,653 $1,685,718
============== ===============
</TABLE>
Net realized and unrealized appreciation on the above investment funds was
$347,856 and $337,619 for the years ended December 31, 1996 and 1995,
respectively.
F-11
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
5. Income Tax Status
The Plan obtained its latest determination letter on December 13, 1995, in which
the Internal Revenue Service stated that the Plan, as amended through March 10,
1994, was in compliance with the applicable requirements of the Internal Revenue
Code. Management is not aware of any cause of action, series of events or
amendments that might adversely affect the qualified status of the Plan.
F-12
<PAGE>
Supplemental Schedules
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Assets Held for Investment
December 31, 1996
<TABLE>
<CAPTION>
Number of Units Fair
Held Value Cost
-----------------------------------------------
<S> <C> <C> <C>
Units in RSI Retirement Trust Series
Pooled Investment Funds:
Core Equity Fund 16,866 $1,018,580 $ 689,045
Emerging Growth Equity Fund 6,701 453,008 284,354
Value Equity Fund 8,349 366,136 250,047
Short-Term Investment Fund 15,256 312,458 285,966
Intermediate-Term Bond Fund 4,876 146,299 136,599
Actively Managed Bond Fund 4,719 149,890 130,182
International Equity Fund 289 13,282 12,836
------------------------------
2,459,653 1,789,029
Loans to participants 79,839 79,839
------------------------------
Total $2,539,492 $1,868,868
==============================
</TABLE>
F-13
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Reportable Transactions
Year ended December 31, 1996
<TABLE>
<CAPTION>
Purchases Sales
------------------------- ------------------------------
Number of Purchase Number of
Transactions Price Transactions Proceeds
------------ ---------- --------------- -----------
<S> <C> <C> <C> <C>
Core Equity Fund 89 $289,050 41 $ 82,037
Emerging Growth Equity Fund 85 139,906 40 57,816
Value Equity Fund 83 102,283 38 47,940
Short-Term Investment Fund 82 101,068 33 103,563
Intermediate-Term Bond Fund 83 95,022 33 19,427
</TABLE>
F-14
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
RICHMOND COUNTY FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR RICHMOND COUNTY SAVINGS BANK)
__________ SHARES OF COMMON STOCK
Richmond County Financial Corp. (the "Company"), a Delaware corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $_____, of its common
stock, $0.01 par value (the "Common Stock"), to be issued upon the conversion of
Richmond County Savings Bank, Staten Island, New York (the "Bank") from a New
York chartered mutual savings bank to a New York chartered stock savings bank
and the issuance of the Bank's outstanding capital stock to the Company pursuant
to a plan of conversion (the "Plan of Conversion"). The remaining __________
shares of the Common Stock have been subscribed for in subscription and
community offerings (the "Subscription and Community Offerings") by the Bank's
holders of deposit accounts with the Bank with a balance of $100 or more as of
June 30, 1996, by the Richmond County Savings Bank Employee Stock Ownership
Plan, a tax-qualified employee benefit plan, and related trust (the "ESOP"), by
holders of deposit accounts with a balance of $100 or more as of September 30,
1997, and then by certain members of the general public. See "The Conversion -
General." Contained herein is the Prospectus in the form used in the
Subscription and Community Offerings. The purchase price for all shares
purchased in the Syndicated Community Offering will be the same as the price
paid by subscribers in the Subscription and Community Offerings (the "Purchase
Price"). The Purchase Price of $10.00 per share is the amount to be paid for
each share at the time a purchase order is submitted. See the cover page of the
Prospectus and the table below for information as to the method by which the
range within which the number of shares offered may vary and the method of
subscribing for shares of the Common Stock. For a discussion of certain factors
that should be considered by each prospective investor, see "Risk Factors" on
pages ___ through ___.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1998, unless extended by the Bank and the Company
with the approval of the Superintendent of Banks of the State of New York and
the Federal Deposit Insurance Corporation, if necessary. Such extensions may
not go beyond _______________, 1999. If an extension of time has been granted,
all subscribers will be notified of such extension, and of their rights to
confirm their subscriptions, or to modify or rescind their subscriptions and
have their funds returned promptly with interest, and of the time period within
which the subscriber must notify the Bank of his intention to confirm, modify or
rescind his subscription. If an affirmative response to any resolicitation is
not received by the Bank and the Company from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the
<PAGE>
ESOP, which may purchase up to 8% of the total number of shares of Common Stock
issued in the Conversion, no person, together with associates of and persons
acting in concert with such person, may purchase in the Community Offering and
the Syndicated Community Offering more than $250,000 of the aggregate value of
Common Stock offered in the Conversion. See "Plan of Conversion - Limitations on
Common Stock Purchases." The Company reserves the right, in its absolute
discretion, to accept or reject, in whole or in part, any or all subscriptions
in the Syndicated Community Offering.
The Company and the Bank have engaged Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") to assist them in the sale of the Common Stock in the
Syndicated Community Offering. It is anticipated that Sandler O'Neill will use
the services of other registered broker-dealers ("Selected Dealers") and that
fees to Sandler O'Neill and such Selected Dealers will be an amount not to
exceed 7.0% of the aggregate Purchase Price of the shares sold in the Syndicated
Community Offering. Neither Sandler O'Neill nor any Selected Dealer shall have
any obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
[The Company has applied to the National Association of Securities Dealers
("NASD") to have its Common Stock quoted on the Nasdaq National Market under the
symbol "____."] Prior to this Offering, there has not been a public market for
the Common Stock, and there can be no assurance that an active and liquid
trading market for the Common Stock will develop. The absence or discontinuance
of a market may have an adverse impact on both the price and liquidity of the
stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK, THE
NEW YORK STATE BANKING BOARD, THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER
AGENCY, NOR HAS SUCH COMMISSION, BOARD, DEPARTMENT, CORPORATION OR ANY STATE
SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
=======================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- - - -------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- - - -------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- - - -------------------------------------------------------------------------------------------------------
Total Minimum(5) $ $ $ $
- - - -------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- - - -------------------------------------------------------------------------------------------------------
Total Maximum(5) $ $ $ $
- - - -------------------------------------------------------------------------------------------------------
Total Maximum,
As Adjusted(6) $ $ $ $
=======================================================================================================
</TABLE>
- - - -----------------
(1) Consists of a pro rata allocation of estimated expenses of the Bank and the
Company in connection with the Conversion (other than estimated fees to be
paid to Sandler O'Neill for services in connection with the Subscription and
Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________ and
$__________ at the minimum and the maximum of the estimated price range and
may be deemed to be underwriting fees. The information under "Pro Forma
Data" in the Prospectus was based on the assumptions stated therein, which
may differ from the estimates used for this table. See "The Conversion -
Marketing and Underwriting Arrangements" for a more detailed discussion of
fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
sale of the __________ shares subscribed for at a price of $10.00 per share
and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $_____
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $10.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
an increase in the Estimated Price Range of up to 15% to reflect changes in
market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1997.
3
<PAGE>
PROSPECTUS
RICHMOND COUNTY FINANCIAL CORP.
(Proposed Holding Company for Richmond County Savings Bank)
21,275,000 Shares of Common Stock
Richmond County Financial Corp. (the "Company"), a Delaware corporation, is
offering up to 21,275,000 shares of its common stock, par value $.01 per share
(the "Common Stock"), in connection with the conversion of Richmond County
Savings Bank (the "Bank") from a New York State chartered mutual savings bank to
a New York State chartered stock savings bank and the issuance of the Bank's
capital stock to the Company pursuant to the Bank's plan of conversion (the
"Plan" or "Plan of Conversion"). The simultaneous conversion of the Bank to
stock form, the issuance of the Bank's capital stock to the Company and the
offer and sale of the Common Stock by the Company are herein referred to as the
"Conversion." In certain circumstances, the Company may increase the amount of
Common Stock offered hereby up to 24,466,250 shares. See Footnote 4 to the table
below.
(continued on following page)
_____________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGES 13 THROUGH 22.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING BOARD, THE NEW YORK STATE BANKING DEPARTMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY
OTHER AGENCY, NOR HAS SUCH COMMISSION, BOARD, DEPARTMENT, CORPORATION OR ANY
STATE SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE
NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
Estimated Underwriting
Commissions and Other Fees
Subscription Price (1) and Expenses(2) Estimated Net Proceeds(3)
<S> <C> <C> <C>
Minimum Per Share $ 10.00 $ 0.33 $ 9.67
Midpoint Per Share $ 10.00 $ 0.31 $ 9.69
Maximum Per Share $ 10.00 $ 0.29 $ 9.71
Total Minimum(1) $157,250,000 $5,216,600 $152,033,400
Total Midpoint(1) $185,000,000 $5,660,300 $179,339,700
Total Maximum (1) $212,750,000 $6,103,900 $206,646,100
Total Maximum as adjusted(4) $244,662,500 $6,614,200 $238,048,300
- - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Keller &
Company, Inc. ("Keller") dated September 12, 1997, which states that the
estimated pro forma market value of the Common Stock being offered for sale
in the Conversion ranged from $157,250,000 to $212,750,000 with a midpoint
of $185,000,000 taking into account the contribution to the Richmond County
Savings Foundation (the "Foundation") of an amount of Common Stock equal to
8% of the Common Stock sold in the Conversion (the "Valuation Range"). The
independent appraisal of Keller is based upon estimates and projections that
are subject to change and the valuation must not be construed as a
recommendation as to the advisability of purchasing the Common Stock nor an
assurance that a purchaser of Common Stock will thereafter be able to sell
the Common Stock at prices within the Valuation Range. Based on the
Valuation Range, the Board of Directors of the Company and the Board of
Trustees of the Bank established an estimated price range of the Common
Stock being offered for sale in the Conversion within the Valuation Range of
$157.3 million to $212.8 million (the "Estimated Price Range") or between
15,725,000 and 21,275,000 shares of Common Stock issued at the $10.00 per
share price (the "Purchase Price") to be paid for each share of Common Stock
subscribed for or purchased in the Offering. See "The Conversion - Stock
Pricing."
(2) Consists of the estimated costs to the Bank and the Company arising from the
Conversion, including estimated fixed expenses of approximately $2.8
million, and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") estimated to be between $2.5 million and $3.3 million at
the minimum and maximum of the Estimated Price Range, respectively. See
"The Conversion - Marketing and Underwriting Arrangements." The actual fees
and expenses may vary from the estimates. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold in the offerings and other factors. Includes
the purchase of shares of Common Stock by the Richmond County Savings Bank
Employee Stock Ownership Plan and related trust (the "ESOP") which is
intended to be funded by a loan to the ESOP from the Company or from a third
party, which will be deducted from the Company's stockholders' equity. See
"Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market or general financial and economic conditions. See "Pro
Forma Data" and "The Conversion - Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, if any, see "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Limitations on Common Stock Purchases."
_______________________
SANDLER O'NEILL & PARTNERS, L.P.
_______________________
The date of this Prospectus is _______________, 1997.
<PAGE>
(continued from previous page)
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK IN A SUBSCRIPTION
OFFERING (THE "SUBSCRIPTION OFFERING") HAVE BEEN GRANTED IN THE FOLLOWING ORDER
OF PRIORITY TO: 1) THE BANK'S ELIGIBLE ACCOUNT HOLDERS (DEFINED AS HOLDERS OF
DEPOSIT ACCOUNTS TOTALLING $100 OR MORE AS OF JUNE 30, 1996); (2) THE COMPANY'S
AND BANK'S TAX-QUALIFIED EMPLOYEE BENEFIT PLANS (COLLECTIVELY, THE "EMPLOYEE
PLANS"), INCLUDING THE ESOP WHICH INTENDS TO SUBSCRIBE FOR UP TO 8% OF THE
COMMON STOCK ISSUED IN CONNECTION WITH THE CONVERSION (INCLUDING SHARES ISSUED
TO THE RICHMOND COUNTY SAVINGS FOUNDATION); AND (3) THE BANK'S SUPPLEMENTAL
ELIGIBLE ACCOUNT HOLDERS (DEFINED AS HOLDERS OF DEPOSIT ACCOUNTS TOTALLING $100
OR MORE AS OF SEPTEMBER 30, 1997). SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE.
PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL BE SUBJECT TO
FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND PENALTIES IMPOSED
BY THE NEW YORK BANKING DEPARTMENT (THE "NYBD"). Concurrently, and subject to
the prior rights of holders of subscription rights, the Company is offering the
shares of Common Stock not subscribed for in the Subscription Offering for sale
in a community offering to certain members of the general public (the "Community
Offering"). Shares not subscribed for in the Subscription and Community
Offerings will be offered to certain members of the general public in a
syndicated community offering (the "Syndicated Community Offering") (the
Subscription Offering, Community Offering and the Syndicated Community Offering
are referred to collectively as the "Offerings").
Except for the ESOP, no Eligible Account Holder or Supplemental Eligible
Account Holder may, in their respective capacities as such, purchase in the
Subscription Offering more than $250,000 of Common Stock; no person, together
with associates and persons acting in concert with such person, may purchase in
the Community Offering and Syndicated Community Offering more than $250,000 of
Common Stock; and no person, together with associates of and persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1.0% of the total number of shares of Common
Stock offered in the Conversion; provided, however, such purchase limitations
may be increased and the amount that may be subscribed for may be increased or
decreased at the sole discretion of the Bank and Company without further
approval of subscribers or the Bank's depositors. The minimum purchase is 25
shares. See "The Conversion - Subscription Offering and Subscription Rights,"
"- Community Offering" and "- Limitations on Common Stock Purchases."
Pursuant to the Plan, the Company intends to establish the Richmond County
Savings Foundation (the "Foundation"), a charitable foundation, in connection
with the Conversion. The Plan provides that the Bank and the Company will
create and fund the Foundation with shares of Common Stock contributed by the
Company from authorized but unissued shares, in an amount equal to 8% of the
number of shares of Common Stock sold in the Conversion. The Foundation will be
dedicated to charitable purposes within the Bank's local community. For a
discussion of the Foundation and its effects on the Conversion, see "Risk
Factors - Effects of the Establishment of the Foundation," "Pro Forma Data,"
and "The Conversion - Establishment of Charitable Foundation."
The Bank has engaged Sandler O'Neill to consult with and advise the Company
and the Bank in the Offerings and Sandler O'Neill has agreed to use its best
efforts to assist the Company with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill is
not obligated to take or purchase any shares of Common Stock in the Offerings.
The Bank and the Company will pay a fee to Sandler O'Neill which will be based
on the aggregate Purchase Price of the Common Stock sold in the Offerings. The
Company and the Bank have agreed to indemnify Sandler O'Neill against certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing and Underwriting
Arrangements."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT __________, NEW
YORK TIME, ON __________, 1997 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE
BANK AND THE COMPANY, WITH THE APPROVAL OF THE SUPERINTENDENT OF BANKS OF THE
STATE OF NEW YORK (THE "SUPERINTENDENT") AND THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC"), IF NECESSARY. Orders submitted are irrevocable until
the completion of the Conversion; provided, that if the Conversion is not
completed within 45 days after the close of the Subscription and Community
Offerings, unless such period has been extended with the consent of the
Superintendent and FDIC, if necessary, all subscribers will have their funds
returned promptly with interest, and all withdrawal authorizations will be
cancelled. Such extensions may not go beyond _________, 1999. See "The
Conversion - Procedure for Purchasing Shares in Subscription and Community
Offerings."
The Company has applied to the [NATIONAL ASSOCIATION OF SECURITIES DEALERS,
INC. ("NASD")] to have its Common Stock quoted on the [NASDAQ NATIONAL MARKET]
("Nasdaq") under the symbol "____." Prior to this offering there has not been a
public market for the Common Stock, and there can be no assurance that an active
and liquid trading market for the Common Stock will develop, or that resales of
the Common Stock can be made at or above the Purchase Price. To the extent an
active and liquid trading market does not develop, the liquidity and market
value of the Common Stock may be adversely affected. See "Risk Factors -
Absence of Market for Common Stock" and "Market for the Common Stock."
2
<PAGE>
[MAP OUTLINING THE LOCATIONS OF THE BANKING OFFICES
OF RICHMOND COUNTY SAVINGS BANK APPEARS HERE]
3
<PAGE>
SUMMARY OF THE CONVERSION AND THE OFFERINGS
The following summary of the Conversion and the Offerings is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus.
<TABLE>
<S> <C>
Risk Factors.............. A purchase of the Common Stock involves a
substantial degree of risk. Eligible Account
Holders, Supplemental Eligible Account Holders and
other prospective investors should carefully
consider the matters set forth under "Risk
Factors." THE SHARES OF COMMON STOCK OFFERED HEREBY
ARE NOT INSURED OR GUARANTEED BY THE FDIC OR ANY
OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY
THE COMPANY OR THE BANK.
Richmond County
Financial Corp........... Richmond County Financial Corp. is a Delaware
corporation organized at the direction of the Bank
to become a savings and loan holding company and
own all of the Bank's capital stock to be issued
upon its conversion from mutual form to stock form.
To date, the Company has not engaged in any
business. Its executive office is located at 1214
Castleton Avenue, Staten Island, New York 10310 and
its telephone number is (718) 448-2800.
Richmond County
Savings Bank............. The Bank is a New York State chartered mutual
savings bank. At June 30, 1997, the Bank had total
assets of $993.4 million, total deposits of $884.5
million and net worth of $100.9 million and
operated thirteen full service offices. The Bank is
located at 1214 Castleton Avenue, Staten Island,
New York 10310 and its telephone number is (718)
448-2800.
The Bank's current operating strategy consists
primarily of:
. investing primarily in one- to four-family, and
to a lesser extent, commercial real estate,
construction and development, commercial and
other loans and in investment-grade securities;
. attempting to increase its position as a lender
to businesses operating in its primary market
area, as well as other areas of the New York City
metropolitan area by offering its commercial loan
and deposit products to small and medium-sized
businesses;
. increasing the yield and duration of its
securities investments by emphasizing the
purchase of government agency and privately
issued mortgage-backed and mortgage-related
securities with estimated average lives of three
to five years and de-emphasizing its investment
in U.S. Treasury obligations, and corporate and
other debt securities;
. maintaining a low cost of funds by attracting and
retaining core deposits by providing enhanced
service;
. attempting to attract new deposit customers by
competitively pricing certificate of deposit
products and offering a greater variety of
duration of such deposits;
. developing wholesale borrowing sources such as
FHLB advances, reverse repurchase agreements, and
brokered certificates of deposit as another means
of funding asset growth; and
. managing its interest rate risk by originating or
purchasing adjustable rate loans and generally
selling fixed-rate loans with maturities of more
than 15 years.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
The Conversion and
Reasons for Conversion.... The Board of Trustees of the Bank has adopted a
Plan of Conversion pursuant to which the Bank
intends to convert to a New York State-chartered
stock savings bank and issue all of its stock to
the Company. The Company is offering shares of its
Common Stock in the Offerings in connection with
the Bank's Conversion. Management believes the
Conversion offers a number of advantages,
including: (i) providing a larger capital base on
which to operate; (ii) providing enhanced future
access to capital markets; (iii) providing enhanced
ability to diversify into other financial services
related activities; and (iv) providing enhanced
ability to increase its presence in the communities
it serves and to geographically expand its
operations and market area through marketing and
business development, the acquisition or
establishment of branch offices or the acquisition
of other financial institutions. The Conversion and
the Offerings are subject to approval by the
Superintendent and non-objection by the FDIC, and
approval of Eligible Account Holders at a special
meeting to be held on __________, 1997 (the
"Special Meeting"). The Superintendent issued an
approval letter on _______, 1997 and the FDIC
issued a notice of intent not to object to the
Conversion on _______, 1997. See "The Conversion--
General."
The Richmond County
Savings Foundation.... The Bank's Plan of Conversion provides for the
establishment of a charitable foundation in
connection with the Conversion. The Foundation,
which will be incorporated under Delaware law as a
non-stock corporation, will be funded with a
contribution by the Company equal to 8% of the
Common Stock sold in the Conversion. The authority
for the affairs of the Foundation will be vested in
the Board of Directors of the Foundation, which
will initially be comprised of the members of the
Bank's Board of Trustees. See "The Conversion -
Establishment of Charitable Foundation."
Terms of the Offering... The shares of Common Stock to be sold in connection
with the Conversion are being offered at a fixed
price of $10.00 per share in the Subscription
Offering pursuant to subscription rights in the
following order of priority to: (i) holders of
deposit accounts with a balance of $100 or more on
June 30, 1996 ("Eligible Account Holders"); (ii)
the Bank's Employee Plans, including the ESOP; and
(iii) depositors whose accounts in the Bank totaled
$100 or more on September 30, 1997 ("Supplemental
Eligible Account Holders"). Concurrently, and
subject to the prior rights of holders of
subscription rights, any shares of Common Stock not
subscribed for in the Subscription Offering are
being offered in the Community Offering at $10.00
per share to certain members of the general public.
Subscription rights will expire if not exercised by
_______, New York Time, on __________, 1997, unless
extended by the Bank and the Company. See "The
Conversion -Subscription Offering and Subscription
Rights" and " -Community Offering."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Procedure for Ordering
Shares and Prospectus
Delivery.............. Forms to order Common Stock offered in the
Subscription Offering and the Community Offering
will only be distributed with or be preceded by a
Prospectus. Any person receiving a stock order and
certification form who desires to subscribe for
shares must do so prior to the Expiration Date by
delivering to the Bank a properly executed stock
order and certification form together with full
payment. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT
BE REVOKED OR MODIFIED WITHOUT THE CONSENT OF THE
COMPANY AND BANK. To ensure that each purchaser
receives a prospectus at least 48 hours prior to
the Expiration Date in accordance with Rule 15c2-8
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), no prospectus will be mailed
any later than five days prior to the Expiration
Date or hand delivered any later than two days
prior to such date. The Bank is not obligated to
accept subscriptions not submitted on an original
stock order form. See "The Conversion - Procedure
for Purchasing Shares in Subscription and Community
Offerings."
Form of Payment for
Shares................ Payment for subscriptions may be made: (i) in cash
(if delivered in person); (ii) by check or money
order; or (iii) by authorization of withdrawal from
deposit accounts maintained at the Bank. Orders for
Common Stock submitted by subscribers in the
Subscription Offering which aggregate $50,000 or
more must be paid by official bank or certified
check or by withdrawal authorization from a deposit
account of the Bank. No wire transfers will be
accepted. See "Conversion - Procedure for
Purchasing Shares in Subscription and Community
Offerings."
Nontransferability of
Subscription Rights... The subscription rights of Eligible Account
Holders, Supplemental Eligible Account Holders and
the Employee Plans, including the ESOP, are
nontransferable. See "The Conversion -Restrictions
on Transfer of Subscription Rights and Shares."
Purchase Limitations... No Eligible Account Holder or Supplemental Eligible
Account Holder may purchase in the Subscription
Offering more than $250,000 of Common Stock. No
person, together with associates and persons acting
in concert with such person, may purchase in the
Community Offering and the Syndicated Community
Offering more than $250,000 of Common Stock. No
person, together with associates or persons acting
in concert with such person, may purchase in the
aggregate more than 1% of the Common Stock offered
(the "overall maximum purchase limitation").
However, the Employee Plans, including the ESOP,
may purchase up to 10% of the Common Stock issued,
including shares issued to the Foundation. It is
anticipated that the ESOP will subscribe to
purchase 8% of the Common Stock issued, including
shares issued to the Foundation. The minimum
purchase is 25 shares of Common Stock. At any time
during the Conversion and without approval of the
Bank's depositors or a resolicitation of
subscribers, the Bank and the Company may, in their
sole discretion, decrease the maximum purchase
limitation below $250,000 of Common Stock; however,
such amount may not be reduced to less than 0.10%
of the Common Stock offered. Additionally, at any
time during the Conversion, the Bank and the
Company may, in their sole discretion, increase the
maximum purchase limitation in the Subscription and
Community Offerings to an amount in excess of
$250,000 up to a maximum of 5% of the shares to be
issued in the Conversion. Similarly, the 1.0%
overall maximum purchase limitation may be
increased up to 5% of the total shares of Common
Stock offered in the Conversion.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Securities Offered
and Purchase Price..... The Company is offering between 15,725,000 and
21,275,000 shares of Common Stock at a Purchase
Price of $10.00 per share. The maximum of the
Estimated Price Range may be increased by up to 15%
and the maximum number of shares of Common Stock to
be issued may be increased up to 24,466,250 shares
due to regulatory considerations and changes in
market or general financial or economic conditions.
See "The Conversion -Stock Pricing" and "-Number of
Shares to be Issued."
Appraisal.............. The Purchase Price per share has been fixed at
$10.00. The total number of shares to be issued in
the Conversion is based upon an independent
appraisal prepared by Keller, dated as of September
12, 1997, which states that the estimated pro forma
market value of the Common Stock ranged from
$157,250,000 to $212,750,000. The final aggregate
value will be determined at the time of closing of
the Offerings and is subject to change due to
changing market conditions and other factors. See
"The Conversion - Stock Pricing."
Use of Proceeds......... The Company will use 50% of the net proceeds of the
Offerings to purchase all of the outstanding common
stock of the Bank to be issued in the Conversion. A
portion of net proceeds retained by the Company
will be used for general business activity,
including a loan by the Company directly to the
ESOP to enable the ESOP to purchase up to 8% of the
Common Stock issued in the Conversion, including
shares issued to the Foundation. The Company
intends to initially invest the remaining net
proceeds primarily in mortgage-backed and mortgage
related securities and investment grade debt and
equity securities. The Bank intends to utilize net
proceeds for general business purposes, including
investments in loans and securities as well as for
the possible expansion of its facilities and
operations through marketing, business development,
or acquisitions of other financial institutions,
branch offices or other financial services
companies, although the Company and the Bank have
no current arrangements, understandings or
agreements regarding any such transactions, other
than a lease on a public accommodation office to be
opened on Staten Island in 1998 and plans to open
new branch offices on Staten Island in 1998. See
"Use of Proceeds."
Dividend Policy......... Upon Conversion, the Board of Directors of the
Company will have the authority to declare
dividends on the Common Stock, subject to statutory
and regulatory requirements. In the future, the
Board of Directors of the Company may consider a
policy of paying cash dividends on the Common
Stock. However, no decision has been made with
respect to such dividends, if any. See "Dividend
Policy."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Benefits of the Conversion
to Management.......... Among the benefits to the Bank and the Company
anticipated from the Conversion is the ability to
attract and retain personnel through the use of
stock options and other stock related benefit
programs. Subsequent to the Conversion, the Company
intends to adopt a Stock Program (as defined
herein) and Stock Option Plan (as defined herein)
for the benefit of directors, officers and
employees. If such benefit plans are adopted within
one year after the Conversion, such plans will be
subject to stockholders' approval at a meeting of
stockholders which may not be held earlier than six
months after the Conversion. The Company intends to
adopt a stock benefit plan which would provide for
the granting of Common Stock to officers, directors
and employees of the Bank and Company in an amount
equal to 4% of the Common Stock issued in the
Conversion, including shares issued to the
Foundation (the "Stock Program"). The Company also
intends to adopt a stock option plan which would
provide the Company with the ability to grant
options to officers, directors and employees of the
Bank and Company to purchase Common Stock equal to
10% of the number of shares of Common Stock issued
in the Conversion, including shares issued to the
Foundation (the "Stock Option Plan"). Additionally,
certain officers of the Company and the Bank will
be provided with employment agreements or change in
control agreements which provide such officers with
employment rights and/or payments upon their
termination of service following a change in
control. For a further description of the Stock
Program and Stock Option Plan, see "Risk Factors -
Stock Based Benefits to Management, Employment
Contracts and Change in Control Payments" and
"Management of the Bank- Benefit Plans." See
"Management of the Bank- Subscriptions of Executive
Officers, Directors and Trustees," "The Conversion -
Establishment of Charitable Foundation" and
"Restrictions on Acquisition of the Company and the
Bank -Restrictions in the Company's Certificate of
Incorporation and Bylaws."
Voting Control of Officers
and Directors............ Trustees, Directors and executive officers of the
Bank and the Company expect to purchase
approximately 1.8% or 1.4% of shares of Common
Stock outstanding, based upon the minimum and the
maximum of the Estimated Price Range including
shares issued to the Foundation, respectively.
Additionally, assuming the implementation of the
ESOP, Stock Program and Stock Option Plan,
directors, executive officers and employees have
the potential to control the voting of
approximately 21.7% or 21.2% of the Common Stock at
the minimum and the maximum of the Estimated Price
Range, including shares issued to the Foundation,
respectively. Additionally, the Foundation will
hold Common Stock in an amount equal to 8% of the
Common Stock sold in the Conversion, which such
shares of Common Stock may be voted as directed by
the Board of Directors of the Foundation, who are
also Directors or officers of the Company and the
Bank. See "The Conversion -Establishment of
Charitable Foundation," "Management of the Bank-
Subscriptions of Executive Officers, Directors and
Trustees," and "Restrictions on Acquisition of the
Company and the Bank -Restrictions in the Company's
Certificate of Incorporation and Bylaws."
Expiration Date for the
Subscription Offering.... The Expiration Date for the Subscription Offering
is ________ New York Time on _______________, 1997
unless extended by the Bank and the Company. See
"The Conversion -Subscription Offering and
Subscription Rights."
Expiration Date for the
Community Offering...... The Expiration Date for the Community Offering is
_______ New York Time on ____________, 1997, unless
extended by the Bank and the Company. See "The
Conversion - Community Offering."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Market for Stock.......... As a mutual institution, the Bank has never issued
capital stock and, consequently, there is no
existing market for the Common Stock. The Company
has applied to have its Common Stock quoted on the
[NASDAQ NATIONAL MARKET] under the symbol "____"
subject to the completion of the Conversion and
compliance with certain conditions, including the
presence of at least three registered and active
market makers. See "Market for the Common Stock."
No Board Recommendations.. The Bank's Board of Trustees and the Company's
Board of Directors are not making any
recommendations to depositors or other potential
investors regarding whether such persons should
purchase the Common Stock. An investment in the
Common Stock must be made pursuant to each
investor's evaluation of his or her best interests.
Conversion Center......... If you have any questions regarding Conversion,
call the Conversion Center at (___) ________.
</TABLE>
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are selected consolidated financial and other data of the
Bank. These financial data are derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Bank and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
SELECTED FINANCIAL CONDITION DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Total assets....................... $993,370 $914,483 $851,751 $825,663 $779,728
Loans receivable, net(1)........... 496,258 419,270 392,409 355,850 355,281
Debt and equity securities(2):
Available for sale............... 19,706 21,659 607 - -
Held-to-maturity................. 205,201 307,700 287,879 328,779 331,840
Mortgage-backed and mortgage
related securities, net(2):
Available for sale............... 27,398 1,394 1,683 - -
Held-to-maturity................. 185,122 80,284 92,404 74,961 44,422
Intangible Assets(3)............... 1,527 1,802 2,115 2,428 2,715
Deposits........................... 884,531 817,928 764,062 748,638 713,906
Net worth.......................... 100,865 89,901 81,166 73,550 63,407
<CAPTION>
For the Year Ended June 30,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
SELECTED OPERATING DATA: (In thousands)
<S> <C> <C> <C> <C> <C>
Interest income.................... $ 65,781 $ 59,063 $ 54,321 $ 51,608 $ 53,003
Interest expense................... 27,707 26,254 22,456 20,207 22,280
-------- -------- -------- -------- --------
Net interest income
before provision for
loan losses.................... 38,074 32,809 31,865 31,401 30,723
Provision for loan losses.......... 1,080 1,600 600 859 2,331
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses...... 36,994 31,209 31,265 30,542 28,392
-------- -------- -------- -------- --------
Non-interest income................ 2,861 2,827 2,659 2,961 3,153
Non-interest expense............... 19,667 18,503 18,139 17,287 16,555
-------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of
changes in accounting
principles........................ 20,188 15,533 15,785 16,216 14,990
Provision for income taxes......... 9,463 6,803 6,919 7,305 7,300
-------- -------- -------- -------- --------
Cumulative effect of changes
in accounting principles(4)..... -- -- (1,316) 1,232 --
-------- -------- -------- -------- --------
Net income......................... $ 10,725 $ 8,730 $ 7,550 $ 10,143 $ 7,690
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended
June 30,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA(5):
PERFORMANCE RATIOS:
Return on average assets.............. 1.13% 0.99% 0.91% 1.27% 1.11%
Return on average net worth........... 11.25 10.25 9.80 14.97 13.00
Average net worth to
average assets.................... 10.07 9.70 9.29 8.50 8.52
Net worth to total assets
at end of period................... 10.15 9.83 9.53 8.91 8.13
Net interest rate spread(6)........... 3.68 3.53 3.66 3.85 3.99
Net interest margin(7)................ 4.24 4.01 4.06 4.16 4.31
Average interest-earning assets
to average interest-bearing
liabilities........................ 118.32 115.19 113.96 111.64 110.32
Total non-interest expense
to average assets(8)............... 1.99 2.07 2.15 2.13 2.34
Efficiency ratio(9)................... 46.08 51.04 51.63 49.40 47.95
Net interest income to
operating expenses................. 193.59 177.32 175.67 181.65 185.58
REGULATORY CAPITAL RATIOS(10):
Leverage capital...................... 10.02% 9.70% 9.25% 8.60% 7.77%
Total risk-based capital.............. 19.71 19.22 18.33 16.23 15.28
Tier I capital........................ 18.79 18.33 17.92 15.71 14.52
ASSET QUALITY RATIOS AND DATA:
Total non-performing loans(11)........ $ 3,877 $ 3,820 $ 2,995 $ 5,389 $ 5,375
Real estate owned, net................ 662 612 335 441 2,336
Total non-performing assets(12)....... 4,539 4,432 3,330 5,830 7,711
Non-performing loans as a
percent of loans, net(11).......... 0.78% 0.91% 0.76% 1.51% 1.51%
Non-performing assets as a percent
of total assets(12)................. 0.46 0.48 0.39 0.71 0.99
Allowance for loan losses
as a percent of loans, net(1)....... 1.10 1.14 0.83 0.87 0.77
Allowance for possible loan
losses as a percent of total
non-performing loans(1)(11)......... 141.09 125.55 109.35 57.64 50.88
OTHER DATA:
Number of full service customer
facilities........................... 13 13 13 13 13
</TABLE>
(footnotes on next page)
11
<PAGE>
___________________
(1) Loans, net, consist of gross loans receivable excluding the allowance for
loan losses. The allowance for loan losses at June 30, 1997, 1996, 1995,
1994 and 1993 was $5.5 million, $4.8 million, $3.3 million, $3.1 million
and $2.7 million, respectively. Loans, net, at June 30, 1996, includes
$1.2 million of loans held for sale.
(2) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115 ("SFAS No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities," as of July 1, 1994, and reclassified securities having
a market value of $26 million from its held-to-maturity portfolio to its
available-for-sale portfolio in November 1995 pursuant to a Financial
Accounting Standards Board ("FASB") interpretation of SFAS No. 115.
(3) Represents premium on core deposits acquired which amounted to $3.2
million and which is being amortized on a straight line basis over a ten
year period.
(4) Cumulative effect of changes in accounting principles reflects a charge,
net of tax, of $1.3 million for the year ended June 30, 1995, resulting
from the adoption of SFAS No. 106 ("SFAS No. 106"), "Employer's Accounting
For Post-Retirement Benefits Other than Pensions," and a credit to
earnings of $1.2 million for the year ended June 30, 1994, resulting from
the adoption of SFAS No. 109 ("SFAS No. 109"), "Accounting for Income
Taxes." See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Cumulative Effect of Changes in Accounting
Principles."
(5) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods and are
annualized where appropriate.
(6) The net interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(7) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(8) Total non-interest expense excludes the effect of amortization of goodwill
and the one-time special assessment of $493,000 to recapitalize the
Savings Association Insurance Fund (the "SAIF"). See "Regulation and
Supervision - Insurance of Deposit Accounts." Including the effects of
the amortization of goodwill and of the SAIF special assessment, total
non-interest expense to average assets for the year ended June 30, 1997
would be 2.08%.
(9) The efficiency ratio represents the ratio of non-interest expense,
excluding the effect of amortization of goodwill and the one-time special
assessment of $493,000 to recapitalize the SAIF, divided by the sum of net
interest income and non-interest income. Including the effects of the
amortization of goodwill and the SAIF special assessment, the efficiency
ratio for the year ended June 30, 1997 would be 48.04%.
(10) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - FDIC Regulations -
Capital Requirements." See "Regulatory Capital Compliance" for the Bank's
pro forma capital levels as a result of the Offerings.
(11) It was the Bank's policy to generally cease accruing interest on all
commercial real estate, construction and commercial loans 90 days or more
past due, on all consumer loans which were 120 days or more past due, and
on all one- to four-family residential mortgage loans which were 180 days
or more past due. Effective July 1, 1997, the Bank revised this policy
such that it does not accrue interest on any loans, including one- to
four-family loans secured by real estate, which are more than ninety days
delinquent as to principal and interest unless, in the opinion of
management, collection is probable. See "Business of the Bank -
Delinquent Loans, Real Estate Owned and Classified Assets." Assuming the
revised policy was in effect, the Bank's total non-performing loans would
have been $3.9 million, $3.8 million, $3.0 million, $5.4 million and $5.4
million at June 30, 1997, 1996, 1995, 1994 and 1993, respectively.
(12) Non-performing assets consist of non-performing loans and real estate
owned, net ("REO"). The Bank had no troubled debt restructurings at any
of the dates presented.
12
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
SENSITIVITY TO INCREASES IN INTEREST RATES
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and securities, and its interest expense
on interest-bearing liabilities, such as its deposits and borrowed funds.
Accordingly, the Bank's results of operations and financial condition are
largely dependent on movements in market interest rates and its ability to
manage its assets and liabilities in response to such movements.
While the Bank emphasizes investment in adjustable rate or shorter term
loans, the Bank currently originates and sells fixed-rate one- to four-family
mortgage loans with terms in excess of fifteen years. However, from time to
time, the Bank may retain such loans in its portfolio depending on its interest
rate risk position. At June 30, 1997, 72.5% of the Bank's gross loans had
adjustable interest rates and its fixed-rate mortgage loan portfolio had an
average weighted maturity of 17.25 years. At such date, $39.0 million, or 8.9%,
of the Bank's securities had adjustable interest rates and its securities
portfolio had a weighted average maturity of 3.3 years. At June 30, 1997, the
Bank had $209.1 million of certificates of deposit with maturities of one year
or less and $27.4 million of certificates of deposit over $100,000 ("jumbo
certificates of deposit"). Such jumbo certificates of deposit tend to be less
stable sources of funding as compared to money market, savings, retail checking/
negotiable order of withdrawal ("NOW") accounts and commercial checking accounts
(collectively, "core deposits") and, at June 30, 1997, represented 3.5% of the
Bank's interest-bearing liabilities. As a result, the ratio of the Bank's
interest-earning assets repricing or maturing within one year or less as
compared to its interest-bearing liabilities maturing or repricing in one year
or less ("one year gap position") was positive 3.5%. Therefore, the yield on
interest-earning assets of the Bank may adjust to changes in interest rates
faster than the cost of the Bank's interest-bearing liabilities and the Bank's
net income may be adversely affected during periods of declining interest rates.
Significant increases in the level of market interest rates also may
adversely affect the fair value of the Bank's securities and other interest-
earning assets. At June 30, 1997, $398.4 million, or 91.1%, of the Bank's
securities had fixed interest rates. Generally, the value of fixed-rate
interest-earning assets fluctuates inversely with changes in interest rates. As
a result, increases in interest rates could result in decreases in the market
value of fixed-rate interest-earning assets which could adversely affect the
Bank's results of operations if sold. In the case of interest-earning assets
classified as available-for-sale, such increases in interest rates could
adversely affect the Bank's net worth.
Increases in market interest rates also can affect the type (fixed-rate or
adjustable-rate) and amount of loans originated by the Bank and the average life
of loans and securities, which can adversely impact the yields earned on the
Bank's loan and securities portfolio. In periods of decreasing interest rates,
the average life of loans held by the Bank may be shortened to the extent
increased prepayment activity occurs during such periods which, in turn, may
result in the Bank investing funds from such prepayments in lower yielding
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management of Interest Rate Risk." In addition,
increases in interest rates would result in interest rates on the Bank's
adjustable-rate loans increasing, thereby resulting in increased loan payment
amounts by the borrowers which, in turn, may result in higher delinquencies on
such loans.
POTENTIAL LOW RETURN ON EQUITY FOLLOWING THE CONVERSION
At June 30, 1997, the Bank's ratio of net worth to assets was 10.2%. The
Company's equity position will be significantly increased as a result of the
Conversion. On a pro forma basis as of June 30, 1997, assuming the sale of
Common Stock at the midpoint of the Estimated Price Range, the Company's ratio
of
13
<PAGE>
equity to assets would exceed 22.8%. The Company's ability to deploy this new
capital through investments in interest-bearing assets, such as loans and
securities, which bear rates of return comparable to its current investments,
will be significantly affected by industry competition for such investments. The
Company currently anticipates that it will take time to prudently deploy such
capital. As a result, the Company's return on equity initially is expected to be
below its historical return on equity and may be below peer group institutions
after the Conversion.
INCREASED LENDING RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE, MULTI-FAMILY,
CONSTRUCTION AND DEVELOPMENT AND COMMERCIAL LENDING
At June 30, 1997, the Bank's commercial real estate, multi-family,
construction and development and commercial loan portfolios totaled $68.4
million, or 13.6% of total loans and 7.2% of total interest-earning assets. At
that date, commercial real estate loans totaled $40.7 million, or 8.1% of total
loans, construction and development loans totaled $18.3 million, or 3.6% of
total loans, commercial loans totaled $6.7 million, or 1.3% of total loans, and
multi-family loans totaled $2.7 million, or 0.5% of total loans. Additionally at
such date, the Bank had $21.3 million of outstanding commitments to fund such
loans.
Although the Bank's level of commercial real estate, multi-family,
construction and development and commercial lending has historically been
relatively modest in comparison to its one- to four-family residential lending,
the Bank is attempting to increase its emphasis on such types of loans.
Commercial real estate and multi-family loans are generally viewed as exposing
the lender to a greater risk of loss than one- to four-family residential loans,
as their repayment is dependent, in large part, on sufficient income from the
property to cover operating expenses and debt service and such loans generally
involve larger loan balances. Economic events and government regulations, which
are outside the control of the borrower or lender, could impact the value of the
security for the loan or the future cash flow of the affected properties.
Additionally, although commercial real estate and multi-family values have
stabilized in recent periods, the decline in real estate and multi-family values
experienced in the Bank's primary market area in the late 1980s and early 1990s
was more pronounced with respect to commercial real estate and multi-family
properties than one- to four-family residential properties. Construction and
development financing is also generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate as
the risk of loss on such loans is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction compared
to the estimated cost (including interest) of construction. If the estimate of
value proves to be inaccurate, the property securing the loan, when completed,
may have a value which is insufficient to assure full repayment of the loan.
The Bank also makes secured and unsecured commercial loans. Unsecured
commercial loans are generally considered to involve a higher degree of risk
than secured commercial loans and real estate lending, due to the absence of
collateral securing the loan. Secured commercial loans are generally secured by
real estate, equipment, leases, inventory and accounts receivable. As of June
30, 1997, approximately 53.3% of the Bank's commercial loans were secured by
real estate and 8.0% were secured by other forms of collateral. Accordingly, the
value of the collateral securing the Bank's commercial loans may not be as easy
to ascertain as compared to real property, and such collateral may depreciate
over time and may not be as readily saleable as compared to real property. Both
secured and unsecured commercial loans are often substantially dependent upon
the success of the borrower's business. Accordingly, commercial loans involve a
greater degree of risk than a one- to four-family mortgage loan and other types
of mortgage loans. See "Business of the Bank -- Lending Activities."
In the event the Bank were to further increase its investment in commercial
real estate, multi-family, construction and development and commercial lending,
the Bank may make additional or increased provisions for loan losses which would
adversely affect the Bank's net income.
14
<PAGE>
EFFECTS OF THE ESTABLISHMENT OF THE FOUNDATION
Pursuant to the Plan, the Bank and the Company intend to voluntarily
establish the Foundation in connection with the Conversion. The Foundation will
be incorporated under Delaware law as a non-stock corporation and will be funded
with shares of Common Stock contributed by the Company. The contribution of
Common Stock to the Foundation will be dilutive to the ownership and voting
interests of stockholders and will have an adverse impact on the reported
earnings of the Company in fiscal 1998, the fiscal year in which the Foundation
will be funded.
Dilution of Stockholders' Interests. The Company proposes to fund the
Foundation with Common Stock of the Company in an amount equal to 8% of the
Common Stock to be sold in the Conversion. At the minimum, midpoint and maximum
of the Estimated Price Range, the contribution to the Foundation would equal
1,258,000, 1,480,000 and 1,702,000 shares, with a value of $12.6 million, $14.8
million and $17.0 million, respectively, based on the Purchase Price of $10.00
per share. Assuming the sale of Common Stock at the maximum of the Estimated
Price Range, upon completion of the Conversion and establishment of the
Foundation, the Company will have 22,977,000 shares issued and outstanding of
which the Foundation will own 1,702,000 shares, or 7.4%. AS A RESULT, PERSONS
PURCHASING SHARES OF COMMON STOCK IN THE CONVERSION WILL HAVE THEIR OWNERSHIP
AND VOTING INTERESTS IN THE COMPANY DILUTED BY 7.4%, AS COMPARED TO COMPLETING
THE CONVERSION WITHOUT THE FOUNDATION. SEE "PRO FORMA DATA."
Impact on Earnings. The contribution of Common Stock to the Foundation will
have an adverse impact on the Company's and the Bank's earnings in the year in
which the contribution is made. The Company will recognize the full expense in
the amount of the contribution of Common Stock to the Foundation in the quarter
in which it occurs, which is expected to be the first quarter of 1998. The
amount of the contribution will range from $12.6 million to $17.0 million, based
on the minimum and maximum of the Estimated Price Range. The contribution
expense will be partially offset by the tax benefit related to the expense. The
Company and the Bank have been advised by their independent tax advisors that
the contribution to the Foundation will be tax deductible, subject to an annual
limitation based on 10% of the Company's annual taxable income. Assuming a
contribution of $17.0 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of
$9.4 million (based upon a 45% tax rate). If the Foundation had been established
at June 30, 1997, the Bank would have reported net income of $1.7 million for
the year ended June 30, 1997 rather than reporting net income of $10.7 million
for the year ended June 30, 1997. Management cannot predict earnings for fiscal
1998, but expects that the establishment and funding of the Foundation will have
an adverse impact on the Company's earnings for the quarter in which the
Foundation is funded. In addition to the contribution to the Foundation, the
Bank expects in the future to continue making ordinary charitable contributions
within its community but the Company and the Bank do not currently anticipate
making additional contributions to the Foundation within the first five years
following the initial contribution.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Internal
Revenue Code of 1986, as amended (the "Code"), and would be classified as a
private foundation. The Foundation will submit a request to the Internal Revenue
Service (the "IRS") to be recognized as an exempt organization. The Company and
the Bank have received an opinion of their independent tax advisors that the
Foundation would qualify as a Section 501(c)(3) exempt organization under the
Code. The independent tax advisors' opinion further provides that there is
substantial authority for the position that the Company's contribution of its
own stock to the Foundation would not constitute an act of self-dealing, and
that the Company would be entitled to a deduction in the amount of the fair
market value of the stock at the time of the contribution less the nominal par
value that the Foundation is required to pay to the Company for such stock,
subject to an annual limitation based on 10% of the Company's annual taxable
income. The Company, however, would be able to carry forward any unused portion
of the deduction
15
<PAGE>
for five years following the contribution. Thus, while the Company would have
received a charitable contribution deduction of approximately $2.1 million in
1997 (based upon the sale of stock at the maximum of the Estimated Price Range,
a contribution of $17.0 million of Common Stock and the Bank's pre-tax income
for 1997), the Company is permitted under the Code to carryover the excess
contribution in the five following years. Assuming the sale of Common Stock at
the midpoint of the Estimated Price Range, the Company estimates that
substantially all of the deduction should be deductible over the six-year
period. Although the Company and the Bank have received an opinion of
their independent tax advisors that the Company will be entitled to the
deduction for the charitable contribution, there can be no assurances that the
IRS will recognize the Foundation as a Section 501(c)(3) exempt organization or
that the deduction will be permitted. In such event, the Company's tax benefit
related to the Foundation would have to be fully expensed, resulting in a
further reduction in earnings in the year in which the IRS makes such a
determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation was
taken into account by Keller in determining the estimated pro forma market value
of the Common Stock of the Company. The aggregate price of the shares of Common
Stock being offered in the Subscription and Community Offerings is based upon
the independent appraisal conducted by Keller of the estimated pro forma market
value of the Common Stock of the Company. The pro forma aggregate price of the
Common Stock being offered for sale in the Conversion is currently estimated to
be between $157.3 million and $212.8 million, with a midpoint of $185.0 million.
The pro forma price to book ratio and the pro forma price to earnings ratio, at
and for the year ended June 30, 1997, are 76.10% and 13.16x, respectively, at
the midpoint of the Estimated Price Range. In the event that the Conversion did
not include the Foundation, Keller has estimated that the estimated pro forma
market value of the Common Stock would be $217.2 million at the midpoint based
on a pro forma price to book ratio and the pro forma price to earnings ratio at
76.00% and 13.56x, respectively. The amount of Common Stock being offered for
sale in the Conversion at the midpoint of the Estimated Price Range is
approximately $32.2 million less than the estimated amount of Common Stock that
would be offered in the Conversion without the Foundation based on the estimate
provided by Keller. Accordingly, certain account holders of the Bank who
subscribe to purchase Common Stock in the Subscription Offering would receive
fewer shares depending on the size of a depositor's stock order and the amount
of his or her qualifying deposits in the Bank and the overall level of
subscriptions. See "Comparison of Valuation and Pro Forma Information with No
Foundation." This estimate by Keller was prepared solely for purposes of
providing Eligible Account Holders and subscribers with information with which
to make an informed decision on the Conversion.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the Foundation will not have a significant
effect on the Company or the Bank's capital position. The Bank's regulatory
capital is significantly in excess of its regulatory capital requirements and
will further exceed such requirements following the Conversion. The Bank's
leverage and risk-based capital ratios at June 30, 1997 were 10.02% and 19.71%,
respectively. Assuming the sale of shares at the midpoint of the Estimated Price
Range, the Bank's pro forma leverage and risk-based capital ratios at June 30,
1997 would be 15.9% and 30.7%, respectively. On a consolidated basis, the
Company's pro forma stockholders' equity would be $262.9 million, or
approximately 22.47% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Price Range and pro forma stockholders'
equity per share and pro forma net earnings per share would be $13.14 and $0.77,
respectively. If the Foundation was not being established in the Conversion,
based on the Keller estimate, the Company's pro forma stockholders' equity would
be approximately $285.8 million, or approximately 24.26% of pro forma
consolidated assets at the midpoint of the estimate, and pro forma stockholder's
equity per share and pro forma net earnings per share would be $13.16 and $0.74,
respectively. See "Comparison of Valuation and Pro Forma Information with No
Foundation."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 7.4% of the total shares of the Company's Common Stock
outstanding. Such shares will be owned solely by the
16
<PAGE>
Foundation and the Foundation's Board of Directors will exercise sole voting
power over such shares. As the Foundation's Board of Directors will be comprised
initially of the members of the Board of Trustees of the Bank, management of the
Company and the Bank may benefit to the extent that the Board of Directors of
the Foundation determines to vote the shares of Common Stock held by the
Foundation in favor of proposals supported by the Company and the Bank.
Furthermore, in such an event, when the Foundation's shares are combined with
shares purchased directly by officers and directors of the Company, shares held
by the Stock Program trust, and shares held by the ESOP trust, the aggregate of
such shares could exceed 20% of the Company's outstanding Common Stock, which
could enable management to defeat stockholder proposals requiring 80% approval.
Consequently, such potential voting control might preclude takeover attempts
that certain stockholders deem to be in their best interest, and might tend to
perpetuate management. However, since the ESOP shares are allocated to all
eligible employees of the Bank, and any unallocated shares will be voted by an
independent trustee, and because the Stock Program must first be approved by
stockholders no sooner than six months following completion of the Conversion,
and awards under such proposed plans may be granted to employees other than
executive officers and trustees, management of the Company does not expect to
have voting control of all shares covered by the ESOP and other stock-based
benefit plans. See " - Certain Anti-Takeover Provisions - Voting Control of
Officers and Trustees." Moreover, as the Foundation sells its shares of Common
Stock over time, its ownership interest and voting power in the Company is
expected to decrease.
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion of a mutual savings institution to stock form
is innovative and has, to the Bank's knowledge, been done in a limited number of
instances. As such, the Foundation is subject to the Superintendent's approval
of the Conversion and the FDIC's nonobjection to the Conversion and may also be
subject to potential challenges notwithstanding that the Board of Directors of
the Company and the Board of Trustees of the Bank have carefully considered the
various factors involved in the establishment of the Foundation in reaching
their determination to establish the Foundation as part of the Conversion. See
"The Conversion - Establishment of Charitable Foundation - Purpose of the
Foundation." If challenges were to be instituted seeking to require the Bank to
eliminate establishment of the Foundation in connection with the Conversion, no
assurances can be made that the resolution of such challenges would not result
in a delay in the consummation of the Conversion or that any objecting persons
would not be ultimately successful in obtaining such removal or other relief
against the Company or the Bank. Additionally, if the Company and the Bank are
forced to eliminate the Foundation, the Company may be required to resolicit
subscribers in the Offerings.
HIGHLY COMPETITIVE INDUSTRY AND GEOGRAPHIC AREA
The Bank faces significant competition in its primary market area both in
attracting deposits and in originating loans. The Bank had a lending market
share of approximately 7.2% in the Borough of Staten Island for 1996. The Bank's
share of deposits in the Borough of Staten Island amounted to approximately
14.2% in June of 1996, according to a survey by a nationally-recognized bank
consulting firm. While the Bank's primary market area generally consists of the
Borough of Staten Island and the area surrounding its branch office in the
Borough of Brooklyn, the Bank may, in the future, expand its market area to
include other areas of the New York City metropolitan area. The New York City
metropolitan area is a highly competitive market for financial services. The
Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a state-wide or regional
presence, and, in some cases, a national presence. This competition arises from
commercial banks, savings banks, mortgage banking companies, credit unions and
other providers of financial services, many of which are significantly larger
than the Bank and, therefore, have greater financial and marketing resources
than those of the Bank. There are eleven depository institutions with retail
operations located in the Borough of Staten Island. See "Business of the Bank -
Market Area."
17
<PAGE>
WEAKNESS IN LOCAL ECONOMY
During the late 1980s to the early 1990s, the New York City metropolitan
area experienced reduced employment as a result of layoffs in the financial
services industry, corporate relocations and the general decline of the local,
regional and national economies. Additionally, during that period the area
experienced a general weakening of real estate values and a decline in home
sales and construction. While Staten Island's significant concentration of
government employees somewhat mitigated the impact of the recession, the
financial services industry historically also has been a significant source of
employment in the Bank's primary market area. As a result, loan delinquencies
increased and the underlying values of properties securing non-performing loans
made by lending institutions generally declined resulting in substantial losses
to some institutions. In 1993, however, the economy of the Bank's primary market
area began to stabilize as demonstrated by improved employment and economic
indicators. Since such time, residential real estate values in the Bank's
primary market have stabilized and recently have begun to improve. However,
commercial real estate values, which previously experienced the greatest
declines during the late 1980s and early 1990s, have only recently begun to
stabilize and have not improved as much as residential real estate and generally
remain below the values experienced in the late 1980s.
Although the current national and local economic conditions have
significantly improved since the early 1990s, there can be no assurances that
conditions in the local economy, national economy, or real estate market in
general will not deteriorate and adversely affect the financial condition and
results of operations of the Bank. Based on information available to management
at this time, management believes the current allowance for loan losses is
adequate. Although management of the Bank believes that the current allowance
for loan losses is adequate in light of current economic conditions, many
factors may require additions to the allowance for loan losses in future periods
above those reasonably anticipated. Future adjustments to the allowance also may
be necessary if economic or other conditions differ substantially from those
underlying the assumptions used in making such estimates. See "Business of the
Bank--Allowance for Loan Losses."
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Restated
Organization Certificate (the "Restated Organization Certificate") and Bylaws,
as well as certain federal and state regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting, staggered
boards of directors, noncumulative voting for directors, limits on the calling
of special meetings of shareholders, limits on the ability to vote Common Stock
in excess of 10% of outstanding shares, and certain uniform price provisions for
certain business combinations. The New York State Banking Board ("NYBB")
regulations prohibit, for a period of one year following the date of conversion,
offers to acquire or the acquisition of beneficial ownership of more than 10% of
the outstanding stock of the Bank. The Bank's Restated Organization Certificate
also prohibits, for three years, the acquisition, directly or indirectly, of the
beneficial ownership of more than 10% of the Bank's equity securities. Any
person, or group acting in concert, violating this restriction may not vote the
Bank's or Company's securities in excess of 10%. These provisions in the Bank's
and the Company's governing instruments may discourage potential proxy contests
and other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. See "Restrictions on Acquisitions of the Company
and the Bank."
Voting Control of Officers and Trustees. Trustees, directors and executive
officers of the Bank and the Company expect to purchase approximately 1.8% or
1.4% of the shares of Common Stock to be issued in the Conversion, based upon
the minimum and the maximum of the Estimated Price Range, respectively,
exclusive of shares that may be attributable to directors and officers through
the Stock Program, the Stock Option Plan and the ESOP, which may give directors,
trustees, executive officers and employees the potential
18
<PAGE>
to control the voting of an additional 20.0% of the Company's Common Stock on a
fully diluted basis at the maximum of the Estimated Price Range. In addition,
the Foundation will be funded with a contribution by the Company equal to 8% of
the Common Stock sold in the Conversion, may be voted as determined by the
Directors of the Foundation who are also Directors and officers of the Company
and Bank. Management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See "Restrictions on Acquisition of the
Company and the Bank - Restrictions in the Company's Certificate of
Incorporation and Bylaws" and "The Conversion - Establishment of Charitable
Foundation."
ABSENCE OF MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for its Common Stock at this
time. The Company has applied to have its Common Stock quoted on the [NASDAQ
NATIONAL MARKET] under the symbol "____." A public trading market having the
desirable characteristics of depth, liquidity and orderliness depends upon the
existence of willing buyers and sellers at any given time, the presence of which
is dependent upon the individual decisions of buyers and sellers over which
neither the Company nor any market maker has control. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, will continue, nor is there any assurance that
purchasers of the Common Stock will be able to sell their shares at or above the
Purchase Price. In the event a liquid market for the Common Stock does not
develop or market makers for the Common Stock discontinue their activities, such
occurrences may have an adverse impact on the liquidity of the Common Stock and
the market value of the Common Stock.
STOCK-BASED BENEFITS TO MANAGEMENT, EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL
PAYMENTS
Stock Program. The Company intends to adopt the Stock Program which would
provide stock grants of Common Stock to non-employee trustees and directors and
selected officers and employees of the Company and Bank and intends to seek
stockholder approval of such plan at a meeting of stockholders following the
Conversion, which may be held no earlier than six months after completion of the
Conversion. The Company expects to fund Stock Program with Common Stock in an
amount equal to 4% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, or 679,320 shares and 919,080 shares
at the minimum and maximum of the Estimated Price Range, respectively. These
shares will be provided to the Stock Program either through open market
purchases by a trust established for the Stock Program or from authorized but
unissued Common Stock. See "- Possible Dilutive Effect of Stock Program and
Stock Option Plan."
Although no specific award determinations have been made, the Company
anticipates that it will provide awards under the Stock Program to the trustees,
directors and selected officers and employees of the Company and Bank to the
extent permitted by applicable regulations. Current NYBB and FDIC regulations
provide that, to the extent any non-tax qualified stock or stock option plan is
implemented within one year after conversion, no individual may receive more
than 25% of the shares of any such stock-based benefit plan and non-employee
directors or trustees may not receive more than 5% individually, or 30% in the
aggregate, of the shares awarded under any such plan. The shares granted under
the Stock Program will be awarded at no cost to the recipients. Under the terms
of the Stock Program, an independent trustee will vote unallocated shares in the
same proportion as it receives instructions from recipients with respect to
allocated shares which have not been earned and distributed. Recipients will
vote allocated shares. The plan trustee will not vote allocated shares which
have not been distributed if it does not receive instructions from the
recipient. The specific terms of the Stock Program intended to be adopted and
the amounts of awards thereunder have not yet been determined by the Board of
Directors, and any such determination will include consideration of various
factors, including but not limited to, the financial condition of the Company,
current and past performance of plan participants and tax and securities law and
regulation requirements. The stock-
19
<PAGE>
based benefits provided under the Stock Program and Stock Option Plan, discussed
below, may be provided under separate plans established for officers and
employees and non-employee trustees and directors or such benefits may be
provided for under a single master stock-based benefit plan adopted by the
Company which would incorporate the benefits and features of the separate plans
(the "Master Stock-Based Benefit Plan"). Additionally, the granting or vesting
of awards under such benefit plans may be conditioned upon the achievement of
individual or company-wide performance goals, including the achievement by the
Company or Bank of specified levels of net income or returns on equity or
assets. The implementation of the Stock Program will likely result in increased
compensation expenses to the Company and may have a dilutive effect on existing
stockholders. See "Management of the Bank - Benefit Plans - Stock Program" and
"- Possible Dilutive Effect of Stock Program and Stock Option Plan."
Stock Option Plan. The Company also intends to adopt a stock-based benefit
plan which would provide options to purchase Common Stock ("Stock Options") to
officers, employees and non-employee trustees and directors of the Company and
Bank and intends to seek stockholder approval of such plan at a meeting of
stockholders following the Conversion, which may be held no earlier than six
months after completion of the Conversion. Although no specific determinations
have been made, the Company expects that non-employee directors and selected
officers and employees of the Company and Bank will be granted options to
purchase Common Stock in an amount equal to 10% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation (or
1,698,300 shares and 2,297,700 shares at the minimum and maximum of the
Estimated Price Range, respectively). It is currently intended that the exercise
price of all Stock Options will be at least equal to the fair market value of
the underlying Common Stock on the date of grant. Stock Options will permit such
trustees, directors, officers and employees to benefit from any increase in the
market value of the shares in excess of the exercise price at the time of
exercise. The specific terms of the Stock Option Plan intended to be adopted and
amounts and awards thereunder have not yet been determined by the Board and any
such determination will include consideration of various factors, including but
not limited to, the financial condition of the Company, current and past
performance of award recipients and tax and securities law and regulation
requirements. The Stock Options discussed above may be provided under a single
stock option plan, may be granted under Stock Option Plan for officers and
employees and non-employee directors or may be provided for under the Master
Stock-Based Benefit Plan which would incorporate the features and benefits of
the Stock Option Plan and the Stock Program, and benefits awarded thereunder may
be conditioned upon the achievement of individual or company-wide performance
goals, including the achievement by the Company or Bank of specified levels of
net income or returns on equity or assets. The implementation of such Stock
Option Plan may have a dilutive effect upon existing stockholders of the Company
to the extent option exercises are satisfied with authorized but unissued shares
and will likely result in increased compensation expenses to the Company. See "-
Possible Dilutive Effect of Stock Program and Stock Option" and "Management of
the Bank - Benefit Plans - Stock Option Plan."
Change In Control Provisions. The Company and the Bank intend to enter into
employment or change in control agreements with certain officers of the Bank and
Company which will provide for benefits and cash payments in the event of their
termination following a change in control of the Company or Bank. These
provisions may have the effect of increasing the cost of acquiring the Company
or Bank, thereby discouraging future attempts to take over the Company or the
Bank. Additionally, the Bank intends to adopt an employee severance compensation
plan, which similarly provides a cash payment and benefits to eligible employees
upon such employees' termination following a change in control of the Company or
Bank, which also may have the effect of increasing the cost of acquiring the
Company or Bank. Based on current salaries, cash payments to be paid in the
event of a change in control pursuant to the terms of the employment agreements,
change in control agreements and the employee severance compensation plan would
be approximately $___ million. However, the actual amount to be paid in the
event of a change in control of the Bank or the Company cannot be estimated at
this time because the actual amount is based on the average salary of the
employee and other factors existing at the time of the change in control. See
"Restrictions on Acquisition of the Company and the Bank- Restrictions in the
Company's Certificate of Incorporation and
20
<PAGE>
Bylaws," "Management of the Bank - Employment Agreements," "- Change in Control
Agreements," "- Employee Severance Compensation Plan," "- Benefit Plans - Stock
Option Plan" and "- Benefit Plans - Stock Program."
POSSIBLE DILUTIVE EFFECT OF STOCK PROGRAM AND STOCK OPTION PLAN
Following the Conversion, the Stock Program will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock Program is funded by the
issuance of authorized but unissued shares, the voting interests of existing
shareholders will be diluted by 3.8%. Also following the Conversion, the Company
intends to implement the Stock Option Plan which will provide trustees,
directors and selected employees of the Company and the Bank with Stock Options
to purchase authorized but unissued shares in an amount equal to 10% of the
Common Stock issued in the Conversion. If all of the Stock Options intended to
be granted were to be exercised using authorized but unissued Common Stock and
if the Stock Program were funded with authorized but unissued shares, the voting
interests of existing stockholders would be diluted by 12.3%.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of Keller that subscription rights granted
to Eligible Account Holders have no value. However, this opinion is not binding
on the IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
such recipients could be taxed upon receipt or exercise of such subscription
rights. Additionally, the Bank could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Conversion - Effects of
Conversion" and "- Tax Aspects."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will sell up to
24,466,250 shares of Common Stock at the Purchase Price for an aggregate
purchase price of up to $244,662,500 which, when aggregated with the shares
contributed to the Foundation will result in the issuance of up to 26,423,500
shares. An increase in the number of shares issued will decrease a subscriber's
pro forma net earnings per share and stockholders' equity per share and will
increase the Company's pro forma consolidated stockholders' equity and net
earnings. Such an increase will also increase the Purchase Price as a percentage
of pro forma stockholders' equity per share and net earnings per share.
ROLE OF THE CONVERSION AGENT
The Bank has engaged Sandler O'Neill as a conversion agent and Sandler
O'Neill has agreed to assist the Bank and the Company in its solicitation of
subscriptions and purchase orders for Common Stock in the Offerings. Sandler
O'Neill has not prepared any report or opinion constituting recommendations or
advice to the Bank. In addition, Sandler O'Neill has expressed no opinion as to
the prices at which Common Stock to be issued in the Offerings may trade.
Furthermore, Sandler O'Neill has not verified the accuracy or completeness of
the information contained in the Prospectus or the Proxy Statement. See "The
Conversion - Plan of Distribution," "- Marketing and Underwriting Arrangements."
21
<PAGE>
POTENTIAL DELAYS OF CONSUMMATION OF THE CONVERSION
Orders submitted in the Subscription Offering, Community Offering and/or
Syndicated Community Offering are irrevocable. The Company and the Bank expect
to complete the Conversion within the time periods indicated in this Prospectus.
Nevertheless, it is possible that several factors, including, but not limited
to, a delay in receiving regulatory approval of the final updated appraisal
prepared by Keller, a delay in processing orders in the event the Offerings are
oversubscribed or a delay caused by regulatory or legal challenges to the
establishment and funding of the Foundation or other actions taken in connection
with the Conversion could significantly delay the completion of the Conversion.
Subscribers will have no access to subscription funds and/or shares of Common
Stock until the Conversion is completed or terminated. In the event the
Conversion is terminated, subscribers will be refunded their subscription funds,
together with interest at a rate equal to the Bank's interest rate paid on
passbook accounts, or will have their withdrawal authorization terminated. See
"The Conversion."
RICHMOND COUNTY FINANCIAL CORP.
Richmond County Financial Corp. is a Delaware Corporation recently
organized at the direction of the Board of Trustees of the Bank for the purpose
of acquiring all of the capital stock of the Bank to be issued in the
Conversion. The Company expects to receive approval from the Office of Thrift
Supervision ("OTS") to become a savings and loan holding company and, upon
completion of the Conversion, will be subject to regulation by the OTS. See "The
Conversion - General" and "Regulation and Supervision - Holding Company
Regulation." Upon consummation of the Conversion, the Company will have no
significant assets other than all of the shares of the Bank's capital stock
acquired in the Conversion and an amount equal to 50% of the net proceeds of the
Conversion, including the loan to the ESOP, and will have no significant
liabilities. The Company intends to use a portion of the net proceeds it retains
to loan to the ESOP funds to enable the ESOP to purchase up to 8% of the stock
issued in connection with the Conversion, including shares issued to the
Foundation. The remaining net proceeds will be used for general business
activities, including the funding of the Stock Program and Stock Option Plan.
Initially, net proceeds are expected to be invested by the Company in primarily
mortgage-backed and mortgage-related securities and investment-grade debt and
equity securities. See "Use of Proceeds."
Concurrent with the organization of the Company, the Company has hired a
President and Chief Operating Officer and a Chief Financial Officer and
Secretary, both of whom were not previously employed by the Bank but have
significant experience in the financial services industry. The management of the
Holding Company is set forth under "Management of the Company." Initially, the
Company will neither own nor lease any property, but will instead use the
premises, equipment and furniture of the Bank. At the present time, the Company
does not intend to employ any persons other than the current officers of the
Company but will utilize the support staff of the Bank from time to time.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities and to
expand its geographical presence through existing or newly formed subsidiaries
(which subsidiaries could be financial institutions), or through acquisitions of
or mergers with other financial institutions and financial services related
companies. Although there are no current arrangements, understandings or
agreements regarding any such opportunities (other than a lease on a public
accommodation office to be opened on Staten Island in 1998 and plans to open
new branch offices on Staten Island in 1998), the Company will be in a
position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any such acquisition and
expansion opportunities that may arise. The initial activities of the Company
are anticipated to be funded by the proceeds to be retained by the Company,
income thereon and through dividends from the Bank.
22
<PAGE>
The Company's executive office is located at the administrative offices of
the Bank, 1214 Castleton Avenue, Staten Island, New York 10310. Its telephone
number is (718) 448-2800.
RICHMOND COUNTY SAVINGS BANK
The Bank was organized in 1886 as a New York State chartered mutual savings
bank. The Bank has long standing ties to Staten Island with over 111 years of
continuous service to the residents and businesses of Staten Island and has
served the area around its office in Brooklyn for over 20 years. The Bank's
deposit accounts are insured to the maximum allowable amount by the Bank
Insurance Fund ("BIF") and SAIF as administered by the FDIC. Including the
Bank's principal office, which is located in the Borough of Staten Island, the
Bank services its customers from twelve full service banking facilities located
in the Borough of Staten Island, and one full service banking facility located
in the Borough of Brooklyn. The Bank intends to open one public accommodation
office in Staten Island during 1998 and also is considering opening two new
full-service branches. With the exception of the lease on the new public
accommodation office, there are no current arrangements, understandings or
agreements, written or oral, regarding such new offices, and no assurances can
be made that such offices will be opened. At June 30, 1997, the Bank had total
assets of $993.4 million, total deposits of $884.5 million, net worth of $100.9
million and had a leverage capital ratio of 10.02% and a total risk-based
capital ratio of 19.71%. See "Regulation and Supervision--FDIC Regulations--
Capital Requirements."
The Bank is a community-oriented savings institution whose businesses
primarily consist of accepting deposits from customers in its primary market
area consisting of Staten Island and the area around its branch office in
Brooklyn and investing those funds in mortgage loans secured by one- to four-
family residences and commercial properties and construction and development and
commercial loans, home equity, student and consumer loans and in mortgage-backed
and mortgage related securities and debt and equity securities. The Bank's
primary market area consists of the Borough of Staten Island and the area around
its branch office in the Borough of Brooklyn. See "Business of the Bank -
Lending Activities."
As of June, 1996, based on a survey by a nationally-recognized bank
consulting firm, the Bank had 14.2% of total deposits in Staten Island, and for
1996, the Bank had a lending market share of approximately 7.2% on Staten
Island, placing the Bank among the leaders in both loans originated and deposits
in Staten Island. The Bank's operating strategy emphasizes customer service,
security and convenience, and the Bank attributes the loyalty of its customer
base to its commitment to maintaining customer satisfaction. The Bank attempts
to set itself apart from its larger competitors by providing the type of
personalized service not generally available from larger banks while offering a
greater variety of products and services than is typically available from
smaller, local depository institutions.
At June 30, 1997, the Bank's gross loan portfolio totaled $503.3 million,
or 50.7% of total assets, of which $394.6 million were one- to four-family
loans, $2.7 million were multi-family loans, $40.7 million were commercial real
estate loans, $18.3 million were construction and development loans, $6.7
million were commercial loans, $16.7 million were home equity loans and $23.6
million were student and consumer loans. The Bank originates one- to four-family
loans generally secured by properties located in the Bank's primary market area.
See "Business of the Bank - Lending Activities."
The Bank's securities investment activities primarily consist of
investments in mortgage-backed and mortgage related securities and various
investment-grade debt and equity securities. At June 30, 1997, the Bank's
securities portfolio totaled $437.4 million, or 44.0% of total assets, of which
$47.1 million was categorized as available-for-sale and $390.3 million was
classified as held-to-maturity. At June 30, 1997, the Bank's mortgage-backed and
mortgage related securities portfolio totaled $212.5 million, or 21.4% of total
assets, of which $27.4 million was classified as available-for-sale and $185.1
million was classified as held-to-maturity, and consisted of mortgage-backed
securities, guaranteed or issued by Governmental-sponsored and federal agencies
such as the Government National Mortgage Association ("GNMA"), Fannie
23
<PAGE>
Mae ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC") and
collateralized mortgaged obligations ("CMOs") issued by FNMA, FHLMC and private
issuers. At June 30, 1997, the Bank's debt securities portfolio totaled $205.2
million, or 20.7% of total assets all of which were classified as held to
maturity. The Bank's debt securities generally consist of United States
Government securities, obligations of FNMA, FHLMC and the Federal Home Loan Bank
(the "FHLB"), obligations of corporate issuers, public utility bonds and bonds
issued by New York State. At June 30, 1997, the Bank's equity securities
portfolio totaled $19.7 million, or 2.0% of total assets, all of which was
classified as available-for-sale. The Bank's equity securities portfolio at such
date consisted primarily of preferred stock. See "Business of the Bank -
Securities Investment Activities."
At June 30, 1997, the Bank's deposit accounts totaled $884.5 million, or
99.1% of total liabilities, of which $586.5 million, or 65.7%, were comprised of
core deposits. In addition to core deposits, the Bank had $298.1 million of
certificate accounts, or 33.7% of total liabilities, of which $209.1 million
were certificates of deposit with maturities of one year or less and $27.4
million were jumbo certificates of deposit.
The Bank's executive office is located at 1214 Castleton Avenue, Staten
Island, New York 10310. Its telephone number is (718) 448-2800.
RICHMOND COUNTY SAVINGS FOUNDATION
In furtherance of the Bank's commitment to the communities it serves, the
Bank's Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Richmond County Savings Foundation, which will
be incorporated under Delaware law as a non-stock corporation. The Foundation
will be funded with shares of Common Stock contributed by the Company, as
further described below. The Company and the Bank believe that the funding of
the Foundation with Common Stock of the Company is a means of establishing a
common bond between the Bank and its community and thereby enables the Bank's
community to share in the potential growth and success of the Company over the
long term. While the Bank has made charitable contributions in the past, the
Bank has not previously formed a charitable foundation nor has it made
contributions to charitable organizations of the magnitude of the contribution
that will be made to the Foundation in the Conversion. By further enhancing the
Bank's visibility and reputation in its local community, the Bank believes that
the Foundation will enhance the long-term value of the Bank's community banking
franchise. See "The Conversion - Establishment of Charitable Foundation -
Structure of the Foundation."
The members of the Foundation will be the Board of Directors of the
Foundation. The authority for the affairs of the Foundation will be vested in
the Board of Directors of the Foundation, which will initially be comprised of
the Board of Trustees of the Bank, who will receive no fees for serving on the
Foundation's Board of Directors. The Board of Directors of the Foundation may be
expanded in the future to include certain members of the community. The
Directors of the Foundation will be responsible for establishing the policies of
the Foundation with respect to grants or donations by the Foundation, consistent
with the purposes for which the Foundation was established. Although no formal
policy governing Foundation grants exists at this time, the Foundation's Board
of Directors will adopt such a policy upon establishment of the Foundation. The
Directors of the Foundation will be responsible for directing the activities of
the Foundation, including the management of the Common Stock held by the
Foundation.
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 8% of the Common Stock sold in the Offerings,
or 1,258,000, 1,480,000 and 1,702,000 shares at the minimum, midpoint and
maximum, respectively, of the Estimated Price Range. Such contribution, once
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<PAGE>
made, will not be recoverable by the Company or the Bank. Assuming the sale of
shares at the maximum of the Estimated Price Range and the issuance of shares to
the Foundation, the Company will have 22,977,000 shares issued and outstanding,
of which the Foundation will own 1,702,000 shares, or 7.4%. DUE TO THE ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK TO THE FOUNDATION, PERSONS PURCHASING
SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE
COMPANY DILUTED BY 7.4%. SEE "PRO FORMA DATA." The establishment of the
Foundation was taken into account in determining the estimated pro forma market
value of the Common Stock. In the event the Conversion did not include the
Foundation, Keller has estimated that the pro forma market value of the Common
Stock would be $217.2 million at the midpoint of the Estimated Price Range
rather than $199.8 million. See "Risk Factors - Effects of the Establishment of
the Foundation - Comparison of Valuation and Other Factors Assuming the
Foundation is Not Established as Part of the Conversion" and "Pro Forma Data."
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, offset in part by a
corresponding tax benefit, during the quarter in which the contribution is made,
which is expected to be the first quarter of 1998. Such expense will reduce
earnings and have a material impact on the Company's earnings for the fiscal
year in which it is made. While management cannot predict earnings for fiscal
1998, it expects that the establishment and funding of the Foundation will have
an adverse impact on the Company's earnings for the year in which it is made.
Assuming a contribution of $17.0 million in Common Stock in fiscal 1998, based
on the maximum of the Estimated Price Range and assuming a tax rate of 45%, the
Company estimates a net tax effected expense of $9.4 million. If the Foundation
had been established at June 30, 1997, the Bank would have recorded net income
of $1.7 million, rather than recording net income of $10.7 million for the year
ended June 30, 1997, based on an assumed tax rate of 47%. In addition to the
contribution of Common Stock by the Company to the Foundation, the Bank expects
in the future to continue making ordinary charitable contributions within its
community. The Bank does not anticipate making future charitable contributions
to the Foundation during the first five years following the initial contribution
to the Foundation. For further discussion of the Foundation and its impact on
purchasers in the Conversion, see "Risk Factors - Effects of the Establishment
of the Foundation," "Pro Forma Data" and "The Conversion - Effects of the
Establishment of the Foundation."
The establishment and funding of a charitable foundation as part of a
conversion of a mutual savings institution to stock form is innovative and has
only been done in a limited number of instances. As such, the establishment of
the Foundation in connection with the Conversion and the Superintendent's
approval and FDIC's non-objection to the Plan of Conversion may be subject to
potential challenges which could result in delays in the Conversion. See "Risk
Factors - Effects of the Establishment of the Foundation - Potential
Challenges."
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<PAGE>
REGULATORY CAPITAL COMPLIANCE
At June 30, 1997, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of June 30, 1997, on an historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of its shares
expected to be acquired by the Stock Program are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
Pro Forma at June 30, 1997
Based Upon the Sale at $10.00 Per Share
--------------------------------------------------
15,725,000 Shares 18,500,000 Shares
Historical at (Minimum of the (Midpoint of the
June 30, 1997 Estimated Price Range) Estimated Price Range)
---------------------- ----------------------- -----------------------
Percent Percent Percent
of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2)
---------- --------- ---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP(3) Capital $100,865 10.15% $159,333 15.15% $169,889 15.99%
======== ===== ======== ===== ======== =====
Leverage Capital:
Capital Level(4) $ 99,063 10.02% $157,531 15.04% $168,067 15.89%
Requirement(5) 39,561 4.00 41,900 4.00 42,323 4.00
-------- ----- -------- ----- -------- -----
Excess $ 59,502 6.02% $115,631 11.04% $125,764 11.89%
======== ===== ======== ===== ======== =====
Tier I Capital:
Capital Level(4) $ 99,063 18.79% $157,531 28.22% $168,087 29.81%
Requirement 21,090 4.00 22,330 4.00 22,554 4.00
-------- ----- -------- ----- -------- -----
Excess $ 77,973 14.79% $135,201 24.22% $145,533 25.81%
======== ===== ======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6) $103,910 19.71% $162,378 29.09% $172,934 30.67%
Requirement 42,181 8.00 44,660 8.00 45,107 8.00
-------- ----- -------- ----- -------- -----
Excess $ 61,729 11.71% $117,718 21.09% $127,827 22.67%
======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Pro Forma at June 30, 1997
Based Upon the Sale at $10.00 Per Share
-------------------------------------------------
21,275,000 Shares 24,466,250 Shares
(Maximum of the (15% Above Maximum
Estimated of the Estimated
Price Range) Price Range)(1)
---------------------- -----------------------
Percent Percent
of of
Amount Assets(2) Amount Assets(2)
---------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
GAAP(3) Capital $180,445 16.82% $192,535 17.74%
======== ===== ======== =====
Leverage Capital:
Capital Level(4) $178,643 16.72% $190,733 17.65%
Requirement(5) 42,745 4.00 43,228 4.00
-------- ----- -------- -----
Excess $135,898 12.72% $147,505 13.65%
======== ===== ======== =====
Tier I Capital:
Capital Level(4) $178,643 31.37% $190,733 33.12%
Requirement 22,777 4.00 23,034 4.00
-------- ----- -------- -----
Excess $155,866 27.37% $167,699 29.12%
======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6) $183,490 32.22% $195,580 33.96%
Requirement 45,555 8.00 46,067 8.00
-------- ----- -------- -----
Excess $137,935 24.22% $149,513 25.96%
======== ===== ======== =====
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
as a result of regulatory considerations or changes in market or general
financial or economic conditions following the commencement of the
Subscription and Community Offering.
(2) Leverage capital levels are shown as a percentage of average assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) GAAP defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint
and maximum of the Estimated Price Range. These levels also assume
funding by the Bank of the Stock Program equal to 4% of the Common Stock
issued and repayment of the Company's loan to the ESOP to enable the ESOP
to purchase 8% of the Common Stock issued, plus the Common Stock issued
to the Foundation, valued at the minimum, midpoint and maximum of the
Estimated Price Range. See "Management of the Bank - Benefit Plans" for
a discussion of the Stock Program and ESOP. With respect to the Stock
Program, such amounts are assumed to be $5.7 million, $6.7 million, $7.7
million and $8.8 million at the minimum, midpoint, maximum and maximum,
as adjusted, of the Estimated Price Range, respectively. With respect to
the ESOP loan, such amounts are assumed to be $13.6 million, $16.0
million, $18.4 million and $21.1 million, at the minimum, midpoint,
maximum, and maximum, as adjusted, of the Estimated Price Range
respectively.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
rating for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4% to 5%. See "Regulation and
Supervision - FDIC Regulations - Capital Requirements." The Company will
not be subject to regulatory capital requirements.
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of June 30,
1997.
26
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $152.0
million and $206.6 million (or $238.0 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion - Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the net proceeds of the Offerings until the consummation of the
Conversion.
The Company will purchase all of the outstanding capital stock of the Bank
to be issued upon Conversion in exchange for 50% of the net proceeds of the
Offerings. Based on net proceeds of $152.0 million to $206.6 million, the
Company expects to utilize between $76.0 million and $103.3 million of net
proceeds to purchase the common stock of the Bank. Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to utilize for general corporate purposes,
including investment in loans and securities. The Bank may also use such funds
for the expansion of its facilities, and to expand its operations in its primary
market area and other areas within the New York City metropolitan area through
marketing and business development, acquisitions of other financial
institutions, branch offices or other financial services companies. To the
extent that the Stock Program or Stock Option Plan, which the Company or the
Bank intend to adopt subsequent to the Conversion, are not funded with
authorized but unissued common stock of the Company, the Company or Bank may use
net proceeds from the Conversion to fund the purchase of stock to be awarded
under such plans. See "Risk Factors - Stock-Based Benefits to Management,
Employment Contracts and Change in Control Payments" and "Management of the
Bank - Benefit Plans - Stock Option Plan" and " - Stock Program."
The Company intends to use a portion of the net proceeds it retains (i.e.,
50% of the net proceeds, which based on net proceeds of $152.0 million to $206.6
million will be between $76.0 million and $103.3 million) to make a loan
directly to the ESOP to enable the ESOP to purchase in the Conversion, or in the
open market to the extent Common Stock is not available to fill the ESOP's
subscription, 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Based upon the sale of 15,725,000
shares or 21,275,000 shares at the minimum and maximum of the Estimated Price
Range, and the issuance of shares to the Foundation, the amount of the loan to
the ESOP would be $13.6 million or $18.4 million, respectively (or $21.1 million
if the Estimated Price Range is increased by 15%), with a term of 20 years at
the prevailing prime rate of interest, which currently is 8.50%. The Company and
Bank may alternatively choose to fund the ESOP's stock purchases through a loan
by a third party financial institution. See "Management of the Bank - Benefit
Plans - ESOP." The remaining net proceeds retained by the Company will initially
be invested in mortgage-backed and mortgage related securities and investment-
grade debt and equity securities.
The net proceeds retained by the Company may also be used to support the
future geographic and operational expansion through increased marketing and
business development efforts, branch acquisitions, the establishment of branch
offices and the acquisition of savings associations and commercial banks or
their assets, including those located within the Bank's market area or
diversification into other banking related businesses. The Company and the Bank
have no current arrangements, understandings or agreements regarding any such
transactions other than the lease on a public accommodation office on Staten
Island to be opened in 1998 and plans to open new branch offices on Staten
Island in 1998. The Company, upon the Conversion, will be a unitary savings and
loan holding company, which under existing laws would not be restricted as to
the types of business activities in which it may engage. See "Regulation and
Supervision - Holding Company Regulation" for a description of certain
regulations applicable to the Company .
27
<PAGE>
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless approved by the Superintendent, the Company,
pursuant to NYBB regulations, may not repurchase any Common Stock in the first
year after conversion and, during the next two following years, may only
repurchase up to 5% of its outstanding capital stock during each twelve-month
period. Further, the Company may not repurchase any of its Common Stock if the
repurchases would cause the Bank to become "undercapitalized" within the meaning
of the FDIC prompt corrective action regulation. See "Regulation and
Supervision - Prompt Corrective Regulatory Action." In addition, the FDIC
prohibits an insured mutual state savings bank which has converted from the
mutual to stock form of ownership from repurchasing its capital stock within one
year following the date of its conversion to stock form, except that stock
repurchases of no greater than 5% of a bank's outstanding capital stock may be
repurchased during this one-year period where compelling and valid business
reasons are established to the satisfaction of the FDIC.
Based upon facts and circumstances following the Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but not
be limited to: (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve the
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion and in excess of the per share book value. To the extent that the
Company repurchases stock at market prices in excess of the per share book
value, such repurchases may have a dilutive effect upon the interests of
existing stockholders. Any stock repurchases will be subject to the
determination of the Board of Directors that both the Company and the Bank will
be capitalized in excess of all applicable regulatory requirements after any
such repurchases and that such capital will be adequate, taking into account,
among other things, the level of non-performing and other risk assets, the
Company's and the Bank's current and projected results of operations and
asset/liability structure, the economic environment, tax and other
considerations. See "The Conversion - Certain Restrictions on Purchase or
Transfer of Shares After Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. Following the Conversion, the Board of Directors
intends to consider a policy of paying cash dividends on the Common Stock.
However, no decision has been made as to the amount or timing of such dividends,
if any.
The Bank will not be permitted to pay dividends on its common stock or
repurchase shares of its common stock if its stockholder's equity would be
reduced below the amount required for the liquidation account. See "The
Conversion - Liquidation Rights." Under New York State Banking Law, dividends
may be declared and paid only out of the net profits of the Bank. The approval
of the Superintendent is required if the total of all dividends declared in any
calendar year will exceed net profits for that year plus the retained net
profits of the preceding two years, less any required transfer to surplus or a
fund for the retirement of any preferred stock. In addition, no dividends may be
declared, credited or paid if the effect thereof would cause the Bank's capital
to be reduced below the amount required by the Superintendent or the FDIC. See
"Regulation and Supervision." As of June 30, 1997, the Bank had $59.5 million
available for the payment of dividends without prior approval of the
Superintendent. Subsequent to the Conversion, the availability
28
<PAGE>
of the Bank's funds for the payment of dividends may be limited by the
liquidation account. See "The Conversion - Liquidation Rights." Dividends or any
repurchase by the Bank of its stock in excess of the Bank's current and
accumulated earnings could result in the realization by the Bank of taxable
income. See "Federal and State Taxation - Federal Taxation."
Unlike the Bank, the Company is not subject to the restrictions imposed by
the New York State Banking Law on the payment of dividends to its stockholders,
although the source of such dividends will be, in part, dependent upon dividends
from the Bank in addition to the net proceeds retained by the Company and
earnings thereon. The Company is subject, however, to the requirements of
Delaware law, which generally limit dividends to an amount equal to the excess
of the net assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
applied to have its Common Stock quoted on the [NASDAQ NATIONAL MARKET] under
the symbol "____" subject to the completion of the Conversion and compliance
with certain conditions including the presence of at least three registered and
active market makers. The Company will seek to encourage and assist at least
three market makers to make a market in its Common Stock. Making a market
involves maintaining bid and ask quotations and being able, as principal, to
effect transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. Sandler O'Neill has
advised the Company that it intends to make a market in the Common Stock
following the completion of the Conversion, but it is under no obligation to do
so. There can be no assurance that the Common Stock will be able to meet the
applicable listing criteria in order to maintain its quotation on the [NASDAQ
NATIONAL MARKET] or that an active and liquid trading market will develop or, if
developed, will be maintained. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of Common Stock
at any given time, which is not within the control of the Company. No assurance
can be given that an investor will be able to resell the Common Stock at or
above the Purchase Price of the Common Stock after the Conversion. See "Risk
Factors - Absence of Market for Common Stock."
29
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
June 30, 1997, and the pro forma consolidated capitalization of the Company
after giving effect to the Conversion, including the issuance of shares to the
Foundation, based upon the sale of the number of shares indicated in the table
and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per Share
------------------------------------------------------------------------------------
24,466,250
15,725,000 18,500,000 21,275,000 Shares
Shares Shares Shares (15% above
(Minimum of (Midpoint of (Maximum of Maximum of
Bank Estimated Estimated Estimated Estimated
Historical Price Range) Price Range) Price Range) Price Range)(1)
------------- ------------- ------------- ------------- ----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total deposits(2)......................... $ 884,531 $ 884,531 $ 884,531 $ 884,531 $ 884,531
=========== =========== =========== =========== ===========
Stockholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized;
none to be issued..................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value,
75,000,000 shares authorized;
shares to be issued as reflected...... -- 170 200 230 264
Additional paid-in capital(3)........... -- 151,863 179,139 206,416 237,784
Net worth(4)............................ 100,555 100,555 100,555 100,555 100,555
Less:
Expense of contributions to
Foundation.......................... -- 12,580 14,800 17,020 19,573
Plus:
Tax effect of contribution
to Foundation(5).................... -- (6,919) (8,140) (9,361) (10,765)
Net unrealized gain on securities
available-for-sale, net of taxes.... 310 310 310 310 310
Less:
Common Stock acquired by the
ESOP(6).............................. -- (13,586) (15,984) (18,381) (21,139)
Common Stock acquired by the
Stock Program(7)..................... -- (6,793) (7,992) (9,190) (10,569)
----------- ----------- ----------- ----------- -----------
Total stockholders' equity................ $ 100,865 $ 238,180 $ 262,888 $ 287,599 $ 316,013
=========== =========== =========== =========== ===========
</TABLE>
____________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
as a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00
per share. No effect has been given to the issuance of additional shares
of Common Stock pursuant to the Company's Stock Option Plan intended to
be adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion. The Stock Option Plan
would provide the grant of Stock Options to purchase an amount of Common
Stock equal to 10% of the shares of Common Stock issued in the
Conversion. See "Management of the Bank - Benefit Plans - Stock Option
Plan." Additional paid-in capital has been adjusted to reflect the
issuance of additional shares of Common Stock to the Foundation at the
Purchase Price.
(4) The net worth of the Bank will be substantially restricted after the
Conversion. See "The Conversion - Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 45% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable
income, subject to the ability of the Company to carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP
and the funds used to acquire the ESOP shares will be borrowed from the
Company. The Common Stock acquired by the ESOP is reflected as a
reduction of stockholders' equity. See "Management of the Bank - Benefit
Plans - ESOP" and "- Benefit Plans -Stock Program."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the
Foundation is purchased by the Stock Program through open market
purchases. The Common Stock purchased by the Stock Program is reflected
as a reduction of stockholder's equity. See "Risk Factors - Possible
Dilutive Effect of Stock Program and Stock Option Plan," Footnote 2 to
the tables under "Pro Forma Data" and "Management of the Bank - Benefit
Plans - Stock Program."
30
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $152.0 million and $206.6 million based upon
the following assumptions: (i) $3.0 million will be sold to executive officers,
Trustees, Directors and employees of the Bank and Company, the ESOP will
purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, and the remaining shares will be sold
in the Subscription and Community Offerings; (ii) Sandler O'Neill will receive a
fee equal to 1.75% of the aggregate Purchase Price of the shares sold in the
Subscription Offering and Community Offering, except that no fee will be paid
with respect to shares purchased by the Employee Plans, including the ESOP,
officers, employees, Trustees and Directors of the Bank and Company and members
of their immediate families; (iii) the Company will issue to the Foundation an
amount of Common Stock equal to 8% of the Common Stock sold in the Conversion
from authorized but unissued shares; and (iv) Conversion expenses, excluding the
marketing fees paid to Sandler O'Neill, will be approximately $2.8 million.
Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the year ended June
30, 1997 has been calculated as if the Common Stock had been sold at the
beginning of the respective periods and the net proceeds had been invested at
5.45% (the one year U.S. Treasury bill rate as of June 30, 1997). The tables do
not reflect the effect of withdrawals from deposit accounts for the purchase of
Common Stock. The pro forma after-tax yield for the Company and the Bank is
assumed to be 3.0% for the year ended June 30, 1997 (based on an assumed tax
rate of 45.0%). Historical and pro forma per share amounts have been calculated
by dividing historical and pro forma amounts by the indicated number of shares
of Common Stock, as adjusted to give effect to the purchase of shares by the
ESOP and the effect of the issuance of shares to the Foundation. No effect has
been given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. As discussed under "Use of Proceeds," the Company
will retain 50% of the net Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the year ended June 30, 1997, based on the
assumptions set forth above and in the table and should not be used as a basis
for projections of market value of the Common Stock following the Conversion.
The tables below give effect to the Stock Program, which is expected to be
adopted by the Company following the Conversion and presented to stockholders
for approval at a meeting of stockholders. See Footnote 2 to the tables and
"Management of the Bank - Benefit Plans - Stock Program." No effect has been
given in the tables to the possible issuance of additional shares reserved for
future issuance pursuant to the Stock Option Plan to be adopted by the Board of
Directors of the Company and presented to stockholders for approval at a meeting
of stockholders, nor does book value as presented give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders or, in the event of liquidation of the Bank, to the tax effect of the
bad debt reserve and other factors. See Footnote 3 to the tables below, "The
Conversion - Liquidation Rights" and "Management of the Bank - Benefit Plans -
Stock Option Plan." THE FOLLOWING TABLE GIVES EFFECT TO THE ISSUANCE OF
AUTHORIZED BUT UNISSUED SHARES OF THE COMPANY'S COMMON STOCK TO THE FOUNDATION
CONCURRENTLY WITH THE COMPLETION OF THE CONVERSION. THE VALUATION RANGE, AS SET
FORTH HEREIN AND IN THE TABLE BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF
THE ISSUANCE OF SHARES TO THE FOUNDATION.
31
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1997
----------------------------------------------------------------------------------------------
15,725,000 18,500,000 21,275,000 24,466,250
Shares Sold at Shares Sold at Shares Sold at Shares Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share $10.00 Per Share
(Minimum (Midpoint (Maximum (15% above Maximum
of Estimated Price of Estimated Price of Estimated Price of Estimated Price
Range) Range) Range) Range)(7)
----------------------------------------------------------------------------------------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds....................... $ 157,250 $ 185,000 $ 212,750 $ 244,662
Plus: Shares acquired by
Richmond County Savings
Foundation (equal to 8% of
stock issued in Conversion)......... 12,580 14,800 17,020 19,573
----------- ----------- ----------- -----------
Pro forma market capitalization...... $ 169,830 $ 199,800 $ 229,770 $ 264,235
=========== =========== =========== ===========
Gross proceeds....................... $ 157,250 $ 185,000 $ 212,750 $ 244,662
Less: Offering expenses and
commissions................ (5,216) (5,660) (6,103) (6,614)
----------- ----------- ----------- -----------
Estimated net proceeds............... 152,034 179,340 206,647 238,048
Less: Common Stock purchased
by ESOP..................... (13,586) (15,984) (18,381) (21,138)
Common Stock purchased
by Stock Program............ (6,793) (7,992) (9,190) (10,569)
----------- ----------- ----------- -----------
Estimated net proceeds,
as adjusted...................... $ 131,655 $ 155,364 $ 179,076 $ 206,341
=========== =========== =========== ===========
Net income(1):
Historical........................ $ 10,725 $ 10,725 $ 10,725 $ 10,725
Pro forma income on net
proceeds, as adjusted............ 3,916 4,627 5,337 6,155
Pro forma ESOP
adjustment(2).................... (373) (439) (505) (581)
Pro forma Stock Program
adjustment(3).................... (747) (879) (1,011) (1,162)
----------- ----------- ----------- -----------
Pro forma net income........ $ 13,521 $ 14,034 $ 14,546 $ 15,137
=========== =========== =========== ===========
Per share net income(1):
Historical........................ $ 0.63 $ 0.58 $ 0.50 $ 0.43
Pro forma income on net
proceeds, as adjusted............ 0.25 0.25 0.25 0.25
Pro forma ESOP
adjustment(2).................... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Program
adjustment(3).................... (0.04) (0.04) (0.04) (0.04)
----------- ----------- ----------- -----------
Pro forma net
income per share........... $ 0.82 $ 0.77 $ 0.69 $ 0.62
=========== =========== =========== ===========
Stockholders' equity:
Historical........................ $ 100,865 $ 100,865 $ 100,865 $ 100,865
Estimated net proceeds............ 152,033 179,339 206,646 238,048
Plus: Tax benefit of
Foundation....................... 5,661 6,660 7,659 8,807
Less: Common Stock acquired
by ESOP(2)................. (13,586) (15,984) (18,381) (21,138)
Common Stock acquired
by Stock Program(3)........ (6,793) (7,992) (9,190) (10,569)
----------- ----------- ----------- -----------
Pro forma stockholders'
equity(3)(4)(5)............ $ 238,180 $ 262,888 $ 287,599 $ 316,013
=========== =========== =========== ===========
Stockholders' equity per
share(6):
Historical........................ $ 5.93 $ 5.04 $ 4.39 $ 3.81
Estimated net proceeds............ 8.95 8.97 8.99 9.00
Plus: Tax benefit of
Foundation........................ 0.33 0.33 0.33 0.33
Less: Common Stock acquired
by ESOP(2).................. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock Program(3)........ (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma
stockholders' equity
per share(3)(4)(5)......... $ 14.01 $ 13.14 $ 12.51 $ 11.94
=========== =========== =========== ===========
Offering price as a percentage
of pro forma stockholders'
equity per share................. 71.38% 76.10% 79.94% 83.75%
Offering price to pro forma
net earnings per share(7)........... 11.61x 13.16x 14.60x 16.13x
</TABLE>
(See footnotes on next page)
32
<PAGE>
____________________
(1) Does not give effect to the non-recurring expense that will be recognized
in fiscal 1998 as a result of the establishment of the Foundation. The
Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $6.7 million, $7.8
million, $9.0 million and $10.3 million at the minimum, midpoint, maximum
and maximum as adjusted, of the Estimated Price Range, respectively.
Assuming the contribution to the Foundation was expensed during the year
ended June 30, 1997, pro forma net earnings per share would be $0.40,
$0.31, $0.24 and $0.18, at the minimum, midpoint, maximum and maximum as
adjusted, respectively. Per share net income data is based on 16,983,000,
19,980,000, 22,977,000 and 26,423,500 shares outstanding which represents
shares sold in the Conversion, shares contributed to the Foundation and
shares to be allocated or distributed under the ESOP and Stock Program for
the period presented.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The Bank's total annual payment of the ESOP debt is based
upon twenty equal annual installments of principal, with an assumed
interest rate at 8.5%. The pro forma net earnings assumes: (i) that the
Bank's contribution to the ESOP is equivalent to the debt service
requirement for the year ended June 30, 1997, and was made at the end of
the period; (ii) that 1,358,640, 1,598,400, 1,831,150 and 2,113,884 shares
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, were committed to be released during the year ended June 30,
1997 at an average fair value of $10.00 per share in accordance with
Statement of Position ("SOP") 93-6; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the
net earnings per share calculations. See "Management of the Bank - Benefit
Plans - ESOP."
(3) Gives effect to the Stock Program expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Program is approved by stockholders, the Stock
Program intends to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 679,320, 799,200, 919,080 and 1,056,942
shares of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, either through open
market purchases, if permissible, or from authorized but unissued shares of
Common Stock or treasury stock of the Company, if any. In calculating the
pro forma effect of the Stock Program, it is assumed that the shares were
acquired by the Stock Program at the beginning of the period presented in
open market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Program instead of open market purchases would dilute the voting interests
of existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $0.84, $0.74, $0.67 and $0.61 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively and pro forma
stockholders' equity per share would be $13.87, $13.04, $12.42 and $11.88
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the Stock Program will be equal to the Purchase
Price. See "Management of the Bank - Benefit Plans - Stock Program."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plan for approval at a meeting of stockholders. If the Stock Option
Plan is approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 1,698,300, 1,998,000, 2,297,700 and 2,642,355 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plan. The
issuance of Common Stock pursuant to the exercise of Stock Options under
the Stock Option Plan will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per
share would be $0.81, $0.72, $0.65 and $0.59, respectively, and the pro
forma stockholders' equity per share would be $13.66, $12.87, $12.29 and
$11.78, respectively. See "Management of the Bank - Benefit Plans - Stock
Option Plan."
(5) The net worth of the Bank will continue to be substantially restricted
after the Conversion. See "Dividend Policy," "The Conversion - Liquidation
Rights" and "Regulation and Supervision - New York State Law."
(6) Stockholders' equity per share data is based upon 16,983,000, 19,980,000,
22,977,000 and 26,423,500 shares outstanding representing shares sold in
the conversion, shares contributed to the Foundation and shares purchased
by the ESOP and Stock Program.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
33
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Conversion, Keller has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $217.2 million, at the
midpoint, which is approximately $17.4 million greater than the pro forma
aggregate market capitalization of the Company if the Foundation is included.
The pro forma price to book ratio and pro forma price to earnings ratio would be
the same under both the current appraisal and the estimate of the value of the
Company without the Foundation. Further, assuming the midpoint of the Estimated
Price Range, pro forma consolidated net earnings would be $14.0 million with the
Foundation and $14.8 million without the Foundation, assuming the midpoint of
the Estimated Price Range. In this regard, pro forma stockholders' equity per
share and pro forma net income per share would be $13.16 and $0.74,
respectively, at the midpoint of the estimate, assuming no Foundation, and
$13.14 and $0.77, respectively, with the Foundation. There is no assurance that
in the event the Foundation was not formed that the appraisal prepared at that
time would have concluded that the pro forma market value of the Company would
be the same as that estimated herein. Any appraisal prepared at that time would
be based on the facts and circumstances existing at that time, including, among
other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, assuming the Conversion was completed at
June 30, 1997.
<TABLE>
<CAPTION>
At the Minimum At the Midpoint
------------------------ ------------------------
With No With No
Foundation Foundation Foundation Foundation
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Estimated offering amount......................... $ 157,250 $ 184,620 $ 185,000 $ 217,200
Pro forma market capitalization................... 169,830 184,620 199,800 217,200
Total assets...................................... 1,130,685 1,150,161 1,155,394 1,178,307
Total liabilities................................. 892,505 892,505 892,505 892,505
Pro forma stockholders' equity.................... 238,180 257,656 262,888 285,802
Pro forma consolidated net earnings............... 13,521 14,176 14,034 14,805
Pro forma stockholders' equity per share.......... 14.01 13.96 13.14 13.16
Pro forma consolidated net earnings per share..... 0.82 0.83 0.77 0.74
Pro Forma Pricing Ratios:
Offering price as a percentage of pro forma
stockholders' equity per share............... 71.38% 71.65% 76.10% 76.00%
Offering price to pro forma net earnings
per share.................................... 11.61x 12.03x 13.16x 13.56x
Offering price to assets....................... 14.85% 16.05% 17.07% 18.43%
Pro Forma Financial Ratios:
Return on assets (annualized).................. 1.18% 1.23% 1.20% 1.26%
Return on stockholders' equity (annualized).... 5.68 5.50 5.34 5.18
Stockholders' equity to assets................. 20.83 22.40 22.42 24.26
<CAPTION>
At the Maximum,
At the Maximum as Adjusted
------------------------ ------------------------
With No With No
Foundation Foundation Foundation Foundation
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Estimated offering amount......................... $ 212,750 $ 249,780 $ 244,662 $ 287,247
Pro forma market capitalization................... 229,770 249,780 264,235 287,247
Total assets...................................... 1,180,103 1,206,452 1,208,518 1,238,820
Total liabilities................................. 892,505 892,505 892,505 892,505
Pro forma stockholders' equity.................... 287,599 313,947 316,013 346,315
Pro forma consolidated net earnings............... 14,546 15,434 15,137 16,157
Pro forma stockholders' equity per share.......... 12.51 12.57 11.94 12.06
Pro forma consolidated net earnings per share..... 0.69 0.67 0.62 0.61
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders' equity per share........ 79.94% 79.56% 83.75% 82.94%
Offering price to pro forma
net earnings per share...................... 14.60x 14.95x 16.13x 16.43x
Offering price to assets....................... 19.19% 20.70% 21.52% 23.19%
Pro Forma Financial Ratios:
Return on assets (annualized).................. 1.22% 1.28% 1.23% 1.30%
Return on stockholders' equity (annualized).... 5.06 4.92 4.79 4.67
Stockholders' equity to assets................. 24.02 26.02 25.73 27.96
</TABLE>
34
<PAGE>
RICHMOND COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years in the three-year period ended June 30, 1997 have been audited by Ernst &
Young LLP, independent certified public accountants, whose report thereon
appears elsewhere in this Prospectus. Such report includes an explanatory
paragraph relating to changes in accounting principles. These statements should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Year
Ended June 30,
-----------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Interest income:
Loans................................. $38,068 $33,807 $31,492
Debt and equity securities............ 16,754 17,873 16,673
Mortgage-backed and mortgage
related securities.................. 9,588 5,402 5,076
Federal funds sold.................... 961 1,570 879
Other................................. 410 411 201
------- ------- -------
Total interest income................ 65,781 59,063 54,321
------- ------- -------
Interest expense........................ 27,707 26,254 22,456
------- ------- -------
Net interest income..................... 38,074 32,809 31,865
Provision for loan losses............... 1,080 1,600 600
------- ------- -------
Net interest income after provision
for loan losses....................... 36,994 31,209 31,265
------- ------- -------
Non-interest income:
Fee income............................ 2,962 2,717 2,550
Net (loss) gain on sales of securities
and loans........................... (107) 42 (12)
Other................................. 6 68 121
------- ------- -------
Total non-interest income............ 2,861 2,827 2,659
------- ------- -------
Non-interest expense:
Salaries and employee benefits........ 9,850 9,261 8,753
Occupancy costs....................... 3,063 3,029 2,660
Computer service fees................. 2,166 1,873 1,190
Advertising........................... 817 634 487
Amortization of deposit premium....... 313 313 313
FDIC insurance premiums............... 624 251 1,679
Other................................. 2,834 3,142 3,057
------- ------- -------
Total non-interest expense.......... 19,667 18,503 18,139
Income before income taxes.............. 20,188 15,533 15,785
Provision for income taxes.............. 9,463 6,803 6,919
------- ------- -------
Income before cumulative effect of
change in accounting principle........ 10,725 8,730 8,866
------- ------- -------
Cumulative effect of change in
accounting principle.................. -- -- (1,316)
------- ------- -------
Net income.............................. $10,725 $ 8,730 $ 7,550
======= ======= =======
</TABLE>
(See accompanying notes to the consolidated financial statements)
35
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and securities portfolios and its cost of funds, consisting of the interest paid
on deposits. The Bank's non-interest expense principally consists of
compensation and benefits, occupancy costs, federal deposit insurance premiums
and other expenses. Results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in interest
rates, government policies and actions of regulatory authorities. See
"Regulation and Supervision" for a discussion of the regulatory changes
resulting from the recapitalization of the SAIF and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") and the impact of such
changes on the Bank. Future changes in applicable law, regulations or government
policies may materially impact the Bank.
MANAGEMENT STRATEGY
The Bank's operating strategy emphasizes customer service and convenience,
and the Bank attributes the loyalty of its customer base to its commitment to
maintaining customer satisfaction. The Bank attempts to set itself apart from
its larger competitors by providing the type of personalized service not
generally available from larger banks while offering a greater variety of
products and services than is typically available from smaller, local depository
institutions.
The Bank's historical operating strategy has concentrated on maintaining
profitability and asset quality by primarily investing in one- to four-family
mortgage loans and in U.S. Government and agency debt securities, as well as
debt and equity securities of corporate issuers. In the last few years, the Bank
began to pursue a strategy, in conjunction with its traditional thrift lending
and securities investment strategy, of focusing on small and medium-sized retail
businesses as both lending and deposit customers by emphasizing the origination
of commercial real estate, construction and commercial loans, as well as
increasing the marketing of its business checking accounts and other business-
related services. In this regard, during 1996 and 1997, the Bank hired
additional lending personnel who have commercial real estate and commercial
lending experience in the Bank's primary market area. In addition, the Bank is
increasing the merchant services it provides, such as merchant credit card
processing, letters of credit, sweep accounts and increased night depository
services. The Bank intends to continue this strategy, maintaining its
traditional focus of investing in residential mortgage loans and soliciting
deposits from individuals in its primary market area, while strengthening the
Bank's position as a provider of loans and financial services to the local
business community.
The Bank's current operating strategy consists primarily of: (i) investing
primarily in one- to four-family, and to a lesser extent, commercial real
estate, construction and development, commercial and other loans and in
investment-grade securities; (ii) attempting to increase its position as a
lender to businesses operating in its primary market area, as well as other
areas within the New York City metropolitan area by offering its commercial loan
and deposit products to small and medium-sized businesses; (iii) increasing the
yield and duration of its securities investments by emphasizing the purchase of
government agency and privately issued mortgage-backed and mortgage-related
securities with estimated average lives of three to five years and de-
emphasizing its investment in U.S. Treasury obligations, corporate and other
debt securities; (iv) maintaining a low cost of funds by attracting and
retaining core deposits by providing enhanced service; (v) attempting to attract
new deposit customers by competitively pricing certificate of deposit products
and offering a greater variety of durations of such deposits; (vi) developing
wholesale
36
<PAGE>
borrowing sources such as FHLB advances, reverse repurchase agreements, and
brokered certificates of deposit as another means of funding asset growth; and
(vii) managing its interest rate risk by originating or purchasing adjustable
rate loans and generally selling fixed-rate loans with maturities of more than
15 years.
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Trustees' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank's Board of Trustees
reviews the Bank's interest rate risk position at least quarterly. The Bank's
Asset/Liability Committee is comprised of the Bank's senior management under the
direction of the Board of Trustees, with senior management responsible for
reviewing with the Board of Trustees its activities and strategies, the effect
of those strategies on the Bank's net interest margin, the market value of the
portfolio and the effect that changes in the interest rates will have on the
Bank's portfolio and the Bank's exposure limits. In addition, the Bank has
established an Interest Rate Risk Management Committee, a subcommittee of the
Asset/Liability Committee, which is charged with developing an interest rate
forecast for the Bank, establishing and maintaining a measurement system and
providing management reports, and formulating and recommending strategies to the
Asset/Liability Committee. The Interest Rate Risk Management Committee meets at
least monthly, and reports monthly to the Asset/Liability Committee and the
Board of Trustees. See "Risk Factors - Sensitivity to Increases in Interest
Rates."
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of fixed-rate
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans and consumer loans consisting primarily of home equity
loans and lines of credit; (2) selling substantially all fixed-rate mortgage
loans with terms of more than fifteen years without recourse and on a servicing
retained basis; and (3) investing in short term and, to a lesser extent,
adjustable rate securities which may generally bear lower yields as compared to
longer term investments, but which better position the Bank for increases in
market interest rates. The Bank currently does not participate in hedging
programs, interest rate swaps or other activities involving the use of off-
balance sheet derivative financial instruments.
The Bank has recently begun to emphasize its investment in mortgage-backed
and mortgage related securities with estimated average lives of three to five
years and to de-emphasize its investment in U.S. Treasury securities, corporate
and other debt securities. As a result, at June 30, 1997, mortgage-backed and
mortgage related securities and debt securities totaled 48.6% and 46.9%, of
total securities, respectively, as compared to 19.9% and 79.7%, respectively, at
June 30, 1996. The weighted average maturity of the Bank's securities portfolio
increased to 3.3 years at June 30, 1997 from 2.4 years at June 30, 1996. This
strategy has been accomplished by primarily reinvesting maturing U.S. Treasury
obligations and other debt securities in mortgage-backed and mortgage related
securities, primarily government agency and privately issued CMOs. While this
strategy has, in part, resulted in the increase in the average yield of the
Bank's securities portfolio, it has also resulted in an increase in the weighted
average duration of such portfolio which could increase the Bank's exposure to
interest rate risk in a period of rising interest rates. In pursuing this
strategy, the Bank considered the relative stability of its core deposits.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank'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
37
<PAGE>
between the amount of interest-earning assets maturing or repricing within a
specific time period and the amount of interest-bearing liabilities maturing or
repricing within that same time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
At June 30, 1997, the Bank's one-year gap position, the difference between the
amount of interest-earning assets maturing or repricing within one year and
interest-bearing liabilities maturing or repricing within one year, was positive
3.5%. Accordingly, in a period of increasing interest rates, it is expected that
the Bank may be better situated to invest in higher yield interest-bearing
assets which may result in yields on its interest-earning assets increasing
faster than the cost of its interest-bearing liabilities. Conversely, during a
period of declining interest rates, it is expected that the overall yield on the
Bank's interest-earning assets may decline more quickly than the costs of
interest-bearing liabilities, which would adversely affect net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1997, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time periods shown (the "GAP Table"). Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at June 30,
1997, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three month period and subsequent selected
time intervals. For loans on residential properties, adjustable-rate loans, and
fixed-rate loans, prepayment rates were assumed to range from 6% to 18%
annually. Mortgage-backed securities were assumed to prepay at rates between 8%
and 30% annually. Savings and NOW accounts were assumed to decay at 10%, 5%, 5%,
40%, 20%, 20% and 0%, and money market savings accounts were assumed to decay at
25%, 15%, 10%, 50%, 0%, 0% and 0%, for the periods of three months or less,
three to six months, six to 12 months, one to three years, three to five years,
five to ten years and more than ten years, respectively. These assumptions are
generally based on the FDIC's deposit decay guidelines and the Bank's historical
experience. Prepayment and deposit decay rates can have a significant impact on
the Bank's estimated gap. While the Bank believes such assumptions to be
reasonable, there can be no assurance that assumed prepayment rates and decay
rates will approximate actual future loan prepayment and deposit withdrawal
activity. See "Business of the Bank - Lending Activities," "- Securities
Investment Activities" and "- Sources of Funds."
38
<PAGE>
<TABLE>
<CAPTION>
At June 30, 1997
-------------------------------------------------------------------
3 More than More than More than 1
Months 3 Months to 6 Months to Year to
or Less 6 Months 1 Year 3 Years
----------- --------------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Debt and equity securities(2)................ $ 22,785 $ 22,603 $ 45,406 $ 92,916
Mortgage-backed and mortgage related
securities(2)............................ 21,302 18,873 31,361 41,014
Real estate loans, net(3)(4)................. 43,899 40,268 58,485 156,927
Commercial loans............................. 5,338 17 50 200
Consumer and student loans(4)................ 16,556 281 560 2,312
Other interest-earning assets................ 12,847 -- -- --
-------- -------- -------- --------
Total interest-earning assets........... 122,727 82,042 135,862 293,369
-------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Money market savings accounts................ 11,078 6,903 5,341 14,460
NOW accounts................................. 1,803 901 901 7,212
Savings accounts............................. 43,680 21,840 21,840 174,722
Certificates of deposit...................... 58,434 77,726 72,917 66,307
-------- -------- -------- --------
Total interest-bearing liabilities...... 114,995 107,370 100,999 262,701
-------- -------- -------- --------
Interest sensitivity gap(5).................. $ 7,732 $(25,328) $ 34,863 $ 30,668
======== ======== ======== ========
Cumulative interest sensitivity gap.......... $ 7,732 $(17,596) $ 17,267 $ 47,935
======== ======== ======== ========
Cumulative interest sensitivity gap as a
percentage of total assets.................. 0.78% (2.55)% 3.51% 3.09%
Cumulative interest sensitivity gap as a
percentage of total interest-earning
assets...................................... 0.81 (1.85) 1.82 5.05
Cumulative net interest-earning assets
as a percentage of cumulative
interest-bearing liabilities................ 106.72 92.09 105.34 108.18
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1997
-----------------------------------------------------------
More than More than
3 Years to 5 Years to More than
5 Years 10 Years 10 Years Total
---------- ---------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Debt and equity securities(2)................. $ 24,416 $ 15,422 $ 1,359 $224,907
Mortgage-backed and mortgage related
securities(2)............................... 31,069 32,220 36,681 212,520
Real estate loans, net(3)(4).................. 74,576 78,272 16,372 468,799
Commercial loans.............................. 239 819 -- 6,663
Consumer and student loans(4)................. 1,469 2,410 -- 23,588
Other interest-earning assets................. -- -- -- 12,847
-------- -------- -------- --------
Total interest-earning assets............ 131,769 129,143 54,412 949,324
-------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Money market savings accounts................. -- -- -- 37,782
NOW accounts.................................. 3,606 3,606 -- 18,029
Savings accounts.............................. 87,361 87,361 -- 436,804
Certificates of deposit....................... 18,815 3,867 -- 298,066
-------- -------- -------- --------
Total interest-bearing liabilities....... 109,782 94,834 -- 790,681
-------- -------- -------- --------
Interest sensitivity gap(5)................... $ 21,987 $ 34,309 $ 54,412 $158,643
======== ======== ======== ========
Cumulative interest sensitivity gap........... $ 69,922 $104,231 $158,643
======== ======== ========
Cumulative interest sensitivity gap as a
percentage of total assets.................. 2.21% 3.45% 5.48%
Cumulative interest sensitivity gap as a
percentage of total interest-earning
assets...................................... 7.37 10.98 16.71
Cumulative net interest-earning assets as a
percentage of cumulative interest-bearing
liabilities................................. 110.05 113.18 120.06
</TABLE>
- - - --------------------
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Debt and equity and mortgage-backed and mortgage related securities are
shown excluding the market value adjustment of $587,000 before tax, from
the implementation of SFAS No. 115. Equity securities primarily consist
of callable preferred stock, the maturities of which have been assumed to
be the date on which they are initially callable.
(3) For purposes of the gap analysis, the allowance for loan losses and non-
performing loans have been excluded.
(4) Loans held for sale are included in the 3 months or less category.
(5) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
39
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the GAP 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 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 changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
Net Portfolio Value. The Bank's interest rate sensitivity is also monitored
by management through the use of a Net Portfolio Value Model which generates
estimates of the change in the Bank's net portfolio value ("NPV") over a range
of interest rate 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. The model assumes estimated loan
prepayment rates, reinvestment rates and deposit decay rates similar to the
assumptions utilized for the GAP Table. The Sensitivity Measure is the decline
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates,
whichever produces a larger decline. The higher an institution's Sensitivity
Ratio, the greater its exposure to interest rate risk is considered to be. The
following NPV Table sets forth the Bank's NPV as of June 30, 1997.
<TABLE>
<CAPTION>
Change in NPV as % of Portfolio
Interest Rates Net Portfolio Value Value of Assets
In Basis Points ------------------------------------------------------
(Rate Shock) Amount $ Change % Change NPV Ratio % Change
- - - ---------------- -------- -------- -------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400 $ 96,204 $(54,195) (36.03)% 10.59% (31.90)%
300 109,236 (41,163) (27.37) 11.75 (24.44)
200 123,369 (27,030) (17.97) 12.95 (16.72)
100 137,445 (12,954) (8.61) 14.09 (9.39)
Static 150,399 -- -- 15.55 --
(100) 160,080 9,681 6.44 15.76 1.35
(200) 167,712 17,313 11.51 16.24 4.44
(300) 174,964 24,565 16.33 16.68 7.27
(400) 228,947 78,548 52.23 20.57 32.28
</TABLE>
As of June 30, 1997, the Bank's NPV was $150.4 million, or 15.55% of the
market value of assets. Following a 200 basis point increase in interest rates,
the Bank's "post shock" NPV was $123.4 million, or 12.95% of the market value of
assets. The change in the NPV ratio or the Bank's Sensitivity Measure was
negative 2.60%.
As is 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 market
interest rates. In this regard, the NPV Table presented assumes that the
composition of the Bank's interest 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. Also, the model does not take into account the
Bank's business or strategic plans. Accordingly, although the NPV Table
40
<PAGE>
provides an indication of the Bank'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 Bank'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 on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
41
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to the Bank at June 30, 1997 and for the years ended June 30, 1997,
1996 and 1995. The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown and reflect annualized yields
and costs. Average balances are derived from average monthly balances. The
yields and costs include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------
At June 30, 1997 1997
--------------------- --------------------------------
Average Average
Yield/ Average Yield/
Balance Cost Balance Interest Cost
---------- -------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets(1):
Debt and equity securities.................... $224,907 6.33% $271,721 $16,754 6.17%
Mortgage-backed and mortgage related
securities, net............................. 212,520 7.22 142,330 9,588 6.74
Real estate loans, net(2)(3).................. 466,557 7.89 436,887 35,165 8.05
Commercial loans, net(2)...................... 6,482 9.66 6,358 617 9.70
Consumer and student loans.................... 23,219 9.51 23,145 2,286 9.88
Other interest-earning assets................. 12,847 5.60 17,505 1,371 7.83
-------- -------- --------
Total interest-earning assets............. 946,532 7.35 897,946 65,781 7.33
------ -------- -------
Non-interest-earning assets..................... 46,838 48,554
-------- --------
Total assets.............................. $993,370 $946,500
======== ========
LIABILITIES AND NET WORTH:
Interest-bearing liabilities:
Money market savings accounts................. $ 37,782 3.45% $ 37,552 1,308 3.48%
Savings accounts.............................. 437,694 2.78 432,162 11,813 2.73
NOW accounts.................................. 18,030 2.26 15,652 370 2.36
Certificates of deposit....................... 298,066 5.37 273,546 14,206 5.19
-------- -------- --------
Total interest-bearing liabilities........ 791,572 3.78 758,912 27,697 3.65
------ -------- ------
Non-interest-bearing liabilities................ 100,933 92,254
-------- --------
Total liabilities......................... 892,505 851,166
Total net worth................................. 100,865 95,334
-------- --------
Total liabilities and net worth........... $993,370 $946,500
======== ========
Net interest income/interest rate spread(4)..... 3.57% $38,084 3.68%
====== ======= ======
Net interest margin as a percentage of
interest-earning assets(5).................... 4.24%
======
Ratio of interest-earning assets to
interest-bearing liabilities.................. 119.58% 118.32%
====== ======
<CAPTION>
For the Year Ended June 30,
---------------------------------------------------------------
1996 1995
----------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- --------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets(1):
Debt and equity securities.................... $304,133 $17,873 5.88% $301,204 $16,673 5.54%
Mortgage-backed and mortgage related
securities, net............................. 84,270 5,402 6.41 89,535 5,076 5.67
Real estate loans, net(2)(3).................. 374,055 30,902 8.26 352,417 28,843 8.18
Commercial loans, net(2)...................... 5,915 620 10.48 5,114 486 9.50
Consumer and student loans.................... 22,396 2,285 10.20 20,670 2,163 10.46
Other interest-earning assets................. 33,667 1,981 5.88 17,059 1,080 6.33
-------- ------- -------- -------
Total interest-earning assets............. 824,436 59,063 7.16 785,999 54,321 6.91
------- ----- ------- ------
Non-interest-earning assets..................... 53,852 42,826
-------- --------
Total assets.............................. $878,288 $828,825
======== ========
LIABILITIES AND NET WORTH:
Interest-bearing liabilities:
Money market savings accounts................. $ 28,430 987 3.47% $ 25,058 $ 735 2.93%
Savings accounts.............................. 430,500 11,841 2.75 462,720 12,647 2.73
NOW accounts.................................. 14,602 354 2.42 13,724 365 2.66
Certificates of deposit....................... 242,197 12,826 5.30 188,212 8,656 4.60
-------- ------- -------- -------
Total interest-bearing liabilities........ 715,729 26,008 3.63 689,714 22,403 3.25
------- ------ ------- -----
Non-interest-bearing liabilities................ 77,372 62,109
-------- --------
Total liabilities......................... 793,101 751,823
Total net worth................................. 85,187 77,002
-------- --------
Total liabilities and net worth........... $878,288 $828,825
======== ========
Net interest income/interest rate spread(4)..... $33,055 3.53% $31,918 3.66%
======= ====== ======= ======
Net interest margin as a percentage of
interest-earning assets(5).................... 4.01% 4.06%
====== ======
Ratio of interest-earning assets to
interest-bearing liabilities.................. 115.19% 113.96%
====== ======
</TABLE>
- - - --------------------
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, deferred mortgage interest,
unamortized discounts net and allowance for loan losses and includes loans
held for sale and non-performing loans.
(3) Real estate loans, net includes one- to four-family, multi-family,
commercial real estate, construction and development and home equity
loans.
(4) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
42
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1997 June 30, 1996
Compared to Compared to
Year Ended Year Ended
June 30, 1996 June 30, 1995
-------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------- -----------------------
Volume Rate Net Volume Rate Net
-------- ------ ----- -------- ------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Debt and equity securities $(1,971) $ 852 $(1,119) $ 164 $1,036 $1,200
Mortgage-backed and mortgage
related securities, net 3,895 291 4,186 (311) 637 326
Real estate loans, net 5,068 (805) 4,263 1,776 283 2,059
Commercial loans 43 (46) (3) 81 53 134
Consumer and student loans 74 (73) 1 177 (55) 122
Other interest-earning assets (1,137) 527 (610) 983 (82) 901
------- ------ ------- ------ ------ ------
Total interest-earning assets 5,972 746 6,718 2,870 1,872 4,742
------- ------ ------- ------ ------ ------
INTEREST-BEARING LIABILITIES:
Money market savings accounts 318 3 321 107 145 252
Savings accounts 50 (78) (28) (897) 91 (806)
NOW accounts 25 (9) 16 23 (34) (11)
Certificates of deposit 1,648 (268) 1,380 2,725 1,445 4,170
Total interest-bearing liabilities 2,041 (352) 1,689 1,958 1,647 3,605
------- ------ ------- ------ ------ ------
Net change in net interest income $ 3,931 $1,098 $ 5,029 $ 912 $ 225 $1,137
======= ====== ======= ====== ====== ======
</TABLE>
- - - -----------------------
(1) Includes assets available-for-sale.
43
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND JUNE 30, 1996
Total assets increased by $78.9 million, or 8.6%, from $914.5 million at
June 30, 1996 to $993.4 million at June 30, 1997. The growth in assets is
primarily attributable to a $77.0 million, or 18.4%, increase in loans
receivable, net, and a $26.4 million, or 6.4%, increase in the securities
portfolio. The increase in loans receivable, net, from $419.3 million at June
30, 1996 to $496.3 million at June 30, 1997, was primarily due to increased
originations of one- to four-family loans. Originations of one- to four-family
loans increased from $53.9 million in fiscal 1996 to $100.5 million in fiscal
1997 due to the introduction of the Bank's use of mortgage brokers, increased
marketing of its loan products and the expansion of its loan products. The
increase in loans was funded primarily through deposit inflows, primarily in
certificate of deposit accounts which increased by $44.1 million, or 17.4%, and
a $14.8 million, or 19.0%, increase in non-interest bearing checking accounts.
During 1996, the Bank began to restructure its securities portfolio in an
attempt to increase the yield and the duration on such portfolio while
continuing to monitor its interest rate risk position. The Bank began to
reinvest funds from its maturing U.S. Treasury obligations and corporate debt
into private and government agency mortgage-backed and mortgage related
securities with estimated average lives of three to five years. As a result, at
June 30, 1997, debt and equity securities totaled $224.9 million, a decrease of
$104.5 million, or 31.7%, compared to $329.4 million at June 30, 1996, while
mortgage-backed and mortgage related securities increased by $130.8 million, or
160.2%, from $81.7 million at June 30, 1996 to $212.5 million at June 30, 1997.
Substantially all of the increase in mortgage-backed and mortgage related
securities was due to the purchase of CMOs.
Total deposits at June 30, 1997 were $884.5 million, an increase of $66.6
million, or 8.1%, compared to $817.9 million at June 30, 1996. The increase was
primarily due to an increase of $44.1 million, or 17.4%, in certificates of
deposit from $253.9 million at June 30, 1996 to $298.1 million at June 30, 1997.
The increase in certificates of deposit was primarily attributable to
competitive pricing and increased marketing of such deposit products. The growth
in deposits was also attributable to an increase in non-interest bearing
checking accounts and money market accounts which increased by $18.7 million, or
16.7%, due to the Bank's increased marketing efforts on business deposit
accounts. The Bank's core deposit accounts, which totalled $564.0 million at
June 30, 1996, increased by $22.5 million during the year ended June 30, 1997.
Net worth increased by $11.0 million, or 12.2%, from $89.9 million at June
30, 1996 to $100.9 million at June 30, 1997, resulting in the Bank's ratio of
net worth to total assets increasing from 9.8% at June 30, 1996 to 10.2% at June
30, 1997.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND JUNE 30,
1996.
General. Net income for the year ended June 30, 1997 increased by $2.0
million, or 22.8%, from $8.7 million for the year ended June 30, 1996 to $10.7
million for the year ended June 30, 1997. The increase was due primarily to an
increase in net interest income which resulted from an increase in the average
balance of interest-earning assets and a higher weighted average yield on its
securities portfolio, offset, in part, by increases in non-interest expenses,
including the one-time SAIF special assessment and increased compensation and
advertising costs.
Interest Income. Interest income amounted to $65.8 million for the year
ended June 30, 1997, representing an increase of $6.7 million from the year
ended June 30, 1996. The increase was the result of a $73.5 million increase in
average interest-earning assets and a 17 basis point increase in the yield on
44
<PAGE>
interest-earning assets. The increase in average interest-earning assets was
primarily due to an increase in one- to four-family loans due to the
introduction of the Bank's use of mortgage brokers and increased marketing
efforts. The increase in the average interest rate on interest-earning assets,
which increased from 7.16% to 7.33%, was primarily due to the reallocation of
interest-earning assets from lower-yielding U.S. Government securities to
higher-yielding mortgage-backed and mortgage related securities. This was
partially offset by a 21 basis point decline in the yield on real estate loans,
net, due primarily to a repricing of adjustable rate loans in a lower interest
rate environment. Interest income on mortgage-backed and mortgage related
securities increased $4.2 million, or 77.0%, from $5.4 million for the year
ended June 30, 1996 to $9.6 million at June 30, 1997. This increase was
primarily due to an increase in the average balance of mortgage-backed and
mortgage related securities of $58.1 million, which resulted from the
restructuring of the securities portfolio and the investment of excess funds not
utilized for loan demand in mortgage-backed and mortgage related securities. The
yield on the mortgage-backed and mortgage related securities portfolio increased
by 33 basis points due to the higher rate environment for new purchases and the
repricing of adjustable-rate securities purchased in prior periods. Interest
income on debt and equity securities decreased $1.1 million, or 6.3%, due to
management's restructuring of its securities portfolio resulting in a $32.4
million decrease in the average balance of such securities offset in part by the
increased yield on such securities. See "--Management of Interest Rate Risk."
Interest income on loans increased $4.3 million, from $33.8 million for the
year ended June 30, 1996 to $38.1 million at June 30, 1997. The increase in
interest income on loans was a result of growth in the average balance of one-to
four- family loans outstanding partially offset by a 24 basis point decrease in
the average yield on loans, which occurred due to a repricing of adjustable rate
loans in a lower interest rate environment. The increase in the average balance
of loans was primarily due to an increase in residential one- to four-family
loans, resulting primarily from the investment of funds resulting from the
growth in deposits.
Interest Expense. Interest expense increased $1.4 million, or 5.3%, from
$26.3 million for the year ended June 30, 1996 to $27.7 million for the year
ended June 30, 1997. This increase reflects a $43.2 million increase in the
average balance of interest-bearing liabilities. The increase in average
interest-bearing liabilities was primarily attributable to an increase in the
average balance of certificates of deposits and money market savings accounts,
which increased as a result of the Bank's strategy of attracting more
certificates of deposits through additional certificate of deposit products,
competitive pricing of such products, and related marketing of commercial
deposit accounts. The average cost of the Bank's interest-bearing liabilities
remained relatively stable at 3.65% for the year ended June 30, 1997 as compared
to 3.63% for the year ended June 30, 1996.
Provision for Loan Losses. The Bank's provision for loan losses was $1.1
million for the year ended June 30, 1997 compared to $1.6 million for the year
ended June 30, 1996. The 1997 provision was based on management's evaluation of
its loan portfolio and real estate market conditions. In particular, management
considered the continued growth in the portfolio, as well as the decrease in its
non-performing loans. The Bank's non-performing loans as a percentage of total
loans improved from 0.91% at June 30, 1996 to 0.78% at June 30, 1997. At June
30, 1997, the Bank's allowance for loan losses as a percentage of total non-
performing loans was 141.1%, compared to 125.5% at June 30, 1996. At June 30,
1997, the Bank's allowance for loan losses as a percentage of loans receivable,
net, was 1.10%, as compared to 1.14% at June 30, 1996. To the extent the Bank
increases its investment in commercial real estate, commercial and other loans
which entail higher risk than one- to four-family loans, the Bank may determine
to increase its allowance for loan losses through additional loan loss
provisions which may adversely affect net income. See "Risk Factors -Increased
Lending Risks Associated with Commercial Real Estate, Multi-Family,
45
<PAGE>
Construction and Development and Commercial Lending" and "Business of the Bank -
Delinquent Loans, Real Estate Owned and Classified Assets" and "- Allowance for
Loan Losses."
Non-Interest Income. Non-interest income is composed of fee income and
profits from the sale of securities and loans. Total non-interest income for the
year ended June 30, 1997 increased $34,000, or 1.2%, to $2.9 million for the
year ended June 30, 1997. Fee income increased $245,000, or 9.0%, from $2.7
million for the year ended June 30, 1996 to $3.0 million for the year ended June
30, 1997 due to an increase in the Bank's deposit accounts. Net gains/losses on
sales of securities and loans changed from a net gain of $42,000 for the year
ended June 30, 1996 to a net loss of $107,000 for the year ended June 30, 1997,
primarily as a result of the Bank's sale of lower-yielding U.S. Treasury and
corporate obligations.
Non-Interest Expense. Non-interest expense increased by $1.2 million, or
6.5%, from $18.5 million for the year ended June 30, 1996 to $19.7 million for
the year ended June 30, 1997, primarily due to the one-time special SAIF
assessment and an increase in compensation and employee benefits. Compensation
and employee benefits increased by $589,000, or 6.4%, from $9.3 million for the
year ended June 30, 1996 to $9.9 million for the year ended June 30, 1997,
primarily as a result of the retention of new personnel in various areas of the
Bank's operations and normal salary increases. Deposit insurance premiums
increased $373,000, or 148.6%, from $251,000 for the year ended June 30, 1996 to
$624,000 for the year ended June 30, 1997, due to the increase in average
deposits from $715.7 million for the year ended June 30, 1996 to $758.9 million
for the year ended June 30, 1997. In addition, the Bank paid a one-time special
assessment to the SAIF of $493,000 in October 1996 based on the amount of SAIF-
insured deposits the Bank maintains. Advertising and promotion expense increased
$183,000, or 28.9%, from $634,000 for the year ended June 30, 1996 to $817,000
for the year ended June 30, 1997, primarily as a result of the Bank's special
anniversary promotion throughout October 1996 and additional marketing of the
Bank's loan and deposit products. The Bank expects that compensation and
employee benefits expense may increase after the Conversion, primarily as a
result of the adoption of various employee benefit plans and compensation
adjustments contemplated in connection with the Conversion. See "Management of
the Bank--Benefit Plans." In addition, the Bank expects non-interest expense to
increase in future periods as a result of the Bank's intention to open a public
accommodation office during 1998. The Bank is also considering opening two new
full-service branches in 1998, although no assurances can be made in this
regard. If the Bank were to open two new branches, non-interest expenses would
be expected to increase further in future periods. See "Business of the Bank--
Properties."
Income Taxes. Total income tax expense was $9.5 million for the year ended
June 30, 1997 compared to $6.8 million for the year ended June 30, 1996. The
increase was due primarily to an increase in pre-tax income for 1997. The
effective tax rate was 47.0% for the year ended June 30, 1997 as compared to
43.9% for the year ended June 30, 1996.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1996 AND JUNE 30,
1995.
General. Net income for the year ended June 30, 1996 was $8.7 million,
compared to $7.6 million for the year ended June 30, 1995. The increase was the
result of a $1.3 million charge in fiscal 1995, due to a change in accounting
principles from the Bank's adoption of SFAS No. 106. Excluding the effect of
SFAS No. 106, net income decreased from $8.9 million for the year ended June 30,
1995 to $8.7 million for the year ended June 30, 1996, due in part to higher
non-interest expenses and a higher provision for loan losses, partially offset
by a decrease in FDIC insurance premiums and an increase in net interest income.
46
<PAGE>
Interest Income. Total income from interest-earning assets increased from
$54.3 million for the year ended June 30, 1995 to $59.1 million for the year
ended June 30, 1996, primarily due to an increase of $38.4 million in the
average balance of interest-earning assets and a 25 basis point increase in the
yield on interest-earning assets. The average balance of interest-earning assets
increased due in part to a $21.6 million, or 6.1%, increase in the average
balance of real estate loans. As a result, interest income on the Bank's real
estate loan portfolio increased $2.1 million, or 7.3% , from $28.8 million for
the year ended June 30, 1995 to $30.9 million for the year ended June 30, 1996
due to the increase in the average balance of such loans and an increase in the
average yield from 8.18% for fiscal 1995 to 8.26% for fiscal 1996. Interest
income on consumer and student loans also increased from $2.2 million for the
year ended June 30, 1995 to $2.3 million for the year ended June 30, 1996, as a
result of an increase of $1.7 million in the average balance of such loans which
was offset, in part, by a decrease in the average yield of such loans from
10.50% for fiscal 1995 to 10.21% for fiscal 1996.
Interest income from debt and equity securities increased $1.2 million, or
7.2%, from $16.7 million for the year ended June 30, 1995 to $17.9 million for
the year ended June 30, 1996, as a result of the increase in the average balance
of such securities as well as a 29 basis point increase in the average yield on
such securities. Interest income on mortgage-backed and mortgage-related
securities also increased by $326,000, or 6.4%, from $5.1 million for the year
ended June 30, 1995 to $5.4 million for the year ended June 30, 1996, due to a
74 basis point increase in the average yield on such securities, which was
partially offset by a $5.3 million decrease in the average balance of such
securities.
Interest Expense. Interest expense for the year ended June 30, 1996 was
$26.3 million, as compared to $22.5 million for the year ended June 30, 1995, an
increase of $3.8 million, or 17.0%. The increase is primarily due to a $26.0
million increase in average interest-bearing deposits and a 38 basis point
increase in the average cost of interest-bearing deposits. The increase in
average interest-bearing deposits was primarily attributable to an increase in
the average balance of certificates of deposits due to competitive pricing and
increased marketing of such deposit products. As a result, the average rate paid
on certificate accounts increased from 4.58% for fiscal 1995 to 5.29% for fiscal
1996.
Provision for Loan Losses. The Bank's provision for loan losses was $1.6
million for the year ended June 30, 1996 as compared with $600,000 for the year
ended June 30, 1995. The increase in the provision was due primarily to
management's assessment of its loan portfolio, the growth in the portfolio and
the level of non-performing loans. In particular, non-performing loans increased
from $2.8 million at June 30, 1995 to $3.6 million at June 30, 1996. The
increase in non-performing loans was attributable to a $447,000 increase in non-
performing commercial real estate loans. At June 30, 1995, the Bank's allowance
for loan losses to total non-performing loans and total loans was 109.3% and
0.83%, respectively, as compared to 125.5% and 1.14%, respectively, at June 30,
1996. See "Risk Factors - Increased Lending Risks Associated with Commercial
Real Estate, Multi-Family, Construction and Development and Commercial Lending"
and "Business of the Bank - Delinquent Loans, Real Estate Owned and Classified
Assets" and "- Allowance for Loan Losses."
Non-Interest Income. Non-interest income increased by $168,000, or 6.3%,
from $2.7 million for the year ended June 30, 1995 to $2.8 million for the year
ended June 30, 1996. The increase was primarily due to the increase in fee
income of $167,000, or 6.5%, from $2.6 million for the year ended June 30, 1995
to $2.7 million for the year ended June 30, 1996, which increase is primarily
attributable to the increase in deposits.
Non-Interest Expense. Non-interest expense increased slightly by $364,000,
or 2.0%, from $18.1 million for the year ended June 30, 1995 to $18.5 million
for the year ended June 30, 1996. This increase
47
<PAGE>
is primarily a result of an increase in non-interest expenses of $768,000, or
20.8%, from $4.8 million for the year ended June 30, 1995 to $5.7 million for
the year ended June 30, 1996, as a result of an increase in compensation and
employee benefits of $508,000, from $8.8 million for 1995 to $9.3 million for
1996, as a result of normal salary increases. Non-interest expense was also
impacted by a $369,000, or 13.9%, increase in occupancy costs from $2.7 million
for the year ended June 30, 1995 to $3.0 million for the year ended June 30,
1996, due to the Bank instituting a repair and renovation program for the branch
offices, as well as a $683,000, or 57.4%, increase in computer service fees from
$1.2 million for the year ended June 30, 1995 to $1.9 million for the year ended
June 30, 1996, as a result of the installation of a new computer network and
equipment at all branch locations and the change in payment method for check
processing charges. These items were offset by a reduction in FDIC deposit
insurance premiums, from $1.7 million for the year ended June 30, 1995 to
$251,000 for the year ended June 30, 1996 due to a reduction in the assessment
rate imposed by the FDIC. See "Regulation and Supervision - Insurance of Deposit
Accounts."
Income Taxes. The provision for income taxes decreased by $116,000, or
1.7%, from $6.9 million for the year ended June 30, 1995 to $6.8 million for the
year ended June 30, 1996, primarily as a result of the decrease in income before
income taxes. The effective tax rate was 43.9% for the year ended June 30, 1996
as compared to 43.8% for the prior year.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
In December 1990, the FASB issued SFAS No. 106. SFAS No. 106 focuses
principally on post-retirement health care benefits and significantly changed
the previous practice of accounting for post-retirement benefits on a cash basis
to requiring accrual during the years that the employee renders the necessary
service, of the expected cost of providing those benefits to an employee and the
employee's beneficiaries and covered dependents. SFAS No. 106 became effective
for fiscal years beginning after December 15, 1992, and adoption was required on
a prospective basis. The Bank adopted SFAS No. 106 effective July 1, 1994, which
resulted in a charge, net of tax, of $1.3 million.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage-backed and mortgage related
and debt and equity securities, and to a significantly lesser extent, proceeds
from the sale of fixed-rate mortgage loans to the secondary market. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows, mortgage prepayments and mortgage loan sales
are greatly influenced by general interest rates, economic conditions and
competition.
The primary investing activities of the Bank are the origination of
primarily residential one-to four-family and, to a lesser extent, commercial
real estate, construction and development, multi-family and other loans and the
purchase of mortgage-backed and mortgage related and debt and equity securities.
During the years ended June 30, 1997, 1996, and 1995, the Bank's loan
originations totaled $137.2 million, $94.3 million and $78.9 million,
respectively. Purchases of mortgage-backed, mortgage related and debt and equity
securities totaled $195.4 million, $166.5 million, and $121.9 million for the
years ended June 30, 1997, 1996, and 1995, respectively. These activities were
funded primarily by deposit growth, principal repayments on loans, mortgage-
backed and mortgage related securities and debt and equity securities. Loan
sales provided additional liquidity to the Bank, totaling $2.0 million, $10.0
million and $1.6 million for the years ended June 30, 1997, 1996 and 1995,
respectively. The Bank experienced a net increase in total deposits of $66.6
million, $53.9 million and $15.4 million for the years ended June 30, 1997,
1996, and 1995, respectively. Deposit flows are affected by the level of
interest rates, the interest rates and products offered by the local
competitors, the Bank and other factors.
48
<PAGE>
The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. On a longer-
term basis, the Bank maintains a strategy of investing in various lending
products as described in greater detail under "Business of the Bank--Lending
Activities." In the event the Bank should require funds beyond its ability to
generate them internally, additional sources of funds are available through the
Bank's $10.0 million line of credit and through reverse repurchase agreements.
In addition, the Bank has applied to become a member of the FHLB system, which
upon membership will provide the Bank with access to FHLB advances. See
"Business of the Bank--Sources of Funds--Borrowed Funds." At June 30, 1997, the
Bank had no outstanding borrowings.
Loan commitments totaled $49.4 million at June 30, 1997, comprised of $20.2
million in one- to four-family loan commitments and $2.6 million in commercial
real estate loan commitments, $11.5 million in construction loan commitments,
$7.2 million in commercial loan commitments and $7.9 million in home equity loan
commitments. Management of the Bank anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of deposit
which are scheduled to mature in one year or less from June 30, 1997 totaled
$209.1 million. Based upon past experience and the Bank's current pricing
strategy, management believes that a significant portion of such deposits will
remain with the Bank.
At June 30, 1997, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $99.1 million, or 10.02% of
adjusted assets, which is above the required level of $39.6 million, or 4.0% of
adjusted assets and risk-based capital of $103.9 million, or 19.71% of adjusted
assets, which is above the required level of $42.2 million, or 8.0%. See
"Regulatory Capital Compliance."
The Bank's most liquid assets are cash and interest-bearing demand
accounts. The levels of these assets are dependent on the Bank's operating,
financing, lending and investing activities during any given period. At June 30,
1997, cash and interest-bearing demand accounts totaled $26.5 million, or 2.7%
of total assets.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1993, the AICPA issued SOP 93-6 ("SOP 93-6"), "Employers'
Accounting for Employee Stock Ownership Plans," which is effective for years
beginning after December 15, 1993. SOP 93-6 requires the application of its
guidance for shares acquired by ESOPs after December 31, 1992 but not yet
committed to be released as of the beginning of the year SOP 93-6 is adopted.
SOP 93-6 changes the measure of compensation expense recorded by employers for
leveraged ESOPs from the cost of ESOP shares to the fair value of ESOP shares.
The Company has adopted an ESOP in connection with the Conversion, which is
expected to purchase 8% of the Common Stock sold in the Conversion. Under SOP
93-6, the Company will recognize compensation cost equal to the fair value of
the ESOP shares during the periods in which they become committed to be
released. To the extent that the fair value of the Company's ESOP shares differ
from the cost of such shares, this differential will be charged or credited to
equity.
49
<PAGE>
Employers with internally leveraged ESOPs such as the Company will not report
the loan receivable from the ESOP as an asset and will not report the ESOP debt
from the employer as a liability. However, the effects of SOP 93-6 on future
operating results cannot be determined at this time.
In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). This statement establishes financial accounting
standards for stock-based employee compensation plans. SFAS No. 123 permits the
Bank to choose either a new fair value based method or the current Accounting
Principles Board ("APB") Opinion 25 intrinsic value based method of accounting
for its stock-based compensation arrangements. SFAS No. 123 requires pro forma
disclosures of net earnings and earnings per share computed as if the fair value
based method had been applied in financial statements of companies that continue
to follow current practice in accounting for such arrangements under APB Opinion
25. SFAS No. 123 applies to all stock-based employee compensation plans in which
an employer grants shares of its stock or other equity instruments to employees
except for employee stock ownership plans. SFAS No. 123 also applies to plans in
which the employer incurs liabilities to employees in amounts based on the price
of the employer's stock, (e.g., stock option plans, stock purchase plans,
restricted stock plans, and stock appreciation rights). The statement also
specifies the accounting for transactions in which a company issues stock
options or other equity instruments for services provided by nonemployees or to
acquire goods or services from outside suppliers or vendors. The recognition
provisions of SFAS No. 123 for companies choosing to adopt the new fair value
based method of accounting for stock-based compensation arrangements may be
adopted immediately and will apply to all transactions entered into in fiscal
years that begin after December 15, 1995, however disclosure of the pro forma
net earnings and earnings per share, as if the fair value method of accounting
for stock-based compensation had been elected, is required for all awards
granted in fiscal years beginning after December 31, 1994. Any effect that this
statement will have on the Bank will be applicable upon the consummation of the
Conversion.
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). This Statement provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and should be applied prospectively. Earlier
or retroactive application of this Statement is not permitted. Management has
determined that this Statement will not have a material impact on the Company's
consolidated financial statements.
In February 1997, the FASB released SFAS No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in APB Opinion No. 15,
Earnings Per Share, and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
numerator and denominator of the diluted EPS computation. Basic EPS excludes
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if
50
<PAGE>
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier application is not permitted.
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure" ("SFAS No. 129). SFAS No. 129 continues the existing
requirements to disclose the pertinent rights and privileges of all securities
other than ordinary common stock but expands the number of companies subject to
portions of its requirements. Specifically, the Statement requires all entities
to provide the capital structure disclosures previously required by APB Opinion
No. 15. Companies that were exempt from the provisions of APB Opinion No. 15
will now need to make those disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from net worth
and additional paid-in capital in the equity section of a statement of financial
position. SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required. Management is in the process of
determining the impact, if any, this statement will have on the Bank.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires disclosures for
each segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly basis.
It also requires geographic data by country, as opposed to broader geographic
regions as permitted under current standards. SFAS No. 131 is effective for
fiscal year beginning after December 15, 1997 with earlier application
permitted.
BUSINESS OF THE COMPANY
GENERAL
The Company was incorporated in September 1997 at the direction of the
Board of Trustees of the Bank for the purpose of becoming a holding company to
own all of the outstanding capital stock of the Bank. Upon consummation of the
Conversion, it is anticipated that the Bank will become a wholly-owned
subsidiary of the Company. Upon the consummation of the Conversion, the Company
will be a savings and loan holding company regulated by the OTS. See "Regulation
and Supervision - Holding Company Regulation."
The Company is currently not an operating company. Following the
Conversion, in addition to directing, planning and coordinating the business
activities of the Bank, the Company will initially invest net proceeds it
retains primarily in mortgage-backed and mortgage related securities and
investment-grade debt and equity securities. In addition, the Company intends to
fund the loan to the ESOP to enable the
51
<PAGE>
ESOP to subscribe for 8% of the Common Stock issued in connection with the
Conversion, including shares issued to the Foundation; however, a third party
lender may be utilized to lend funds to the ESOP. See "Use of Proceeds." In the
future, the Company may expand its operations in the Bank's primary market area
or other areas surrounding the New York City metropolitan area by marketing and
business development, acquiring or organizing other operating subsidiaries,
including other financial institutions and financial services companies. Other
than a lease on a public accommodation office to be opened on Staten Island in
1998 and plans to open new branch offices on Staten Island in 1998, there are no
current agreements or understandings for an expansion of the Company's
operations. Initially, the Company will neither own nor lease any property from
any third party, but will instead use the premises, equipment and furniture of
the Bank.
Concurrent with the organization of the Company, a new President and Chief
Operating Officer and a new Chief Financial Officer and Secretary have been
retained by the Company, both of whom were not previously employed by the Bank
but have significant experience in the financial services industry. See
"Management of the Company." At the present time, the Company does not intend to
employ any persons other than its current officers and certain officers of the
Bank, who will not be separately provided cash compensation by the Company. The
Company may utilize the support staff of the Bank from time to time, if needed.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.
52
<PAGE>
BUSINESS OF THE BANK
GENERAL
The Bank is a community-oriented mutual savings bank which was originally
chartered by the State of New York in 1886. The Bank's principal business
consists of the acceptance of retail deposits from the general public in the
areas surrounding its branch offices and the investment of those deposits,
together with funds generated from operations and borrowings, primarily in one-
to four-family residential mortgage loans and, to a lesser extent, commercial
real estate loans and in mortgage-backed and mortgage related securities and
various debt and equity securities. The Bank also invests in construction and
development, commercial, home equity and consumer and student loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management Strategy." The Bank's revenues are derived principally
from the interest on its mortgage, consumer and commercial loans and securities.
The Bank's primary sources of funds are deposits, 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
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank currently operates twelve full service
banking offices in the Borough of Staten Island, and one full service banking
office in the Borough of Brooklyn. Additionally, the Bank intends to open a
public accommodation office in 1998 and is considering opening two new full-
service branches. With the exception of the lease on the new public
accommodation office, there are no current arrangements, understandings or
agreements, written or oral, regarding such offices, and no assurances can be
made that such offices will be opened.
The Bank's primary deposit gathering area is currently concentrated around
the areas where its full service banking offices are located in Staten Island
and Brooklyn which the Bank generally considers to be its primary market area.
The Bank's primary lending area has also historically been concentrated in
Staten Island and, to a lesser extent, in the area around its office in
Brooklyn. As of June 1996, based on a survey by a nationally-recognized bank
consulting firm, the Bank had 14.2% of total deposits in Staten Island, and for
1996, the Bank had a lending market share of approximately 7.2% in Staten
Island, placing the Bank among the leaders in both loans originated and deposits
in Staten Island. The Bank and Company may, in the future, consider expanding
the market area served by the Bank and Company to other areas in the New York
City metropolitan area including northern New Jersey, Connecticut and upstate
New York.
The economy of the New York City metropolitan area has historically
benefitted from having a large number of corporate headquarters and a diversity
of financial service entities. Additionally, Staten Island has historically
benefitted from steady residential growth and an expanding base of industrial,
service and high technology businesses. During the late 1980s and early 1990s,
however, due in part to the effects of a prolonged period of weakness in the
national economy, the decline in the regional economy, layoffs in the financial
services industry and corporate relocations, the New York City metropolitan area
experienced reduced levels of employment. These conditions, in conjunction with
a surplus of available commercial and residential property, resulted in an
overall decline in the underlying values of properties located in the area
during the late 1980s and early 1990s. Staten Island, due to its location and
its relatively large population of government employees, was somewhat insulated
from the economic decline of the late 1980s and early 1990s. Since 1993, the
prices and values of real estate have stabilized and, in certain areas, the
prices and values of real estate have increased. In the last several years,
the New York City metropolitan area has benefitted from the resurgence and
growth in employment and profitability experienced by national securities
53
<PAGE>
and investment banking firms, many of which are domiciled in the Borough of
Manhattan, as well as the growth and profitability of other financial services
companies, such as money center banks. However, there can be no assurances that
such decline could not reoccur. See "Risk Factors - Weakness in Local Economy."
COMPETITION
The Bank faces significant competition both in making loans and in
attracting deposits. The New York City metropolitan area has a high density of
financial institutions, many of which are branches of significantly larger
institutions which have greater financial resources than the Bank, and all of
which are competitors of the Bank to varying degrees. The Bank's competition
for loans comes principally from savings banks, commercial banks, savings and
loan associations, mortgage banking companies, credit unions and insurance
companies and other financial service companies. Its most direct competition
for deposits has historically come from savings and loan associations, savings
banks, commercial banks and credit unions. The Bank faces additional
competition for deposits from non-depository competitors such as the mutual fund
industry, securities and brokerage firms and insurance companies. There are
eleven depository institutions with operations in the Borough of Staten Island.
Competition may also increase as a result of the lifting of restrictions on the
interstate operations of financial institutions.
LENDING ACTIVITIES
Loan Portfolio Composition. The types of loans that the Bank may originate
are subject to federal and state law and regulations. Interest rates charged by
the Bank on loans are affected principally by the demand for such loans, the
supply of money available for lending purposes and the rates offered by its
competitors. These factors are, in turn, affected by general and economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters.
54
<PAGE>
The following table sets forth the composition of the Bank's loan
portfolio, including loans held for sale, in dollar amounts and in percentages
of the respective portfolios at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------
1997 1996 1995
-------------------------- --------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------------------------- --------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......................... $394,588 78.4% $325,139 76.3% $303,734 76.2%
Multi-family................................. 2,705 0.5 1,238 0.3 811 0.2
Commercial real estate....................... 40,713 8.1 39,892 9.3 40,037 10.1
Construction and development................. 18,343 3.7 12,812 3.0 10,487 2.6
Home equity.................................. 16,729 3.3 18,054 4.2 16,518 4.1
Commercial...................................... 6,662 1.3 6,300 1.5 5,039 1.3
Consumer and student............................ 23,589 4.7 22,932 5.4 21,795 5.5
------- ----- ------- ----- ------- -----
Gross loans............................... 503,329 100.0% 426,367 100.0% 398,421 100.0%
===== ===== =====
Less:
Unamortized discounts, net................... (788) (947) (1,105)
Deferred loan fees........................... (813) (1,354) (1,632)
Allowance for possible loan losses........... (5,470) (4,796) (3,275)
-------- -------- --------
Total loans, net.......................... 496,258 419,270 392,409
Less:
Loans held for sale, net:
One- to four-family....................... -- 1,155 --
-------- -------- --------
Loans receivable held for
investment, net....................... $496,258 $418,115 $392,409
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------
1994 1993
--------------------- --------------------
Percent Percent
Amount of Total Amount of Total
--------------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family...................................... $273,063 75.5% $274,136 76.0%
Multi-family............................................. 920 0.3 936 0.2
Commercial real estate................................... 39,220 10.8 35,949 10.0
Construction and development............................. 6,677 1.9 6,011 1.7
Home equity.............................................. 16,775 4.6 20,430 5.7
Commercial.................................................. 5,426 1.5 4,282 1.2
Consumer and student........................................ 19,663 5.4 18,957 5.2
------- ----- ------- -----
Gross loans........................................... 361,744 100.0% 360,701 100.0%
===== =====
Less:
Unamortized discounts, net............................... (1,263) (1,420)
Deferred loan fees....................................... (1,525) (1,265)
Allowance for possible loan losses....................... (3,106) (2,735)
------- -------
Total loans, net...................................... 355,850 355,281
Less:
Loans held for sale, net:
One- to four-family...................................... -- --
-------- --------
Loans receivable held for
investment, net..................................... $355,850 $355,281
======== ========
</TABLE>
55
<PAGE>
Loan Originations. The Bank originates both adjustable-rate and fixed-rate
one- to four-family loans, commercial real estate loans, home equity loans,
construction and development loans, commercial loans, consumer loans and student
loans. The Bank's one- to four-family mortgage lending activities are conducted
primarily through the utilization of mortgage brokers and by the Bank's loan
personnel generally operating in the Bank's loan center. Although the Bank has
authorized the use of approximately 100 mortgage brokers in connection with one-
to four-family loan originations, the Bank primarily utilizes the services of
seven mortgage brokers operating primarily on Staten Island and in Brooklyn.
During fiscal 1997, the Bank originated $73.9 million of one- to four-family
loans through mortgage brokers and $26.6 million of such loans through Bank
personnel. Recently, the Bank began offering through brokers its fully processed
loan program, which is a zero point loan that is originated and processed by the
broker. The Bank pays mortgage brokers a processing fee for a fully processed
loan. All loans are underwritten by the Bank pursuant to the Bank's loan
underwriting policies and procedures.
Recently, the Bank has placed increased emphasis on the origination of
commercial real estate, construction and development and commercial loans as
part of its efforts to broaden the services it provides to the Staten Island
business community. In this regard, the Bank has recently hired commercial
lending personnel with experience in the Bank's primary market area and may add
additional personnel as needed. In addition, the Bank has increased its
marketing efforts with respect to commercial real estate, construction and
development and commercial lending by making its existing business customers
aware of the expanded products and services available to businesses. See "Risk
Factors--Increased Lending Risks Associated With Commercial Real Estate, Multi-
Family, Construction and Development and Commercial Lending." The Bank's
ability to originate loans is dependent upon customer demand, demand for fixed-
rate or adjustable-rate loans and expected future levels of interest rates.
Generally, all loans are originated for investment with the exception of
longer-term fixed-rate one- to four-family mortgage loans. It is currently the
general policy of the Bank to sell substantially all of the one- to four-family
fixed-rate mortgage loans with maturities over fifteen years that it originates
and to retain all adjustable-rate one- to four-family mortgage loans which it
originates. However, from time to time, the Bank may retain fixed-rate mortgage
loans with terms over fifteen years depending on the asset quality and the
interest rate risk position of the Bank. The one- to four-family loan products
currently originated for sale by the Bank include a variety of mortgage loans
which conform to the underwriting standards specified by FNMA and FHLMC
("conforming loans"). Loans which do not conform to FNMA or FHLMC standards due
to loan amounts ("jumbo loans") are originated for the portfolio. With the
exception of customary provision relating to breaches of representations and
warranties, sales of loans are made without recourse to the Bank in the event of
default by the borrower. The Bank generally retains the servicing rights on the
mortgage loans sold to FHLMC.
At June 30, 1997, the Bank was servicing its portfolio of $503.3 million of
loans receivable and $50.1 million of loans for others, primarily consisting of
conforming fixed-rate loans sold by the Bank. Loan servicing includes
collecting and remitting loan payments, accounting for principal and interest,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain insurance and
tax payments on behalf of the borrowers, and generally administering the loans.
During the fiscal years ended June 30, 1997 and June 30, 1996, the Bank
originated $100.5 million and $54.0 million of fixed-rate and adjustable-rate
one- to four-family loans, respectively, of which $98.5 million and $43.9
million, respectively, were retained by the Bank. The fixed-rate loans retained
by the Bank consisted primarily of loans with terms of 15 years or less. The
Bank recognizes, at the time of sale, the cash gain or loss on the sale of the
loans based on the difference between the net cash proceeds received and the
carrying value of the loans sold. At June 30, 1997, the Bank had no mortgage
loans held for sale. The Bank has, in the past, from time to time, purchased
participations in loans, primarily one- to four-family mortgage loans, and had
$1.3 million of participations in loans at June 30, 1997.
56
<PAGE>
The following tables set forth the Bank's loan originations, purchases, sales
and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended June 30,
-----------------------------------
1997 1996 1995
---------- ----------- ----------
(In thousands)
<S> <C> <C> <C>
Gross loans(1):
Balance outstanding at beginning of period................... $426,367 $398,421 $361,744
-------- -------- --------
Loans originated:
One- to four-family.................................... 100,487 53,957 53,355
Multi-family........................................... 1,616 540 --
Commercial real estate................................. 4,454 6,408 5,805
Construction and development........................... 13,444 9,080 7,520
Home equity............................................ 5,824 6,049 2,581
Commercial............................................. 3,636 11,280 2,449
Consumer and student................................... 7,790 7,011 7,143
-------- -------- --------
Total loans originated.............................. 137,251 94,325 78,853
Loans purchased........................................... 910 -- --
-------- -------- --------
Total loans originated and purchased................ 138,161 94,325 78,853
-------- -------- --------
Less:
Principal repayments...................................... 58,485 55,799 39,803
Sales of loans............................................ 2,004 9,972 1,609
Transfers to real estate owned............................ 673 608 764
Principal charged off..................................... 37 -- --
-------- -------- --------
Total loans......................................... 503,329 426,367 398,421
Less:
Loans held for sale, net.................................. -- 1,155 --
-------- -------- --------
Loans receivable held for investment at
end of period............................................. $503,329 $425,212 $398,421
======== ======== ========
</TABLE>
____________________
(1) Gross loans includes loans receivable held for investment and loans held for
sale.
57
<PAGE>
Loan Maturity. The following table shows the contractual maturity of the
Bank's loan portfolio at June 30, 1997. The table does not include prepayments
or scheduled principal amortization. Prepayments and scheduled principal
amortization on mortgage loans totalled $58.5 million, $55.8 million and $39.8
million for the years ended June 30, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
At June 30, 1997
-------------------------------------------------------------------
Real Estate Loans
-------------------------------------------------------------------
One- to Construction
Four- Multi- Commercial and Home
Family Family Real Estate Development Equity
----------- ---------- ------------- --------------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year............................................. $ 227 $ -- $ 315 $17,273 $ --
-------- ------ ------- ------- -------
After one year:
More than one year to three years....................... 1,749 -- 345 1,070 --
More than three years to five years..................... 4,458 -- 1,178 -- 28
More than five years to 10 years........................ 24,039 310 12,962 -- 805
More than 10 years to 20 years.......................... 74,312 2,395 23,897 -- 12,955
More than 20 years...................................... 289,803 -- 2,016 -- 2,941
------- ----- ------ ----- -------
Total due after June 30, 1998........................... 394,361 2,705 40,398 1,070 16,729
------- ----- ------ ----- -------
Total amount due........................................ $394,588 $2,705 $40,713 $18,343 $16,729
======== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1997
-----------------------------------
Consumer Total
and Loans
Commercial Student Receivable
----------- --------- ----------
(In thousands)
<S> <C> <C> <C>
Amounts due:
Within one year........................................................... $ 4,878 $ 1,745 $ 24,438
After one year: ------- ------- --------
More than one year to three years..................................... 793 5,615 9,572
More than three years to five years................................... 720 2,248 8,632
More than five years to 10 years...................................... -- 6,670 44,786
More than 10 years to 20 years........................................ 271 7,219 121,049
More than 20 years.................................................... -- 92 294,852
------- ------- --------
Total due after June 30, 1998......................................... 1,784 21,844 478,891
------- ------- --------
Total amount due...................................................... $ 6,662 $23,589 $503,329
Less: ======= ======= --------
Unamortized discounts, net............................................................. 788
Deferred loan fees, net................................................................ 813
Allowance for possible loan losses..................................................... 5,470
--------
Loans receivable held for investment, net........................................................ $496,258
========
</TABLE>
58
<PAGE>
The following table sets forth at June 30, 1997, the dollar amount of gross
loans receivable contractually due after June 30, 1998, and whether such loans
have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After June 30, 1998
-----------------------------------
Fixed Adjustable Total
--------- ----------- ----------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family.......................... $115,301 $279,060 $394,361
Multi-family................................. 214 2,491 2,705
Commercial real estate....................... 3,189 37,209 40,398
Construction and development................. -- 1,070 1,070
Home equity.................................. 8,021 8,708 16,729
-------- -------- --------
Total real estate loans..................... 126,725 328,538 455,263
Commercial loans.............................. -- 1,784 1,784
Consumer and student loans.................... 9,297 12,547 21,844
-------- -------- --------
Total loans receivable...................... $136,022 $342,869 $478,891
======== ======== ========
</TABLE>
One- to Four-Family Loans. The Bank currently offers both fixed-rate and
adjustable-rate mortgage loans secured by one- to four-family residences located
in the Bank's primary market area, primarily with maturities up to thirty years.
One- to four-family mortgage loan originations are obtained through the use of
mortgage brokers, the Bank's loan center, existing or past customers,
advertising, and referrals from real estate brokers and attorneys.
At June 30, 1997, the Bank's one- to four-family loans totalled $394.6
million, or 78.4%, of gross loans. Of the one- to four-family loans outstanding
at that date, 29% were fixed-rate mortgage loans and 71% were adjustable-rate
mortgage loans. The Bank offers fixed-rate mortgage loans with terms of fifteen
and thirty years. The Bank sells substantially all fixed-rate residential
mortgage loans it originates with terms in excess of fifteen years, except for
non-conforming loans, to FHLMC, and retains the servicing on all loans sold,
although the Bank may retain fixed-rate mortgage loans with terms of in excess
of fifteen years, depending on the asset quality and the interest rate risk
position of the Bank. The Bank generally retains for its portfolio shorter-
term, fixed rate loans with maturities of fifteen years or less and all
adjustable-rate one- to four-family loans.
The Bank currently offers a number of adjustable-rate mortgage loans with
terms of up to thirty years and interest rates which adjust annually from the
outset of the loan or which adjust annually after a one, three, five or seven
year initial fixed period. Forty-year terms are available on certain
adjustable-rate loans. The interest rates for the Bank's adjustable-rate
mortgage loans are indexed to the one or three year U.S. Treasury Securities
Index. Interest rate adjustments on loans are limited to a 2% periodic
adjustment cap (2.5% on five-year adjustable-rate loans) and a maximum
adjustment of 6% over the life of the loan. Certain
59
<PAGE>
of the Bank's adjustable-rate mortgage loans can be converted to a fixed-rate
loan with interest rates based upon the then-current market rates plus a varying
margin.
The volume and type of adjustable-rate mortgage loans originated by the Bank
have been affected by such market factors as the level of interest rates,
competition, consumer preferences and the availability of funds. The
origination of adjustable-rate residential mortgage loans, as opposed to fixed-
rate residential mortgage loans, helps reduce the Bank's exposure to increases
in interest rates. However, adjustable-rate loans generally pose credit risks
not inherent in fixed-rate loans, primarily because as interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential for
default. Periodic and lifetime caps on interest rate increases help to reduce
the risks associated with adjustable-rate loans but also limit the interest rate
sensitivity thereof.
One- to four-family residential mortgage loans are generally underwritten
according to FNMA or FHLMC guidelines. The Bank currently originates one- to
four-family residential mortgage loans in amounts up to 80% of the lower of the
appraised value or the selling price of the property securing the loan and up to
97% of the appraised value or selling price if private mortgage insurance is
obtained. Mortgage loans originated by the Bank include due-on-sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event the borrower transfers ownership of the property
without the Bank's consent. Due-on-sale clauses are an important means of
adjusting the yields on the Bank's fixed-rate mortgage loan portfolio and the
Bank has generally exercised its rights under these clauses.
In an effort to provide financing for low and moderate income home buyers, the
Bank participates in residential mortgage programs and products sponsored by the
State of New York Mortgage Association ("SONYMA"). The SONYMA mortgage programs
provide low and moderate income households with fixed-rate loans which are
generally below prevailing fixed-rate mortgages and which allow below market
down payments. At June 30, 1997, $8.9 million, or 1.8% of total loans, were
sponsored by SONYMA.
Commercial Real Estate Lending. The Bank originates commercial real estate
loans that are generally secured by properties used for business purposes or a
combination of residential and retail purposes which are located in the Bank's
primary market area. All mixed-use properties are classified as commercial real
estate. At June 30, 1997, the Bank's commercial real estate loan portfolio
totalled approximately $40.7 million or 8.1% of total loans. The Bank's
underwriting procedures provide that commercial real estate loans generally may
be made in amounts up to 75% of the lower of the appraised value or sales price
of the property, subject to the Bank's current regulatory loans-to-one-borrower
limit. These loans may be made with terms up to twenty years and are generally
offered at interest rates which adjust every one, three or five years, utilizing
the corresponding U.S. Treasury Securities Index as a base. The Bank also offers
fixed rate commercial real estate loans with a ten year term. In reaching its
decision on whether to make a commercial real estate loan, the Bank considers
the net operating income of the property and the borrower's expertise, credit
history and profitability. In addition, the Bank considers the business
activities and present and past uses of the properties in evaluating potential
environmental issues and, where such consideration indicates a need, a more
detailed investigation by a qualified environmental expert is conducted. The
Bank has generally required that the properties securing commercial real estate
loans have debt service coverage ratios (the ratio of earnings before debt
service to debt service) of at least 1.2x. Exceptions to this ratio are
considered on an individual basis and must be approved by the appropriate
lending authority. Generally, all commercial real estate loans made to
corporations, partnerships and other business entities require personal
guarantees by the principals; however, exceptions may be made for existing
customers of the Bank, with approval of the Board of Trustees. The largest
commercial real estate loan in the Bank's portfolio at June 30, 1997, was a $2.8
million loan secured by a nursing home located on Staten Island.
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<PAGE>
Loans secured by commercial real estate properties generally involve larger
principal amounts and a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by commercial real
estate properties are often dependent on successful operation or management of
the properties, repayment of such loans may be affected by adverse conditions in
the real estate market or the economy. The Bank seeks to minimize these risks
through its underwriting standards, which require such loans to be qualified on
the basis of the property's income and debt service coverage ratio. See "Risk
Factors--Increased Lending Risks Associated With Commercial Real Estate, Multi-
Family, Construction and Development and Commercial Lending." As part of the
operating strategy, the Bank intends to continue to emphasize its commercial
real estate lending activities in its primary market area depending on the
demand for such loans and commercial real estate market conditions.
Construction and Development Lending. The Bank originates construction and
development loans for the development of commercial and residential property
located in its primary market area, and may originate construction and
development loans outside its primary market area to existing customers. At June
30, 1997, the Bank had $26.9 million of construction loans most of which were
committed to the construction of one- to four-family properties; $18.3 million
of these loans were outstanding at that date. The Bank originates loans for the
acquisition of commercial and residential property located in its primary market
area only if such acquisition loan is part of an overall development loan.
Construction loans are offered primarily to experienced local developers
operating in the Bank's primary market area and, to a lesser extent, to
individuals for the construction of their residence. The majority of the Bank's
construction loans are originated primarily to finance the construction of one-
to four-family, owner-occupied residential real estate, and commercial real
estate properties located in the Bank's primary market area. Construction loans
are generally offered with terms up to two years. Construction loans may be made
in amounts up to 70% of the estimated cost of construction, or up to 80% in the
case of loans to individuals for the construction of their residence. With
respect to construction loans, the Bank generally requires borrowers with whom
the Bank does not have experience to secure permanent financing commitments from
generally recognized lenders for an amount equal to or greater than the amount
of the loan. In some cases, the Bank may itself provide permanent financing.
Loan proceeds are disbursed periodically in increments as construction
progresses and as inspections by the Bank's lending officers warrant.
The Bank originates land loans to local developers for the purpose of holding
or developing the land for sale. At June 30, 1997, the Bank had $1.3 million of
land loans. Such loans are secured by a lien on the property, are limited to
65% of the appraised value of the secured property on raw land and up to 75% on
developed building lots, and have a term of up to two years, with a floating
interest rate based on the prime rate (which is the prime rate as published in
The Wall Street Journal and The New York Times). The principal of the loan is
reduced as lots are sold and released. The Bank's land loans are generally
secured by property in its primary market area; however, the Bank may originate
land loans outside its primary market area to existing customers. In addition,
the Bank generally originates such loans to developers with whom it has
established relationships and obtains personal guarantees.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
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) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value which
is insufficient to assure full repayment. See "Risk Factors--Increased Lending
Risks Associated with Commercial Real Estate, Multi-Family, Construction and
Development and Commercial Lending." The largest construction loan in the
Bank's portfolio at June 30, 1997 was a $840,000 loan for the construction of a
one-family residential unit in the Borough of Staten Island.
61
<PAGE>
Home Equity Lending. The Bank offers fixed-rate, fixed-term home equity
loans and lines of credit and adjustable-rate home equity loans in its primary
market area. At June 30, 1997, the Bank's home equity loans and lines of credit
totalled $16.7 million, or 3.3%, of the Bank's gross loans. Fixed-rate, fixed-
term home equity loans and lines of credit are offered in amounts up to 75% (80%
if the Bank holds the first mortgage) of the appraised value of the property
(including the first mortgage) with a maximum loan amount of $250,000. Fixed-
rate, fixed-term home equity loans and lines of credit are offered with terms up
to ten years, with interest-only payments during the first five years and
repayment of principal and interest during the final five years. Adjustable-
rate home equity loans are offered in amounts up to 75% (80% if the Bank holds
the first mortgage) of the appraised value of the property (including the first
mortgage) with terms of up to twenty years with a maximum amount of $75,000.
Adjustable-rate loans are indexed to the prime rate (which is the prime rate as
published in the Wall Street Journal and the New York Times).
Commercial Lending. The Bank also originates commercial loans to small and
medium sized businesses operating in the Bank's primary market area. At June
30, 1997, the Bank had $6.7 million of commercial loans which amounted to 1.3%
of the Bank's total loans receivable. Although such loans are sometimes
secured by equipment, leases, inventory and accounts receivable, in the case of
the Bank, the majority of its commercial loans are secured by real estate. Term
loans are generally offered with adjustable rates of interest and terms of up to
five years. Secured commercial loans will be made in an amount up to 90% of the
value of the property securing the loan. All term loans fully amortize during
the term of such loan. Business lines of credit have terms of up to five years
if secured and two years if unsecured. Secured lines of credit will be made in
amounts up to 90% of the value of the property securing the line. Business
lines of credit adjust on a daily basis and are indexed to the prime rate.
The Bank also issues both secured and unsecured letters of credit to business
customers of the Bank. Secured letters of credit will be issued in amounts up
to 100% of the value of the collateral securing the letter of credit.
Acceptable collateral includes an assigned deposit account with the Bank, real
estate or marketable securities. Letters of credit have a maximum term of two
years.
In making commercial loans, the Bank considers primarily the financial
resources of the borrower, the borrower's ability to repay the loan out of net
operating income, the Bank's lending history with the borrower and the value of
any collateral. Generally, if the borrower is a corporation, partnership or
other business entity, personal guarantees by the principals are required.
However, personal guarantees may not be required on such loans depending on the
creditworthiness of the borrower and other mitigating circumstances. The Bank's
largest commercial loan at June 30, 1997 was $1.7 million. At such date, the
Bank had $2.2 million of unadvanced commercial lines of credit.
Unlike mortgage loans, which generally are made on the basis of the borrower's
ability to make repayment from his or her employment or other income, and which
are secured by real property whose value tends to be more easily ascertainable,
commercial loans are of higher risk and typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value based on the success of
the business. See "Risk Factors--Increased Lending Risks Associated with
Commercial Real Estate, Multi-Family, Construction and Development and
Commercial Lending."
Consumer and Student Lending. The Bank's portfolio of consumer and student
loans primarily consists of student loans, unsecured personal loans and
overdraft lines of credit. As of June 30, 1997, consumer and student loans
amounted to $23.6 million, or 4.7% of the Bank's total loan portfolio, of which
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<PAGE>
$14.9 million were student loans. The Bank offers student loans through the
Federal Family Education Loan Program, a federal program governed by the New
York State Higher Education Services Corporation ("NYSHESC"). The Bank offers
both subsidized and unsubsidized Federal Stafford Loans and Federal Parent
Loans. NYSHESC is responsible for the final approval of and guarantees all
student loans made by the Bank. The terms and rates of the loans are set by
NYSHESC. The Bank is permitted to charge an origination fee, currently 3.0% of
the loan amount, which fee is subject to change by the NYSHESC.
Consumer loans may entail a greater degree of credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured.
Consumer loan collections on these loans are dependent on the borrower's
continuing financial stability and, therefore, are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Finally, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans in the event of a default.
Loan Approval Procedures and Authority. The Board of Trustees establishes the
lending policies and loan approval limits of the Bank. The Board of Trustees
has established the Residential/Commercial/Construction Lending Committee which
is comprised of five members of the Board of Trustees. The Committee discusses
and approves all loans and lines of credit in amounts greater than management
has authority to approve, within the Committee's designated authority as
established from time to time by the Board of Trustees. Loans which exceed the
Committee's authority are approved or denied by the Board of Trustees.
The Board of Trustees has authorized the following persons to approve loans up
to the amounts indicated: residential mortgage loans of up to $500,000 and home
equity loans of up to $250,000 can be approved by two members of the
Residential/Commercial/Construction Committee, plus the senior retail loan
officer and another loan officer; secured or unsecured commercial loans of up to
$25,000 can be approved by either the senior commercial loan officer, the
commercial loan officer or a vice president within the Business division;
secured or unsecured commercial loans up to $100,000 can be approved by any two
of the senior commercial loan officer, the commercial loan officer or a vice
president with the Business division; secured or unsecured commercial loans up
to $500,000 can be approved by two members of the
Residential/Commercial/Construction Committee and any two of the senior
commercial loan officer, the commercial loan officer or a vice president within
the business division; and commercial real estate and construction and
development loans up to $500,000 can be approved by two members of the
Residential/Commercial/Construction Committee and any two of the senior
commercial loan officer, the commercial loan officer, a vice president or
assistant secretary in the Business division. Any loans above the authorized
limits must be approved by the respective committee, if in an amount of up to
$500,000 ($100,000 for unsecured commercial loans), or by the Board of Trustees.
Individual loans to one borrower may not exceed $4.0 million and aggregate loans
to one borrower may not exceed $5.0 million, without Board approval. Total
aggregate loans are also subject to the Bank's regulatory loans-to-one-borrower
limit, which at June 30, 1997 was $10 million. See "Regulation and Supervision-
- - - -New York State Law."
With respect to 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. If
necessary, additional financial information may be required. An appraisal of
real estate intended to secure a proposed loan generally is required to be
performed by appraisers approved by the Bank. For proposed mortgage loans, the
Board annually approves independent appraisers used by the Bank and approves the
Bank's appraisal policy. The Bank's policy is to obtain title and hazard
insurance on all mortgage loans and the Bank may require borrowers to make
payments to a mortgage escrow account for the payment of property taxes. Any
exceptions to the Bank's underwriting policies must be noted on an underwriting
analysis sheet and presented to the Senior Loan Officer for approval.
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<PAGE>
DELINQUENT LOANS, REAL ESTATE OWNED AND CLASSIFIED ASSETS
Management and the Board of Trustees perform a monthly review of all
delinquent loans. The procedures taken by the Bank with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. The Bank generally requires that delinquent mortgage loans be
reviewed and that a delinquency notice be mailed no later than the thirtieth day
of delinquency and a late charge is assessed after fifteen days. The Bank's
policies provide that telephone contact will be attempted to ascertain the
reasons for delinquency and the prospects of repayment. When contact is made
with the borrower at any time prior to foreclosure, the Bank will attempt to
obtain full payment or work out a repayment schedule with the borrower to avoid
foreclosure. Mortgage loans which are more than 45 days delinquent are referred
to the Bank's attorneys for collection. If the loan becomes 75 days delinquent,
the Bank's attorneys are instructed to commence foreclosure proceedings.
It was the Bank's policy to discontinue accruing interest on all commercial
real estate, construction and commercial loans which were past due 90 days, on
all consumer loans which were past due 120 days, and on all one- to four-family
residential mortgage loans which were past due 180 days, or when in the opinion
of management such suspension was warranted. Effective July 1, 1997, the Bank
revised this policy such that it does not accrue interest on any loans,
including one- to four-family loans secured by real estate, which are more than
90 days delinquent unless, in the opinion of management, collection is probable.
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
principal balance or fair value less costs to sell at the date of acquisition
and thereafter. For loans in excess of $25,000, fair value must be
substantiated by an appraisal of the property and, thereafter, appraisal of the
property on an as-needed basis. At June 30, 1997, the Bank had $4.5 million of
nonperforming assets (defined as non-accruing loans and REO).
At June 30, 1997, the Bank's real estate owned, net, consisting of foreclosed
assets totalled $662,000, which at such date was comprised of seven one- to
four-family properties. Bank personnel generally conduct periodic external
inspections on all properties securing loans in foreclosure and generally
conducts external appraisals on all properties prior to taking ownership of the
property. Based upon such inspections and appraisals, the Bank will charge off
any loan principal it deems appropriate at such time. Bank personnel conduct
monthly reviews of its foreclosed real estate and periodically adjust its
valuation allowance for possible declines in the value of real estate owned.
The Bank had no allowance for possible losses on real estate owned at June 30,
1997. The Bank is currently offering for sale all real estate owned as a result
of foreclosure through brokers and through its own personnel. The Bank's
policies generally permit the financing of the sale of its foreclosed real
estate on substantially the same terms applicable to its other real estate
mortgage loans.
Federal regulations and the Bank's Classification of Assets Policy require
that the Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank currently classifies
problem and potential problem assets as "Substandard," "Doubtful" or "Loss"
assets. 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 of the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and of such little value that their continuance as assets, without
the establishment of a specific loss reserve, is not warranted. Assets which do
not currently expose the insured institution to a sufficient degree of risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."
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<PAGE>
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 possible loan losses in an amount deemed prudent by
management unless the loss of principal appears to be remote. General valuation
allowances 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 particular 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 assets so classified or to charge off such amount.
A savings institution's determination as to the classification of its assets
and the amount of its valuation allowances is subject to review by the FDIC and
NYBD, which can order the establishment of additional general or specific loss
allowances. The FDIC, in conjunction with the other federal banking agencies,
recently 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 institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
While the Bank believes that it has established an adequate allowance for
possible loan losses, there can be no assurance that regulators, in reviewing
the Bank's loan portfolio, will not request the Bank to materially increase at
that time its allowance for possible loan losses, thereby negatively affecting
the Bank's financial condition and earnings 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.
All residential real estate loans with loan balances in excess of $500,000 are
reviewed annually. Commercial real estate and construction loans with a balance
in excess of $400,000 are also reviewed annually. Additionally, loans with
balances of $1.0 million or more will be reviewed semi-annually, if conditions
warrant. Loan reviews are performed by the Loan Reviewer, a person not directly
involved in the lending or loan administration process. Each loan reviewed is
submitted to the Loan Review Committee, composed of the Loan Reviewer, Senior
Real Estate and Commercial Loan Officer, the foreclosure officer and certain
members of the Board of Trustees. Meetings are held on a quarterly or on an as-
needed basis. Upon review, the Committee will classify the loan and comment as
to any corrective action needed. The Senior Real Estate Loan Officer will
report to the Board of Trustees the findings of the Loan Review Committee on an
on-going basis. A report summarizing the results of loan reviews is submitted
to the Board on a quarterly basis, or as meetings occur.
At June 30, 1997, the Bank had $3.4 million of assets designated by the Bank
as Substandard, consisting of seventeen loans, no assets classified by the Bank
as Doubtful, and no assets classified by the Bank as Loss, respectively. At June
30, 1997, the Bank had $903,000 of assets designated by the Bank as Special
Mention, consisting of twelve loans which were designated Special Mention due to
past loan delinquencies.
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<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio as
of the dates indicated:
<TABLE>
<CAPTION>
At June 30, 1997
---------------------------------------------------
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........... 3 $ 338 20 $2,306
Multi-family.................. -- -- -- --
Commercial real estate........ 1 1,102 6 876
Construction and development.. 1 100 3 341
Home equity................... -- -- 1 30
Commercial loans.............. 1 18 -- --
Consumer and student loans.... 67 213 89 324
-- ------ --- ------
Total..................... 73 $1,771 119 $3,877
== ====== === ======
Delinquent loans to
total loans(1).............. 0.35% 0.77%
====== ======
<CAPTION>
At June 30, 1996 At June 30, 1995
-------------------------------------------------- -----------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
-------------------------- ---------------------- ----------------------- ----------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
----------- ------------- ---------- ---------- ----------- ---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family.............. 7 $ 901 16 $1,837 2 $ 276 18 $1,736
Multi-family..................... -- -- -- -- -- -- -- --
Commercial real estate........... -- -- 4 939 -- -- 4 593
Construction and development..... 1 385 7 687 2 1,202 3 423
Home equity...................... -- -- 4 94 2 87 2 43
Commercial loans................. 1 118 -- -- 1 30 -- --
Consumer and student loans....... 25 71 77 263 34 88 64 200
---- ------ ---- ------ ---- ------ ---- ------
Total............................ 34 $1,475 108 $3,820 41 $1,683 91 $2,995
==== ====== ==== ====== ==== ====== ==== ======
Delinquent loans to total
loans(1)........................ 0.35% 0.91% 0.42% 0.76%
==== ==== ==== ====
</TABLE>
- - - -----------------------------------
(1) Total loans includes loans receivable held-for-investment, less deferred
loan fees, deferred mortgage interest and unamortized discounts, net.
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<PAGE>
Non-Performing Assets. The following table sets forth information regarding
the Bank's nonperforming assets.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family................................................ $1,676 $1,695 $1,590 $1,862 $1,554
Multi-family....................................................... - - - - -
Commercial real estate............................................. 876 939 593 1,747 1,702
Construction and development....................................... 120 120 108 215 538
Commercial......................................................... - - - - 100
Consumer and student............................................... - - - 52 -
------ ------ ------ ------ ------
Total non-accrual loans.......................................... 2,672 2,754 2,291 3,876 3,894
Loans contractually past due 90 days
or more and still accruing interest(1)............................. 1,205 1,066 704 1,513 1,481
------ ------ ------ ------ ------
Total non-performing loans....................................... 3,877 3,820 2,995 5,389 5,375
Real estate owned.................................................... 662 612 335 441 2,336
------ ------ ------ ------ ------
Total non-performing assets...................................... $4,539 $4,432 $3,330 $5,830 $7,711
====== ====== ====== ====== ======
Allowance for possible
loan losses as a percent of loans(2)............................... 1.10% 1.14% 0.83% 0.87% 0.77%
Allowance for possible
loan losses as a percent
of total non-performing loans(3)................................... 141.09 125.55 109.35 57.64 50.88
Non-performing loans
as a percent of loans(2)(3)........................................ 0.78 0.91 0.76 1.51 1.51
Non-performing assets
as a percent of total assets(3).................................... 0.46 0.48 0.39 0.71 0.99
</TABLE>
- - - --------------------
(1) Includes consumer and student loans.
(2) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(3) It was the Bank's policy to generally cease accruing interest on all
commercial real estate, construction and commercial loans 90 days or more
past due, on all consumer loans which were 120 days or more past due, and on
all one- to four-family residential mortgage loans which were 180 days or
more past due. Effective July 1, 1997, the Bank revised this policy such
that it does not accrue interest on any loans, including one- to four-family
loans secured by real estate, which are more than ninety days delinquent as
to principal and interest unless, in the opinion of management, collection
is probable. See "Business of the Bank - Delinquent Loans, Real Estate
Owned and Classified Assets."
67
<PAGE>
Non-accrual loans totalled $2.7 million as of June 30, 1997, and included
twenty one- to four-family loans, with an aggregate balance of $1.7 million and
eight commercial real estate loans and construction loans with an aggregate
balance of $996,000. Non-accrual loans do not include student loans delinquent
90 days or more as the Bank does not classify such loans as non-accrual because
delinquent principal and interest on guaranteed student loans is guaranteed by
the U.S. government.
ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses is maintained through provisions for
possible loan losses based on management's on-going evaluation of the risks
inherent in its loan portfolio in consideration of the trends in its loan
portfolio, the national and regional economies and the real estate market in the
Bank's primary lending area. The allowance for possible loan losses is
maintained at an amount management considers adequate to cover estimated losses
in its loan portfolio which are deemed probable and estimable based on
information currently known to management. The Bank's loan loss allowance
determinations also incorporate factors and analyses which consider the
potential principal loss associated with the loan, costs of acquiring the
property securing the loan through foreclosure or deed in lieu thereof, the
periods of time involved with the acquisition and sale of such property, and
costs and expenses associated with maintaining and holding the property until
sale and the costs associated with the Bank's inability to utilize funds for
other income producing activities during the estimated holding period of the
property.
As of June 30, 1997, the Bank's allowance for possible loan losses was $5.5
million, or 1.1%, of total loans and 141.1% of non-performing loans as compared
to $4.8 million, or 1.1% of total loans and 125.5% of non-performing loans as of
June 30, 1996. The Bank had total non-performing loans of $3.9 million and $3.8
million at June 30, 1997 and June 30, 1996, respectively, and non-performing
loans to total loans of 0.78% and 0.91%, respectively. The Bank will continue
to monitor and modify its allowance for possible loan losses as conditions
dictate. The Board of Trustees reviews the adequacy of the allowance for
possible loan losses quarterly. While management believes that, based on
information currently available, the Bank's allowance for possible loan losses
is sufficient to cover losses inherent in its loan portfolio at this time, no
assurances can be given that the Bank's level of allowance for loan losses will
be sufficient to cover future loan losses incurred by the Bank or that future
adjustments to the allowance for loan losses will not be necessary if economic
and other conditions differ substantially from the economic and other conditions
used by management to determine the current level of the allowance for loan
losses. Management may in the future increase its level of loan loss allowance
as a percentage of total loans and non-performing loans in the event it
increases the level of multi-family, commercial real estate, construction and
development or other lending as a percentage of its total loan portfolio. In
addition, the FDIC and NYBD as an integral part of their examination process
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to make additional provisions for estimated loan losses based
upon judgments different from those of management.
68
<PAGE>
The following table sets forth activity in the Bank's allowance for loan
losses for the periods set forth in the table.
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
----------------------------------------------
1997 1996 1995 1994 1993
--------- ------- ------- ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $4,796 $3,275 $3,106 $2,735 $2,843
Provision for loan losses......................... 1,080 1,600 600 859 2,331
Charge-offs:
Real estate loans.............................. 174 166 384 565 2,255
Commercial real estate......................... 15 -- 6 118 17
Consumer and student loans..................... 286 186 150 133 242
------ ------ ------ ------ ------
Total charge-offs......................... 475 352 540 816 2,514
Recoveries:
Real estate loans.............................. 45 97 48 241 23
Commercial real estate......................... -- 122 -- -- --
Consumer and student loans..................... 24 54 61 87 52
------ ------ ------ ------ ------
Total recoveries.......................... 69 273 109 328 75
Net charge-offs (recoveries)...................... 406 79 431 488 2,439
------ ------ ------ ------ ------
Balance at end of period.......................... $5,470 $4,796 $3,275 $3,106 $2,735
====== ====== ====== ====== ======
</TABLE>
69
<PAGE>
The following tables set forth the Bank's percent of allowance for loan losses
to total allowance and the percent of loans to total loans in each of the
categories listed at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- -------------------------------- ---------------------------------
Percent of Percent of Percent of
Percent of Loans in Percent of Loans in Percent of Loans in
Allowance Each Allowance Each Allowance Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
------ ---------- ------------ ------ ---------- ----------- ------ ---------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate(1).............. $2,619 48% 94% $2,173 45% 93% $2,084 64% 93%
Commercial.................. 355 6 1 380 8 2 472 14 1
Consumer and student........ 321 6 5 315 7 5 295 9 6
Unallocated................. 2,175 40 - 1,928 40 - 424 13 -
------ ----- ----- ------ ----- ----- ------ ----- -----
Total allowance for
possible loan losses....... $5,470 100.0% 100.0% $4,796 100.0% 100.0% $3,275 100.0% 100.0%
====== ===== ===== ====== ===== ===== ====== ===== =====
<CAPTION>
At June 30,
--------------------------------------------------------------------
1994 1993
--------------------------------------------------------------------
Percent of Percent of
Percent of Loans in Percent of Loans in
Allowance Each Allowance Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
------ ---------- ----------- -------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate(1).............. $1,892 61% 93% $1,814 66% 94%
Commercial.................. 427 14 2 542 20 1
Consumer and student........ 255 8 5 238 9 5
Unallocated................. 532 17 - 141 5 -
------ ----- ----- ------ ----- -----
Total allowance for
possible loan losses....... $3,106 100.0% 100.0% $2,735 100.0% 100.0%
====== ===== ===== ====== ===== =====
</TABLE>
____________________
(1) Real estate includes one- to four-family, commercial real estate,
construction and development and home equity loans.
70
<PAGE>
SECURITIES INVESTMENT ACTIVITIES
The Board of Trustees sets the securities investment policy of the Bank. The
Bank considers the ability of an investment to provide earnings consistent with
factors of quality, maturity, marketability and risk diversification. While the
Board of Trustees has final authority and responsibility for the securities
investment portfolio, the Bank has established a Management Investment Committee
comprised of eight officers including the Investment Officer to supervise the
Bank's securities investment program. The Chief Executive Officer is an ex-
officio member thereof. The Management Investment Committee reports to the
Asset/Liability Committee. The Management Investment Committee meets monthly
and evaluates all investment activities for safety and soundness, adherence to
the Bank's investment policy, and assurance that authority levels are
maintained. The Bank's Investment Officer is responsible for making securities
investment portfolio decisions in accordance with the Bank's policies. While
the Investment Officer has the authority to conduct trades within specific
guidelines established by the Bank's investment policy, all transactions are
reviewed by the Asset/Liability Committee on an ongoing basis and reported to
the Board of Trustees on a monthly basis.
The Bank's current policies generally permit securities investments in various
types of assets, including U.S. Government and agency securities, investment-
grade corporate debt obligations, various types of mortgage-backed and mortgage-
related securities, including CMOs, insured certificates of deposits and
corporate equities. In addition, the Bank's policies permit investments in
short-term commercial paper and various municipal and other bonds and
obligations. The Bank's current securities investment strategy is to
deemphasize its investment in U.S. government obligations, corporate debt and
municipal bonds and to emphasize the purchase of mortgage-backed and mortgage
related securities and equities in order to increase its overall investment
securities yield while remaining in short- and medium-term investments for
purposes of interest rate risk management.
The Bank currently does not participate in hedging programs, interest rate
swaps, or other activities involving use of off-balance sheet derivative
financial instruments. Similarly, the Bank does not invest in mortgage-related
securities which are deemed to be "high risk" by the federal banking regulators
or purchase bonds which are not rated investment grade.
At June 30, 1997, the Bank had $437.4 million in securities, consisting
primarily of U.S. Government and agency obligations, mortgage-backed and
mortgage related securities, municipal, public utility and corporate obligations
and preferred and common stocks. SFAS No. 115 requires the Bank to designate
its securities as held-to-maturity, available for sale or trading depending on
the Bank's intent regarding its investments. The Bank does not currently
maintain a trading portfolio of securities. In accordance with the Special
Report of the FASB regarding SFAS No. 115, in November, 1995, the Bank
reclassified $26 million of securities from held to maturity to available-for-
sale. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Comparison of Financial Condition at June 30, 1997 and
June 30, 1996." As of June 30, 1997, $47.1 million of the Bank's securities
portfolio, or 4.7% of total assets was classified as available-for-sale, with an
average life of the portfolio of 5.3 years. At such date, $390.3 million of the
Bank's securities portfolio, or 39.3% of total assets, was classified as held-
to-maturity, with a market value of $391.9 million and an average life of the
portfolio of 3.0 years.
Mortgage-Backed and Mortgage Related Securities. The Bank purchases mortgage-
backed and mortgage related securities in order to: (i) generate positive
interest rate spreads with minimal administrative expense and (ii) improve its
credit risk as a result of the guarantees provided by FHLMC, FNMA, and GNMA.
The Bank has primarily invested in mortgage-backed securities issued or
sponsored by FNMA, FHLMC and GNMA and private issuers. The Bank also invests in
mortgage related securities, primarily CMOs, issued or sponsored by FNMA and
FHLMC as well as private issuers. At June 30, 1997, mortgage-
71
<PAGE>
backed and mortgage related securities totalled $212.5 million, or 21.4% of
total assets and 22.5% of total interest earning assets of which $27.4 million
was classified as available-for-sale and $185.1 million was classified as held-
to-maturity as compared to $81.7 million, or 9.9% of total interest earning
assets at June 30, 1996. The increase in such securities reflects management's
recent revision to its securities investment strategy whereby it has decreased
its emphasis on debt securities by investing funds from maturing debt securities
into mortgage-backed and mortgage-related securities. At June 30, 1997, 18.4% of
the mortgage-backed and mortgage related securities were adjustable-rate and
81.6% were fixed-rate. The mortgage-backed and mortgage related securities
portfolio had coupon rates ranging from 5% to 11% and had a weighted average
yield of 7.22% at June 30, 1997. The estimated fair value of the Bank's
mortgage-backed securities available-for-sale at June 30, 1997, was $27.4
million, which is $114,000 greater than the amortized cost of $27.3 million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including FNMA, FHLMC
and GNMA) pool and resell the participation interests in the form of securities
to investors such as the Bank and guarantee the payment of principal and
interest to investors. Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements. In addition, mortgage-backed securities are usually
more liquid than individual mortgage loans and may be used to collateralize
certain liabilities and obligations of the Bank. Investments in mortgage-backed
securities involve a risk that actual prepayments will be greater than estimated
prepayments over the life of the security, which may require adjustments to the
amortization of any premium or accretion of any discount relating to such
instruments thereby impacting the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in the
event such securities are redeemed by the issuer. In addition, the market value
of such securities may be adversely affected by changes in interest rates. The
Bank estimates prepayments for its mortgage-backed securities at purchase to
ensure that prepayment assumptions are reasonable considering the underlying
collateral for the mortgage-backed securities at issue and current mortgage
interest rates and to determine the yield and estimated maturity of its
mortgage-backed security portfolio. Of the Bank's $212.5 million mortgage-
backed securities portfolio at June 30, 1997, $35.1 million with a weighted
average yield of 6.03% had contractual maturities within five years and $177.4
million with a weighted average yield of 7.46% had contractual maturities over
five years. However, the actual maturity of a mortgage-backed security may be
less than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the estimated life of
the security and may result in a loss of any premiums paid and thereby reduce
the net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related security.
Under such circumstances, the Bank may be subject to reinvestment risk because,
to the extent that the Bank's mortgage-backed securities prepay faster than
anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
CMOs are a type of debt security issued by a special purpose entity that
aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules as well as a residual interest with each class possessing different
risk characteristics. The cash flows from the underlying collateral is
generally divided into "tranches" or classes whereby tranches have descending
priorities with respect to the distribution of principal and interest
72
<PAGE>
repayment of the underlying mortgages and mortgage-backed securities as opposed
to pass through mortgage-backed securities where cash flows are distributed pro
rata to all security holders. In contrast to mortgage-backed securities from
which cash flow is received (and hence, prepayment risk is shared) pro rata by
all securities holders, the cash flow from the mortgages or mortgage-backed
securities underlying CMOs is paid in accordance with a predetermined priority
to investors holding various tranches of such securities or obligations. A
particular tranche of CMOs may therefore carry prepayment risk that differs from
that of both the underlying collateral and other tranches. Accordingly, CMOs
attempt to moderate reinvestment risk associated with conventional mortgage-
backed securities resulting from unexpected prepayment activity. Investments in
CMOs involve a risk that actual prepayments will differ from those estimated in
pricing the security, which may result in adjustments to the net yield on such
securities. Additionally, the market value of such securities may be adversely
affected by changes in the market interest rates. Management 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 June 30, 1997, the Bank's CMO portfolio totalled $115.2 million, or 11.6%,
of total assets and 12.2% of total interest earning assets, consisting of $78.3
million of CMOs issued by private issuers such as PNC Mortgage Corporation,
Prudential Home Mortgage Securities, Inc., and GE Capital Mortgage Services,
Inc. and $36.9 million issued by government sponsored agencies such as FNMA and
FHLMC. Prior to purchasing CMOs, each CMO is tested for Federal Financial
Institutions Examination Counsel ("FFIEC") qualification as it is the policy of
the Bank to limit its privately issued CMOs to non-high risk securities rated
"AAA" by two rating agencies with an average life of ten years or less. The
Bank also limits the amount of such investments to 15% of the Bank's assets and
5% of the Bank's assets for any individual issuer of privately issued CMOs. For
government sponsored CMOs, the Bank's policy limits such investments to non-high
risk securities that have an average life of ten years or less. The Bank also
limits the amount of such investments to $10 million per transaction. The Bank
monitors the credit rating of its CMOs on a regular basis. The current
securities investment policy of the Bank prohibits the purchase of higher risk
CMOs, which are defined as those securities exhibiting significantly greater
volatility of estimated average life and price relative to interest rates than
do standard 30-year fixed rate securities. At June 30, 1997, $15.6 million of
the Bank's CMO portfolio was classified as available-for-sale and $99.6 million
was classified as held-to-maturity with a market value of $99.7 million. At
such date, the Bank's CMO portfolio had an average estimated life of 2.8 years
and an average weighted yield of 7.33%.
Debt and Equity Securities. The Bank's investment in debt securities
generally consists of investments in U.S. Treasury securities and debt
securities issued by government sponsored agencies such as FNMA, FHLB and FHLMC.
The Bank also invests in debt securities issued by industrial and financial
companies and obligations of municipalities and public utilities. During 1997,
the Bank revised its investment strategy whereby it has decreased its emphasis
on investment in debt securities and has emphasized its investment in mortgage-
backed and mortgage-related securities. The Bank's current policy is to allow
such securities to mature.
U.S. Government and Agency Obligations. At June 30, 1997, the Bank's U.S.
--------------------------------------
Government securities portfolio totalled $52.8 million, all of which were
classified as held-to-maturity. Such portfolio primarily consists of short- to
medium-term (maturities of one to five years) securities. At June 30, 1997, the
Bank's agency securities portfolio totalled $39.5 million, all of which was
classified as held-to-maturity and consisted of agency callable debentures. The
Bank's callable agency debentures generally are callable on either a quarterly
or semi-annual basis following a holding period of three to six months. The
current policy of the Bank limits the purchase of agency debt obligations to a
maturity of ten years or less and limits such purchases to $10 million per
transaction.
73
<PAGE>
Corporate Bonds. The Bank's corporate bond portfolio, which at June 30, 1997
---------------
totalled $68.5 million, all of which is classified as held-to-maturity, was
composed primarily of short- and medium-term, fixed-rate investment grade
corporate issues. At June 30, 1997, the portfolio had an average life of
approximately 1.1 years and an average coupon rate of 7.0%. The Bank's policy
limits investments in corporate bonds to bonds rated "A" or higher and to a
total investment of 25% of the Bank's assets, with a 1% limitation of a single
issuer.
Public Utility Bonds. The Bank's public utility bond portfolio, which at June
--------------------
30, 1997 totalled $36.5 million, all of which are classified as held-to-
maturity, generally consists of bonds issued by electric and gas utilities and
telephone companies. All of the Bank's public utility bonds are rated "A" or
higher. The Bank's policies limit investments in gas and electric utility bonds
and telephone company bonds to 10% of total assets, each, and limit investment
in obligations of any one issuer to 1% of assets. At June 30, 1997, the average
life of the portfolio was approximately 1.9 years and the portfolio had an
average coupon rate of 6.50%.
Municipal Bonds. The Bank's municipal bond portfolio, which at June 30, 1997
---------------
was comprised of bonds issued by New York State agencies which totalled $1.1
million, had an estimated fair value of $1.2 million. All of such securities
were classified as held-to-maturity and were comprised of revenue bonds. All of
the Bank's municipal bonds are currently rated "A" or better. At such date the
average life of the portfolio was approximately 11.3 years and the portfolio had
an average coupon rate of 6.10%. Interest earned on municipal bonds is exempt
from federal, state and local income taxes.
Equity Securities. At June 30, 1997, the Bank's equity securities portfolio
-----------------
totalled $19.7 million all of which were classified as available-for-sale. Such
portfolio consisted of a $1.7 million investment in mutual funds, and $14.1
million in preferred stock issued by corporate issuers and $3.8 million of
common stock. The Bank benefits from its investment in common and preferred
stocks due to a tax deduction the Bank receives with regard to dividends paid by
corporate issuers on equity securities held by other corporate entities such as
the Bank. Accordingly, on a tax equivalent basis, the yield on the Bank's
equity portfolio was 8.54%. The Bank's policy limit for its common and
preferred stock investments is 5% of its total assets with a 0.5% limitation on
the purchase of any single issuer, with the exception of government agency
preferred stock, which limit is 5% per issuer. The Bank's current policies
permit the purchase of preferred stock rated "AA" or better. The substantial
majority of the Bank's preferred stock is redeemable by issuers after five
years. The Bank has retained an independent third party to advise it on its
common stock portfolio. The independent third party does not have discretionary
authority to purchase or sell common stock on behalf of the Bank. See
"Regulation and Supervision--FDIC Regulations."
74
<PAGE>
The following table sets forth the composition of the Bank's debt and equity
and mortgage-backed and mortgage related securities portfolios in dollar amounts
and in percentages at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------
1997 1996 1995
----------------------- --------------------- --------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
---------- ---------- --------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Corporate bonds..................................... $ 68,483 15.66% $110,714 26.94% $108,334 28.32%
U.S. Government obligations......................... 52,757 12.06 120,045 29.21 152,783 39.94
Agency securities................................... 39,457 9.02 49,472 12.03 -- --
Public Utilities.................................... 36,489 8.34 39,257 9.55 13,237 3.46
Municipal bonds..................................... 1,149 0.26 1,188 0.28 1,199 0.31
Other debt obligations(1)........................... 6,866 1.57 6,976 1.70 12,326 3.22
------- ----- ------- ----- ------- -----
Total debt securities........................... 205,201 46.91 327,652 79.71 287,879 75.25
------- ----- ------- ----- ------- -----
Equity securities:
Preferred stock..................................... 14,158 3.24 24 0.01 34 0.01
Common stock........................................ 3,814 0.87 156 0.04 149 0.04
Mutual funds........................................ 1,734 0.40 1,527 0.37 424 0.11
------- ----- ------- ----- ------- -----
Total equity securities......................... 19,706 4.51 1,707 0.42 607 0.16
------- ----- ------- ----- ------- -----
Mortgage-backed and mortgage
related securities:
FHLMC............................................... 82,237 18.80 80,284 19.53 92,404 24.15
GNMA................................................ 11,824 2.70 1,394 0.34 1,683 0.44
Private issuer...................................... 3,276 0.75 -- -- -- --
Agency CMOs......................................... 36,934 8.44 -- -- -- --
Private issuer CMOs................................. 78,249 17.89 -- -- -- --
------- ----- ------- ----- ------- -----
Total mortgage-backed and mortgage
related securities.............................. 212,520 48.58 81,678 19.87 94,087 24.59
------- ----- ------- ----- ------- -----
Total securities....................... $437,427 100.00% $411,037 100.00% $382,573 100.00%
======== ====== ======== ====== ======== ======
Debt and equity securities
available-for-sale................................... $ 19,706 4.51% $ 21,659 5.27% $ 607 0.16%
Debt and equity securities held-to-maturity............ 205,201 46.91 307,700 74.86 287,879 75.25
------- ----- ------- ----- ------- -----
Total debt and equity securities.............. 224,907 51.42 329,359 80.13 288,486 75.41
------- ----- ------- ----- ------- -----
Mortgage-backed and mortgage related
securities available-for-sale........................ 27,398 6.26 1,394 0.34 1,683 0.44
Mortgage-backed and mortgage related
securities held-to-maturity.......................... 185,122 42.32 80,284 19.53 92,404 24.15
------- ----- ------- ----- ------- -----
Total mortgage-backed and mortgage
related securities.................................. 212,520 48.58 81,678 19.87 94,087 24.59
------- ----- ------- ----- ------- -----
Total securities.............................. $437,427 100.00% $411,037 100.00% $382,573 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
- - - ------------------
(1) Consists of railroad, foreign and other bonds.
75
<PAGE>
The following table sets forth the Bank's securities activities for the
periods indicated:
<TABLE>
<CAPTION>
For the Year
Ended June 30,
----------------------------------------
1997 1996 1995
-------------- ---------- ------------
(In thousands)
<S> <C> <C> <C>
BEGINNING BALANCE............................. $411,037 $382,573 $403,740
-------- -------- --------
Debt and equity securities purchased - held-
to-maturity................................. 17,611 150,256 90,365
Debt and equity securities purchased -
available-for-sale.......................... 17,678 1,064 2,273
Mortgage-backed and mortgage related
securities purchased -
held-to-maturity........................... 133,668 15,197 29,218
Mortgage-backed and mortgage related
securities purchased -
available-for-sale........................... 26,478 -- --
LESS:
Sale of debt and equity securities -
available-for-sale........................... 11,938 10 2,132
Sale of mortgage-banked and mortgage related
securities - available-for-sale............. -- 5,940 --
Principal repayments on mortgage - backed
and mortgage related securities - held-to-
maturity.................................... 25,315 21,305 9,757
Principal repayments on mortgage-backed
and mortgage relates securities - available-
for-sale.................................. 479 410 505
Maturities of debt securities................. 127,005 107,658 125,877
Maturities of mortgage-backed and
mortgage related securities.................. 3,609 -- --
Realized (gains) losses received on sales
of mortgage-backed and mortgage related
securities................................... -- (19) --
Realized and unrealized (gains) losses
on debt and equity securities................ 110 (9) 125
Accretion of discount/Amortization of
(premium).................................... 1,039 2,769 4,753
Change in net unrealized (gains) losses
on available-for-sale securities............. (450) (11) (126)
-------- -------- --------
ENDING BALANCE................................ $437,427 $411,037 $382,573
======== ======== ========
</TABLE>
76
<PAGE>
The following table sets forth certain information regarding the amortized
cost and market values of the Bank's debt and equity and mortgage-backed and
mortgage related securities, at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- -------- ---------- -------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities held-to-maturity:
U.S. Government obligations................... $ 52,757 $ 52,815 $100,093 $ 99,897 $152,783 $152,590
Agency securities............................. 39,457 39,522 49,472 49,076 -- --
Municipal bonds............................... 1,149 1,198 1,188 1,212 1,199 1,226
Corporate obligations......................... 104,972 104,930 149,970 149,431 121,571 121,709
Other debt obligations........................ 6,866 6,897 6,977 6,993 12,326 12,229
-------- -------- -------- -------- -------- -------
Total debt securities held-to-
maturity.................................... 205,201 205,362 307,700 306,609 287,879 287,754
-------- -------- -------- -------- -------- -------
Debt securities available-for-sale:
U.S. Government obligations................... -- -- 19,967 19,952 -- --
-------- -------- -------- -------- -------- -------
Total debt securities available-for sale...... -- -- 19,967 19,952 -- --
-------- -------- -------- -------- -------- -------
Equity securities available-for-sale:
Mutual funds.................................. 1,629 1,734 1,521 1,527 457 424
Preferred stock............................... 14,027 14,158 27 24 36 34
Common stock.................................. 3,578 3,814 109 156 109 149
-------- -------- -------- -------- -------- -------
Total equity securities
available-for-sale......................... 19,234 19,706 1,657 1,707 602 607
-------- -------- -------- -------- -------- -------
Mortgage-backed and mortgage related
securities:
Held-to-maturity:
FHLMC........................................ 82,237 83,584 80,284 80,631 92,404 92,589
Private issuer............................... 3,276 3,281 -- -- -- --
Agency CMOs.................................. 32,248 32,336 -- -- -- --
Private Issuer CMOs.......................... 67,361 67,392 -- -- -- --
-------- -------- -------- -------- -------- -------
Total mortgage-backed and mortgage
related securities held-to-maturity........... 185,122 186,593 80,284 80,631 92,404 92,589
-------- -------- -------- -------- -------- -------
Available-for-sale:
GNMA......................................... 11,710 11,824 1,292 1,394 1,562 1,683
Agency CMOs.................................. 4,693 4,686
Private issuer CMOs.......................... 10,881 10,888 -- -- -- --
-------- -------- -------- -------- -------- -------
Total mortgage-backed and mortgage related
securities available-for-sale.............. 27,284 27,398 1,292 1,394 1,562 1,683
-------- -------- -------- -------- -------- -------
Net unrealized (losses) gains
on available-for-sale securities........... 586 -- 137 -- 126 --
-------- -------- -------- -------- -------- -------
Total securities............................... $437,427 $439,059 $411,037 $410,293 $382,573 $382,632
======== ======== ======== ======== ======== ========
</TABLE>
77
<PAGE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and contractual maturities of the Bank's securities
portfolio as of June 30, 1997.
<TABLE>
<CAPTION>
At June 30, 1997
--------------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years
-------------------- ------------------- ------------------- --------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
--------- -------- -------- -------- -------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
Municipal bonds................ $ -- --% $ 100 6.20% $ 290 6.50% $ 759 5.94%
U.S. Government obligations.... 21,374 6.50 31,383 6.03 -- -- -- --
Agency securities.............. -- -- 38,459 6.42 998 7.09 -- --
Public utilities............... 16,346 6.37 18,438 6.56 1,105 6.48 600 7.32
Corporate obligations.......... 42,802 6.40 25,681 6.08 -- -- -- --
Other debt obligations......... 4,594 5.70 2,272 7.16 -- -- -- --
----- ----- ----- -----
Total debt securities held-
to-maturity................. 85,116 6.38 116,333 6.27 2,393 6.74 1,359 6.55
------ ------- ----- -----
Mortgage-backed and mortgage
related securities:
FHLMC........................... 2,197 6.05 32,871 6.03 -- -- 47,169 7.78
Private issuer.................. -- -- -- -- -- -- 3,276 7.27
Agency CMOs..................... -- -- -- -- -- -- 32,248 7.62
Private issuer CMOs............. -- -- -- -- -- -- 67,361 7.22
----- ----- ---- ------
Total mortgage-backed and
mortgage related securities
held-to-maturity............. 2,197 6.05 32,871 6.03 -- -- 150,054 7.48
----- ------ ----- -------
Total securities
held-to-maturity............... 87,313 6.37 149,204 6.22 2,393 6.74 151,413 7.47
------ ------- ----- -------
Available-for-sale:
Mortgage-backed and mortgage
related securities:
GNMA........................... -- -- -- -- 36 8.34 11,788 7.35
Agency CMOs.................... -- -- -- -- -- -- 4,686 7.33
Private issuer CMOs............ -- -- -- -- -- -- 10,888 7.19
------- -------- ------ ------
Total mortgage-backed and
mortgage related securities
available-for-sale........... -- -- -- -- 36 8.34 27,362 7.28
Equity securities:
Mutual Funds................... -- -- -- -- -- -- -- --
Preferred stock................ -- -- -- -- -- -- -- --
Common stock................... -- -- -- -- -- -- -- --
------- -------- ------ --------
Total equity securities....... -- -- -- -- -- -- -- --
------- -------- ------ --------
Total securities available-
for-sale..................... -- -- -- -- 36 8.34 27,362 7.28
------- -------- ------ --------
Total Securities................. $87,313 6.37 $149,204 6.22 $2,429 6.76 $178,775 7.44
======= ======== ====== ========
<CAPTION>
At June 30, 1997
--------------------
Total
--------------------
Weighted
Carrying Average
Value Yield
-------- --------
(Dollars in thousands)
<S> <C> <C>
Held-to-maturity:
Debt securities:
Municipal bonds................ $ 1,149 6.10%
U.S. Government obligations.... 52,757 6.22
Agency securities.............. 39,457 6.43
Public utilities............... 36,489 6.48
Corporate obligations.......... 68,483 6.28
Other debt obligations......... 6,866 6.18
-----
Total debt securities held-
to-maturity................. 205,201 6.32
-------
Mortgage-backed and mortgage
related securities:
FHLMC........................... 82,237 7.03
Private issuer.................. 3,276 7.27
Agency CMOs..................... 32,248 7.62
Private issuer CMOs............. 67,361 7.22
------
Total mortgage-backed and
mortgage related securities
held-to-maturity............. 185,122 7.21
-------
Total securities
held-to-maturity............... 390,323 6.74
-------
Available-for-sale:
Mortgage-backed and mortgage
related securities:
GNMA........................... 11,824 7.35
Agency CMOs.................... 4,686 7.33
Private issuer CMOs............ 10,888 7.19
------
Total mortgage-backed and
mortgage related securities
available-for-sale........... 27,398 7.28
------
Equity securities:
Mutual Funds................... 1,734 3.95
Preferred stock................ 14,158 6.20
Common stock................... 3,814 1.63
-----
Total equity securities....... 19,706 5.12
------
Total securities available-
for-sale..................... 47,104 6.38
------
Total Securities................. $437,426 6.70
========
</TABLE>
78
<PAGE>
SOURCES OF FUNDS
General. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and securities, and proceeds from maturing
securities and cash flows from operations are the primary sources of the Bank's
funds for use in lending, investing and for other general purposes. To a lesser
extent, the Bank utilizes borrowed funds to fund its operations. The Bank has
applied for membership in the FHLB system, which, if approved, will provide
another source of borrowed funds.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings,
retail checking/NOW accounts, commercial checking accounts, money market
accounts, club accounts and certificates of deposit accounts. The Bank offers
jumbo certificate of deposit accounts and also offers Individual Retirement
Accounts ("IRAs") and other qualified plan accounts. While jumbo certificate
accounts are accepted by the Bank, and may be subject to preferential rates, the
Bank does not actively solicit such deposits as such deposits are more difficult
to retain than core deposits.
At June 30, 1997, the Bank's deposits totalled $884.5 million, of which 89.5%
were interest-bearing deposits. For the year ended June 30, 1997, the average
balance of core deposits totalled $563.8 million, or 67.3% of total average
deposits. At June 30, 1997, the Bank had a total of $298.1 million in
certificates of deposit, of which $209.1 million had maturities of one year or
less. For the year ended June 30, 1996, the average balance of core deposits
represented approximately 69.0% of total deposits and certificate accounts
represented 31.0%, as compared to core deposits representing 67.3% of total
deposits and certificate accounts representing 32.7% of deposits for the year
ended June 30, 1997. See "Risk Factors - Sensitivity to Increases in Interest
Rates." Although the Bank has a significant portion of its deposits in savings
accounts, management monitors activity on the Bank's savings accounts and, based
on historical experience and the Bank's current pricing strategy, believes it
will continue to retain a large portion of such accounts. The Bank is not
limited with respect to the rates it may offer on deposit products.
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
which its branch offices are located. 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 affect the Bank's ability to attract and retain deposits.
The Bank uses traditional means of advertising its deposit products, including
television and print media and generally does not solicit deposits from outside
its market area. While the Bank has historically not accepted brokered
deposits, the Bank is currently in the process of establishing relationships
with deposit brokers and may, in the future, utilize brokered deposits as a
funding source, depending on market conditions.
79
<PAGE>
The following table presents the deposit activity of the Bank for the periods
indicated.
<TABLE>
<CAPTION>
For the Year Ended June 30,
------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(In thousands)
Net deposits (withdrawals)................ $38,896 $27,612 $(7,032)
Interest credited on deposit accounts..... 27,707 26,254 22,456
------- ------- -------
Total increase in deposit accounts........ $66,603 $53,866 $15,424
======= ======= =======
</TABLE>
At June 30, 1997, the Bank had outstanding $27.4 million in certificate of
deposit accounts in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount Average Rate
- - - ----------------------------------- ----------- ----------------
<S> <C> <C>
(Dollars in thousands)
Three months or less................ $ 5,528 5.06%
Over three through six months....... 5,727 5.37
Over six through 12 months.......... 6,296 5.31
Over 12 months...................... 9,890 5.99
------
Total............................... $27,441 5.53
======
</TABLE>
80
<PAGE>
The following table sets forth the distribution of the Bank's average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits presented. Averages for the periods presented utilize
average month-end balances.
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- -------------------------------- -----------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
--------- ---------- --------- --------- ---------- --------- --------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market accounts............ $ 37,552 4.48% 3.48% $ 28,430 3.64% 3.47% $ 25,058 3.37% 2.93%
Savings accounts................. 432,162 51.61 2.74 430,500 55.09 2.75 462,720 62.15 2.74
NOW accounts..................... 15,652 1.87 2.36 14,602 1.87 2.42 13,724 1.84 2.66
Non-interest-bearing accounts.... 78,483 9.37 -- 65,670 8.40 -- 54,864 7.37 --
--------- ------ -------- ------ -------- ------
Total.......................... 563,849 67.33 2.40 539,202 69.00 2.44 556,366 74.73 2.48
--------- ------ -------- ------ -------- ------
Certificates of deposit:
Less than six months........... 30,437 3.64 4.38 30,360 3.89 4.55 33,593 4.51 3.52
Over six through 12 months..... 46,188 5.52 4.90 39,924 5.11 4.91 35,013 4.70 3.94
Over 12 through 24 months...... 121,109 14.46 5.33 100,840 12.91 5.49 56,846 7.63 5.10
Over 24 months................. 52,787 6.30 5.75 54,496 6.97 5.66 52,649 7.07 5.30
Certificates over $100,000..... 23,025 2.75 5.32 16,577 2.12 5.39 10,111 1.36 4.73
Total certificates of deposit 273,546 32.67 242,197 31.00 188,212 25.27
-------- ------ -------- ------ -------- ------
Total average deposits.... $837,395 100.00% $781,399 100.00% $744,578 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
81
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
Period to Maturity from June 30, 1997 At June 30,
--------------------------------------------------------------------- --------------------------
Less than One to Two to Three to Four to Five years
One Year Two years Three years Four years Five years or more 1997 1996 1995
---------- --------- ----------- ----------- ------------ ----------- ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit:
0 to 4.00%............. $ 3,231 $ 29 $ -- $ -- $ 109 $ -- $ 3,369 $ 2,972 $ 2,085
4.01 to 5.00%.......... 68,377 7,118 39 -- -- -- 75,534 155,120 78,134
5.01 to 6.00%.......... 134,924 51,941 4,919 4,186 6,105 3,250 205,325 63,573 87,760
6.01 to 7.00%.......... 2,545 490 1,771 285 3,845 617 9,553 28,167 58,495
7.01 to 8.00%.......... -- -- -- 558 3,727 -- 4,285 4,095 --
Over 8.00%............. -- -- -- -- -- -- -- -- --
-------- ------- ------ ------ ------- ------ -------- -------- --------
Total.............. $209,077 $59,578 $6,729 $5,029 $13,786 $3,867 $298,066 $253,927 $226,474
======== ======= ====== ====== ======= ====== ======== ======== ========
</TABLE>
82
<PAGE>
Borrowed Funds. The Bank has historically not utilized borrowings as a source
of funding and has primarily depended on retail deposits to provide funding. At
June 30, 1997, the Bank had no borrowed funds. However, the Bank currently
maintains a $10.0 million line of credit with a regional financial institution
and has the ability to obtain funding through the use of reverse repurchase
agreements entered into with a nationally recognized investment banking firm.
The reverse purchase agreements would generally be short-term and
collateralized by U.S. Treasury obligations or other liquid securities. In
order to provide the Bank with an additional source of funding, the Bank has
recently applied to become a member of the FHLB, and anticipates receiving
approval by the end of October 1997. The Bank, upon approval of its
application, may utilize advances from the FHLB from time-to-time as an
alternative to retail deposits to fund its operations in the future. FHLB
advances may also be used to acquire certain other assets as may be deemed
appropriate for investment purposes. These advances would be collateralized
primarily by certain of the Bank's mortgage loans and mortgage-backed
securities. See "Regulation and Supervision--Federal Home Loan Bank System."
Such advances are made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The maximum amount
that the FHLB will advance to member institutions fluctuates from time-to-time
in accordance with the policies of the OTS and the FHLB.
OTHER ACTIVITIES
In addition to its traditional lending and deposit products, the Bank also
offers certain merchant banking services. These include providing credit card
deposit accounts to local merchants. The Bank receives a processing fee from the
customer for each credit card transaction processed. The Bank also receives
monthly income from terminal and printer sales and rentals. For the year ended
June 30, 1997, $65,000, or 2.2% of total fee income, was attributable to credit
card processing fees. In addition, the Bank has endorsed and promotes a credit
card through a national affinity credit card bank. Under the program, the
affinity credit card bank receives and underwrites all credit card applications.
The Bank receives royalty payments based on new accounts and renewal accounts,
as well as a portion of finance charges assessed. For the year ended June 30,
1997, the Bank received $42,000, or 1.4% of total fee income, through the
affinity credit card program.
SUBSIDIARY ACTIVITIES
RCSB Corp. RCSB Corp. ("RCSB"), a wholly-owned subsidiary of the Bank
incorporated in the State of New York in 1976, was formed to purchase three
branch buildings from the Bank, which are leased back to the Bank and which is
currently the only business activity conducted by RCSB. The assets of RCSB
totalled $812,000 at June 30, 1997.
Richmond Enterprises, Inc. Richmond Enterprises, Inc., a wholly-owned
subsidiary of the Bank incorporated in the State of New York in 1983, previously
was a partner in a joint-venture real estate development project with a local
developer. The development was completed in 1986, and Richmond Enterprises,
Inc. has been inactive since that date. Its total assets as of June 30, 1997
were $4,000.
83
<PAGE>
Properties
The Bank currently conducts its business through thirteen full service banking
offices. The following table sets forth the Bank's offices as of June 30, 1997.
The table does not include the public accommodation office the Bank intends to
open in 1998, nor does it include the two full service branch office facilities
the Bank is considering establishing. With the exception of the lease for the
public accommodation office, there are no current agreements, understandings or
arrangements, oral or written, with respect to such offices, and no assurances
can be given that such offices will be opened.
<TABLE>
<CAPTION>
Original Net Book Value
Year of Property or Total
Leased Leased Date of Leasehold Deposits at
or or Lease Improvements at Branch
Location Owned Acquired Expiration June 30, 1997 Office
- - - ----------------------------- ------- ----------- ------------- ---------------- -------------
Administrative/Home Office: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
West New Brighton Office (1): Owned 1916 -- $ 563 $ 57,019
1214 Castleton Avenue
Staten Island, NY 10310
BRANCH OFFICES:
Port Richmond Office (2): Leased 1976 2001 118 63,329
282 Port Richmond Avenue
Staten Island, NY 10302
Great Kills Office: Owned 1975 -- 677 91,016
3879 Amboy Road
Staten Island, NY 10308
Annadale Office (2): Leased 1976 2001 368 64,678
820 Annadale Road
Staten Island, NY 10312
Bull's Head Office (2): Leased 1976 2001 328 61,792
1460 Richmond Avenue
Staten Island, NY 10314
Dongan Hills Office: Owned 1974 -- 537 72,010
1833 Hylan Boulevard
Staten Island, NY 10305
New Springville Office: Leased 1976 2005 333 116,118
2555 Richmond Avenue
Staten Island, NY 10134
Woodrow Plaza Office: Leased 1983 2013 191 54,052
645-100 Rossville Avenue
Staten Island, NY 10309
Tottenville Office: Owned 1988 -- 274 25,728
179 Main Street
Staten Island, NY 10307
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
Original of Property or
Year Leasehold Total
Leased Leased Date of Improvements Deposits at
or or Lease at Branch
Location Owned Acquired Expiration June 30, 1997 Office
- - - -------------------------- --------- ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Westerleigh Office: Owned 1992 -- $ 404 $ 57,067
832 Jewett Avenue
Staten Island, NY 10314
Eltingville Office (3): Owned 1992 -- 1,340 77,011
4523 Amboy Road
Staten Island, NY 10312
Grasmere Office: Leased 1992 2005 121 51,268
1100 Hylan Boulevard
Staten Island, NY 10305
Brooklyn Office: Leased 1977 1997 346(4) 93,443
132 Avenue U
Brooklyn, NY 11223
PUBLIC ACCOMMODATION OFFICE:
Brooklyn Public Accommodation Leased 1980 1999 -- --
Office
81 Avenue U
Brooklyn, NY 11223
- - - ---------------------------
</TABLE>
(1) Certain portions of the Bank's administrative operations are located at
properties not included in the table.
(2) Property is owned by RCSB Corp.
(3) Eltingville office includes the Bank's lending center.
(4) Together with Brooklyn Public Accommodation Office.
LEGAL PROCEEDINGS
The Bank 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 are believed by management to be immaterial
to the financial condition and results of operations of the Bank.
PERSONNEL
As of June 30, 1997, the Bank had 249 full-time employees and 113 part-time
employees. The employees are not represented by a collective bargaining unit
and the Bank considers its relationship with its employees to be good. See
"Management of the Bank - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
85
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Company and the Bank will report their income on a
consolidated basis, using a calendar year and 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 treatment
of its reserve for bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Company. The Bank
had been audited by the IRS for the year ended December 31, 1992 resulting in a
refund of $27,000. The Bank was also audited by the State of New York for the
three-year period ended December 31, 1993, resulting in an assessment of tax
plus interest in the amount of $4,000.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Act"), which was enacted on August 20, 1996, made significant changes to
provisions of the Code relating to a savings institution's use of bad debt
reserves for federal income tax purposes and requires such institutions to
recapture (i.e. take into income) certain portions of their accumulated bad debt
reserves. The effect of the 1996 Act on the Bank is discussed below. Prior to
the enactment of the 1996 Act, the Bank was permitted to establish tax reserves
for bad debts and to make annual additions thereto, which additions, within
specified formula limits, were deducted in arriving at the Bank's taxable
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, could be computed
using an amount based on a six-year moving average of the Bank's actual loss
experience (the "Experience Method"), or a percentage equal to 8% of the Bank's
taxable income (the "PTI Method"), computed without regard to this deduction and
with additional modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. The Bank's deduction with respect to
non-qualifying loans was required to be computed under the Experience Method.
The 1996 Act. Under the 1996 Act, for its current and future taxable
years, the Bank is not permitted to make additions to its tax bad debt reserves.
In addition, the Bank is required to recapture (i.e. take into income) over a
six year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 over the balance of such reserves as of December 31, 1987. As
of December 31, 1995, $2.5 million of the Bank's bad debt reserve was subject to
recapture for which deferred taxes have been provided.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and an
amount based on the amount distributed (but not in excess of the amount of such
reserves) will be included in the Bank's income. The term "Non-dividend
distributions" is defined as 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 cause this pre-1988 reserve to be included in the Bank's
income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includable in income for federal
income tax purposes, assuming a 35% federal corporate income tax rate. See
"Regulation and Supervision" and "Dividend Policy" for limits on the payment of
dividends by the Bank.
86
<PAGE>
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 on alternative
minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI can be
offset by net operating loss carryforwards. The adjustment to AMTI based on
book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses).
Certain payments of AMTI may be used as credits against regular tax liabilities
in future years. For tax years prior to the 1996 tax year, the excess of the
bad debt reserve deduction using the percentage of taxable income method over
the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
for taxable years beginning after December 31, 1986 and before January 1, 1996,
an environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2 million, is imposed on corporations, including the Bank, whether or not
an Alternative Minimum Tax ("AMT") is paid. The Bank has not been subject to
the AMT, and no such amounts have been accrued for carryover.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
excluded.
STATE AND LOCAL TAXATION
New York State and New York City Taxation. The Bank is subject to the New
York State Franchise Tax on Banking Corporations in an annual amount equal to
the greater of (i) 9% of the Bank's "entire net income" allocable to New York
State during the taxable year, or (ii) the applicable alternative minimum tax.
The alternative minimum tax is generally the greatest of (a) .01% of the average
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 (including that net operating losses
cannot be carried back or carried forward) and alternative entire net income is
equal to entire net income without certain adjustments. The Bank is also
subject to New York City Corporation Tax which is imposed using SMTI or
alternative taxable income method. 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 and City purposes,
the applicable percentage to calculate bad debt deduction under the percentage
of taxable income method is 32%. The New York State and New York City tax laws
were recently amended to prevent the recapture of tax bad debt reserves that
would otherwise occur as a result of the enactment of the 1996 Act for both New
York State and City tax purposes. See "- Federal Taxation - Bad Debt Reserves."
However, the New York bad debt reserve is subject to recapture for "non-dividend
distributions" in a manner similar to the recapture of the federal bad debt
reserves for such distributions. See "- Federal Taxation - Distributions".
Also, the New York bad debt reserve is subject to recapture in the event that
the Bank fails to satisfy certain definitional tests relating to its assets and
the nature of its business. The Bank's deduction with respect to non-qualifying
loans must be computed under the experience method which is based on the Bank's
actual charge-offs.
A Temporary Metropolitan Transportation Business Tax 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 ended December 31, 1997, the surcharge rate is
17% of the New York State Franchise Tax liability.
87
<PAGE>
Delaware State Taxation. As a Delaware holding company not earning income
in Delaware, the Company is exempted from Delaware Corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
REGULATION AND SUPERVISION
GENERAL
The Bank is a New York State chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the BIF. The
Bank is subject to extensive regulation by the Superintendent, the NYBB, the
NYBD, as its chartering agency, and by the FDIC, as the deposit insurer. The
Bank must file reports with the NYBD and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as establishing branches and mergers
with, or acquisitions of, other depository institutions. There are periodic
examinations by the NYBD and the FDIC to assess the Bank's compliance with
various regulatory requirements and financial condition. This regulation and
supervision establishes a framework of activities in which a savings bank can
engage and is intended primarily for the protection of the 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 NYBD,
the FDIC or through legislation, could have a material adverse impact on the
Company and the Bank and their operations and stockholders. The Holding Company
will also be required to file certain reports with, and otherwise comply with
the rules and regulations, of the OTS, the NYBD and of the Securities and
Exchange Commission ("SEC") under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Holding Company are
referred to below or elsewhere herein.
NEW YORK STATE LAW
The Bank derives its lending, investment and other authority primarily from
the applicable provisions of New York State Banking Law and the regulations of
the NYBB, as limited by FDIC regulations. See "- Investment Activities." Under
these laws and regulations, savings banks, including the Bank, may invest in
real estate mortgages, consumer and commercial loans, certain types of debt
securities, including certain corporate debt securities and obligations of
federal, state and local governments and agencies, certain types of corporate
equity securities and certain other assets. Under the statutory authority for
investing in equity securities, a savings bank may directly invest up to 7.5% of
its assets in certain corporate stock and may also invest up to 7.5% of its
assets in certain mutual fund securities. Investment in the stock of a single
corporation is limited to the lesser of 2% of the outstanding stock of such
corporation or 1% of the savings bank's assets, except as set forth below. Such
equity securities must meet certain tests of financial performance. A savings
bank's lending powers are not subject to percentage of asset limitations,
although there are limits applicable to single borrowers. A savings bank may
also, pursuant to the "leeway" authority, make investments not otherwise
permitted under the New York State Banking Law. This authority permits
investments not otherwise authorized of up to 1% of the savings bank's assets
in any single investment, subject to certain restrictions and to an aggregate
limit for all such investments of up to 5% of assets. Additionally, in lieu of
investing in such securities in accordance with and reliance upon the specific
investment authority set forth in the New York State Banking Law, savings banks
are authorized to elect to invest under a "prudent person" standard in a wider
range of debt and equity securities as compared to the types of investments
permissible under such specific investment authority. However, in the event a
savings bank elects to utilize the "prudent person" standard, it will be unable
to avail itself of the other provisions
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of the New York State Banking Law and regulations which set forth specific
investment authority. A New York State chartered stock savings bank may also
exercise trust powers upon approval of the New York State Banking Board.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment power. A savings bank may use this
power to invest in corporations that engage in various activities authorized for
savings banks, plus any additional activities which may be authorized by the
NYBD. Investment by a savings bank in the stock, capital notes and debentures
of its service corporations is limited to 3% of the bank's assets, and such
investments, together with the bank's loans to its service corporations, may not
exceed 10% of the savings bank's assets.
The exercise by an FDIC-insured savings bank of the lending and investment
powers of a savings bank under the New York State Banking Law is limited by FDIC
regulations and other federal law and regulations. In particular, the
applicable provisions of New York State Banking Law and regulations governing
the investment authority and activities of an FDIC insured state-chartered
savings bank have been effectively limited by the Federal Deposit Insurance
Corporation Improvement Act of 1991 and the FDIC regulations issued pursuant
thereto. See "- Investment Activities."
With certain limited exceptions, a New York State chartered savings bank
may not make loans or extend credit for commercial, corporate or business
purposes (including lease financing) to a single borrower, the aggregate amount
of which would be in excess of 15% of the bank's net worth. The Bank currently
complies with all applicable loans-to-one-borrower limitations.
Under New York State Banking Law, a New York State chartered stock savings
bank may declare and pay dividends out of its net profits, unless there is an
impairment of capital, but approval of the Superintendent is required if the
total of all dividends declared in a calendar year would exceed the total of its
net profits for that year combined with its retained net profits of the
preceding two years, subject to certain adjustments.
Under the New York State Banking Law, the Superintendent may issue an order
to a New York State 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 NYBB 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, such director, trustee or officer may be removed
from office by the NYBB after notice and an opportunity to be heard. The Bank
does not know of any past or current practice, condition or violation that might
lead to any proceeding by the Superintendent or the NYBB against the Bank or any
of its Trustees or officers. The Superintendent also may take possession of a
banking organization under specified statutory criteria.
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FDIC REGULATIONS
Capital Requirements. The FDIC has adopted risk-based capital guidelines
to which the Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations. The Bank is required
to maintain certain levels of regulatory capital in relation to regulatory risk-
weighted assets. The ratio of such regulatory capital to regulatory risk-
weighted assets is referred to as the Bank's "risk-based capital ratio." Risk-
based capital ratios are determined by allocating assets and specified off-
balance sheet items to four risk-weighted categories ranging from 0% to 100%,
with higher levels of capital being required for the categories perceived as
representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain non-
cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC may, however, set higher leverage and risk-based capital requirements on
individual institutions when particular circumstances warrant. Savings banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
The following is a summary of the Bank's regulatory capital at June 30,
1997:
GAAP Capital to Total Assets 10.15%
Total Capital to Risk-Weighted Assets 19.71%
Tier I Leverage Ratio 10.02%
In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate risk
in assessing a bank's capital adequacy. 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 have 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 have determined not to proceed with a previously issued proposal to
develop a supervisory framework for measuring interest rate risk and an explicit
capital component for interest rate risk.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things, internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure;
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asset growth; compensation; fees and benefits; and such other operational and
managerial standards as the agency deems appropriate. The federal banking
agencies adopted final regulations and Interagency Guidelines Establishing
Standards for Safety and Soundness (the "Guidelines") to implement these safety
and soundness standards. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
Guidelines address internal controls and information systems; internal audit
system; credit underwriting; loan documentation; interest rate risk exposure;
asset growth; asset quality; earnings and compensation; fees and benefits. If
the appropriate federal banking agency determines that an institution fails to
meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the Federal Deposit Insurance Act, as amended,
("FDI Act"). The final regulation establishes deadlines for the submission and
review of such safety and soundness compliance plans.
Real Estate Lending Standards. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction or improvements on real estate. The FDIC regulations
require each institution to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the institution and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying FDIC guidelines, which include loan-to-value limitations for the
different types of real estate loans. Institutions are also permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standard are justified.
Dividend Limitations. The FDIC has authority to use its enforcement powers
to prohibit a savings bank from paying dividends if, in its opinion, the payment
of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends by a bank that will result in the bank
failing to meet applicable capital requirements on a pro forma basis.
Additionally, the Bank, as a subsidiary of a savings and loan holding company,
will be required to provide the OTS with 30 days prior written notice before
declaring any dividend. The Plan of Conversion also restricts the Bank's
payment of dividends in the event the dividend would impair the liquidation
account established in connection with the Conversion. The Bank is also subject
to dividend declaration restrictions imposed by New York law. See "- New York
State Law" and "Dividend Policy."
INVESTMENT ACTIVITIES
Since the enactment of FDICIA, all state-chartered financial institutions,
including savings banks and their subsidiaries, have generally been limited to
activities as principal and equity investments of the type and in the amount
authorized for national banks, notwithstanding state law. FDICIA and the FDIC
regulations thereunder permit certain exceptions to these limitations. For
example, certain state chartered banks, such as the Bank, may, with FDIC
approval, continue to exercise state authority to invest in common or preferred
stocks listed on a national securities exchange or the Nasdaq National Market
and in the shares of an investment company registered under the Investment
Company Act of 1940, as amended. Such banks may also continue to sell savings
bank life insurance. In addition, the FDIC is authorized to permit such
institutions to engage in state authorized activities or investments that do not
meet this standard (other than non-subsidiary equity investments) for
institutions that meet all applicable capital requirements if it is determined
that such activities or investments do not pose a significant risk to the BIF.
The FDIC has recently proposed revisions to its regulations governing the
procedures for institutions seeking approval to engage in such activities or
investments. These proposed revisions would, among other things, streamline
certain application procedures for healthy banks and impose certain quantitative
and qualitative restrictions
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on a bank's dealings with its subsidiaries engaged in activities not permitted
for national bank subsidiaries. All non-subsidiary equity investments, unless
otherwise authorized or approved by the FDIC, must have been divested by
December 19, 1996, pursuant to a FDIC-approved divestiture plan unless such
investments were grandfathered by the FDIC. The Bank received grandfathering
authority from the FDIC in February, 1993 to invest in listed stocks and/or
registered shares subject to the maximum permissible investment of 100% of Tier
1 capital, as specified by the FDIC's regulations, or the maximum amount
permitted by New York State Banking Law, whichever is less. Such grandfathering
authority is subject to termination upon the FDIC's determination that such
investments pose a safety and soundness risk to the Bank or in the event the
Bank converts its charter or undergoes a change in control. As of June 30, 1997,
the Bank had $8.6 million of securities which were subject to such
grandfathering authority.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
legislation. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total risk-
based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or
greater, and generally a leverage ratio of 4% or greater. An institution is
deemed to be "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions in an
amount equal to the lesser of 5.0% of the Bank's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" bank fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks are subject to one or more of a number of additional
restrictions, including but not limited to an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks or dismiss
directors or officers, and restrictions on interest rates paid on deposits,
compensation of executive officers and capital distributions by the parent
holding company. "Critically undercapitalized" institutions also may not,
beginning 60 days after becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any material transaction outside the
ordinary course of business. In addition, "critically undercapitalized"
institutions are subject to appointment of a receiver or conservator.
Generally, subject to a narrow exception, the appointment of a receiver or
conservator is required for a "critically undercapitalized" institution within
270 days after it obtains such status.
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TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent
holding company are affiliates of the savings bank. The FRB has proposed
regulations that would treat as an affiliate any subsidiary of a savings bank
that engages in activities not permissible for the parent savings bank to engage
in directly. Generally, Section 23A limits the extent to which the savings bank
or its subsidiaries may engage in "covered transactions" with any one affiliate
to an amount equal to 10% of such savings bank's capital stock and surplus, and
contains an aggregate limit on all such transactions with all affiliates to an
amount equal to 20% of such capital stock and surplus. The term "covered
transaction" includes the making of loans or other extensions of credit to an
affiliate; the purchase of assets from an affiliate, the purchase of, or an
investment in, the securities of an affiliate; the acceptance of securities of
an affiliate as collateral for a loan or extension of credit to any person; or
issuance of a guarantee, acceptance, or letter of credit on behalf of an
affiliate. Section 23A also establishes specific collateral requirements for
loans or extensions of credit to, or guarantees, acceptances on letters of
credit issued on behalf of an affiliate. Section 23B requires that covered
transactions and a broad list of other specified transactions be on terms
substantially the same, or no less favorable, to the savings bank or its
subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and shareholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to
directors, executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons
except for extensions of credit made pursuant to a benefit or compensation
program that is widely available to the institution's employees and does not
give preference to insiders over other employees. Section 22(g) of the Federal
Reserve Act places additional limitations on loans to executive officers.
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 has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for an
insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically undercapitalized."
For this purpose, "critically undercapitalized" means having a ratio of tangible
capital to
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total assets of less than 2%. See "- Prompt Corrective Regulatory Action." The
FDIC may also appoint a conservator or receiver for a state savings 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 savings 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 savings 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.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based 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 seven
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. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and additional information
which the FDIC determines to be relevant to the institution's financial
condition and the risk posed to the deposit insurance funds. An institution's
assessment rate depends on the capital category and supervisory category to
which it is assigned. Assessment rates for BIF and SAIF deposits currently
range from 0 basis points to 27 basis points. The FDIC is authorized to raise
the assessment rates in certain circumstances including to maintain or achieve
the designated reserve ratio of 1.25%, which requirement the BIF and the SAIF
currently meet. The FDIC has exercised its authority to raise rates in the past
and may raise insurance premiums in the future. If such action is taken by the
FDIC, it could have an adverse effect on the earnings of the Bank. In addition,
recent legislation requires BIF-insured institutions like the Bank to assist in
the payment of Financing Corporation bonds.
Under the FDI Act, 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 or the
Division. The management of the Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $49.3 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $49.3
million, the reserve requirement is $1.5 million plus 10% (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $49.3 million. The first $4.4 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) 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 Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. FHLB System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal
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Reserve Board regulations require institutions to exhaust all FHLB sources
before borrowing from a Federal Reserve Bank.
COMMUNITY REINVESTMENT ACT
Federal Regulation. Under the Community Reinvestment Act, as amended
("CRA"), as implemented by FDIC 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, consistent with the CRA. 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. The FIRREA amended the CRA to require, effective July 1,
1990, public disclosure of an institution's CRA rating and require the FDIC to
provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system which replaced the five-tiered numerical
rating system. The Bank's latest CRA rating, received from the FDIC was
"Satisfactory."
New York State Regulation. The Bank is also subject to provisions of the
New York State Banking Law which impose continuing and affirmative obligations
upon banking institutions organized in New York State to serve the credit needs
of its local community ("NYCRA"), which are substantially similar to those
imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA
report and copies of all federal CRA reports with the NYBD. The NYCRA requires
the NYBD to make an annual written assessment of a bank's compliance with the
NYCRA, utilizing a four-tiered rating system, and make such assessment available
to the public. The NYCRA also requires the Superintendent to consider a bank's
NYCRA rating when reviewing a bank's application to engage in certain
transactions, including mergers, asset purchases and the establishment of branch
offices or automated teller machines, and provides that such assessment may
serve as a basis for the denial of any such application. The Bank's latest
NYCRA rating received from the NYBD was "Satisfactory."
FEDERAL HOME LOAN BANK SYSTEM
The Bank has applied to become a member of the FHLB System, which consists
of 12 regional FHLBs. The Bank expects to receive approval of its application
in October 1997. The FHLB provides a central credit facility primarily for
member institutions. The Bank, as a member of the FHLB, will be required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. FHLB advances must be secured
by specified types of collateral and all long-term advances may only be obtained
for the purpose of providing funds for residential housing finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. If dividends were reduced, the Bank's net interest
income will likely also be reduced. Further, there can be no assurance that the
impact of recent or future legislation on the FHLBs will not also cause a
decrease in the value of the FHLB stock that will be held by the Bank.
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HOLDING COMPANY REGULATION
Federal law allows a state savings bank that qualifies as a "qualified
thrift lender" ("QTL"), discussed below, to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
the Home Owners' Loan Act, as amended ("HOLA"). Such election would result in
its holding company being regulated as a savings and loan holding company by the
OTS rather than as a bank holding company by the Federal Reserve Board. The
Bank has made such election and has applied to the OTS to become a savings and
loan holding company. Assuming the application is approved, the Company will be
regulated as a non-diversified unitary savings and loan holding company within
the meaning of the HOLA. As such, the Company will be required to register with
the OTS and will be subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Company and its non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. Additionally, the
Bank will be required to notify the OTS at least 30 days before declaring any
dividend to the Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage. Upon any non-supervisory acquisition by the Company of
another savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be subject to extensive
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as
amended ("BHC Act"), subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation. Multiple savings and loan holding
companies are prohibited from acquiring or retaining, with certain exceptions,
more than 5% of a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by the HOLA. Recently proposed
legislation would treat all savings and loan holding companies as bank holding
companies and would limit the activities of such companies to those permissible
for bank holding companies.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof or
from acquiring such an institution or company by merger, consolidation or
purchase of its assets, without prior written approval of the OTS. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), the Bank must continue to qualify as a QTL. In order to qualify
as a QTL, the Bank must maintain compliance with a Qualified Thrift Lender Test
("QTL Test"). Under the QTL Test, a savings institution is required to maintain
at least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles,
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including goodwill; and (iii) the value of property used to conduct business) in
certain "qualified thrift investments" (primarily residential mortgages and
related investments, including certain mortgage-backed and related securities)
in at least 9 months out of each 12 month period. A holding company of a savings
institution that fails the QTL test must either convert to a bank holding
company and thereby become subject to the regulation and supervision of the
Federal Reserve Board or operate under certain restrictions. As of June 30,
1997, the Bank maintained in excess of 79.9% its portfolio assets in qualified
thrift investments. The Bank also met the QTL test in each of the prior 12
months and, therefore, met the QTL test. Recent legislative amendments have
broadened the scope of "qualified thrift investments" that go toward meeting the
QTL test to fully include credit card loans, student loans and small business
loans. A savings association may also satisfy the QTL test by qualifying as a
"domestic building and loan association" as defined in the Internal Revenue Code
of 1986.
New York State Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in New York State may be also subject to regulation under the New York State
Banking Law. The term "bank holding company," for the purposes of the New York
State Banking Law, is defined generally to include any person, company or trust
that directly or indirectly either controls the election of a majority of the
directors or 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, including commercial banks and state
savings banks and savings and loan associations organized in stock form. In
general, a holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
the New York State Banking Law. Under New York State Banking Law, the prior
approval of the NYBD 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 which have been chartered five years or less and are located in
smaller communities. Officers, directors and employees of New York State bank
holding companies are subject to limitations regarding their affiliation with
securities underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries. Although the
Company will not be a bank holding company for purposes of New York State law
upon the Effective Date of the Conversion, any future acquisition of ownership,
control, or the power to vote 10% or more of the voting stock of another banking
institution or bank holding company would cause it to become such.
INTERSTATE BANKING AND BRANCHING
The Company, as a savings and loan holding company, will be limited under
HOLA with respect to its acquisition of a savings association located in a state
other than New York. In general, a savings and loan holding company may not
acquire an additional savings association subsidiary that is located in a state
other than the home state of its first savings association subsidiary unless
such an interstate acquisition is permitted by the statutes of such other state.
Many states permit such interstate acquisitions if the statutes of the home
state of the acquiring savings and loan holding company satisfy various
reciprocity conditions. New York is one of a number of states that permit,
subject to the reciprocity conditions of the New York Banking Law, out-of-state
bank and savings and loan holding companies to acquire New York savings
associations.
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In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act 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. Out-of-state branches of savings banks are
authorized under the New York Banking Law, but similar authority does not exist
generally under the laws of most other states. The Interstate Banking Act
permitted, beginning June 1, 1997, the responsible federal banking agencies to
approve merger transactions between banks located in different states,
regardless of whether the merger would be prohibited under the law of the two
states. The Interstate Banking Act also permitted a state to "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and permits a
state to "opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation before that date. Accordingly, the Interstate Banking
Act, beginning no later than June 1, 1997, permitted a bank, such as the Bank,
to acquire branches in a state other than New York unless the other state has
opted out of the Interstate Banking Act. The Interstate Banking Act also
authorizes de novo branching into another state if the host state enacts a law
-- ----
expressly permitting out of state banks to establish such branches within its
borders.
The Interstate Banking Act may facilitate the further consolidation of the
banking industry. The effect of the Interstate Banking Act on the Bank, if any,
is likely to occur as banking institutions, state legislators, and bank
regulators respond to the new federal regulatory structure. The states will
have to establish appropriate corporate law, tax and regulatory structures to
adjust to the growth of new interstate banks.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then
be subject to the information, proxy solicitation, insider trading restrictions
and other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
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<PAGE>
MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
The Board of Directors of the Company is divided into three classes, each
of which contains one-third of the Board. The directors shall be elected by the
stockholders of the Company for staggered three year terms, or until their
successors are elected and qualified. One class of directors, consisting of
Messrs. James L. Kelley, T. Ronald Quinlan, Jr. and Anthony E. Burke, has a term
of office expiring at the first annual meeting of stockholders, a second class,
consisting of Messrs. William C. Frederick and Maurice K. Shaw, has a term
expiring at the second annual meeting of stockholders and a third class,
consisting of Messrs. Michael F. Manzulli, Godfrey H. Carstens, Jr. and Robert
S. Farrell, has a term of office expiring at the third annual meeting of
stockholders. The biographical information of each Director, except Messrs.
Manzulli and Burke, is set forth under "Management of the Bank - Trustees of the
Bank."
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names.
Position(s) Held
Name Age(1) With the Company
- - - ---- ---- ----------------
Michael F. Manzulli 56 Chairman of the Board and Chief
Executive Officer
Anthony E. Burke 50 President and Chief Operating Officer
Thomas R. Cangemi 29 Chief Financial Officer and Secretary
Andrew M. Sisock 43 Vice President and Accounting Officer
________________
(1) As of June 30, 1997.
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, retirement or removal by the Board of Directors.
99
<PAGE>
BIOGRAPHICAL INFORMATION
Michael F. Manzulli is Chairman of the Board of Directors and Chief
Executive Officer of the Company and Trustee, President and Chief Executive
Officer of the Bank. Mr. Manzulli has served as a Trustee of the Bank since
1990, and was named President and Chief Executive Officer in June of 1992. Mr.
Manzulli is the managing partner of the law firm of Lahr, Dillon, Manzulli,
Kelley & Penett, P.C., where he practiced law prior to becoming President and
Chief Executive Officer. Mr. Manzulli is also the Chairman of the Staten Island
Partnership, Inc., and serves on the Board of Directors of the Staten Island
Economic Development Corp., St. Elizabeth Ann Nursing Home, the Staten Island
Historical Society and Notre Dame Academy. He is also a member of the Advisory
Board of the Salvation Army - Staten Island. Mr. Manzulli holds a B.S. from
Niagara University and a Bachelor of Law degree from St. John's University
School of Law.
Anthony E. Burke is a Director of the Company and, effective October __,
1997, will commence his duties as President and Chief Operating Officer of the
Company. Prior to joining the Company, Mr. Burke was a partner for thirteen
years with the financial services industry group of Ernst & Young LLP, where he
worked for twenty-five years. Mr. Burke has represented community banks
(including the Bank), international banks, mortgage banks and real estate
ventures, and also has extensive experience in the mergers and acquisitions
area. Mr. Burke is a C.P.A., and is a member of the American Institute of
Certified Public Accountants. He has a B.S. in economics from St. John's
University and an M.B.A. in accounting and finance from the Columbia University
Graduate School of Business.
Thomas R. Cangemi has been appointed the Chief Financial Officer and
Secretary of the Company and will commence his duties effective October __,
1997. From December 1996 until joining the Company, Mr. Cangemi was Senior Vice
President, Chief Financial Officer and Corporate Secretary of a New York-based
commercial bank. From January 1996 until December 1996, he was Director of
Corporate SEC Reporting for Sensormatic Electronics Corporation, Boca Raton,
Florida. Prior to January 1996, Mr. Cangemi was Vice President and Chief
Financial Officer of a publicly-held savings and loan holding company and its
subsidiary federal savings bank located in the New York area. Before 1993, Mr.
Cangemi was a member of the SEC Professional Practice Group of a national
accounting firm. Mr. Cangemi holds a B.B.A. from the School of Professional
Accountancy at Dowling College, and is a C.P.A. and a member of the American
Institute of Certified Public Accountants.
Andrew M. Sisock joined the Bank in 1975, and served as Vice President and
Comptroller until 1993, when he was named Senior Vice President and Financial
Comptroller; he was appointed Senior Vice President and Senior Financial Officer
in 1996. Mr. Sisock is also the Vice President and Accounting Officer of the
Company and a Director and Treasurer of both RCSB Corp. and Richmond
Enterprises, Inc. His primary areas of responsibility are overseeing financial
and regulatory reporting, investment policy, interest rate risk policy and
internal controls. Mr. Sisock has a B.S. in Business Administration from
Pennsylvania State University and an M.B.A. in Finance from St. John's
University. Mr. Sisock is a graduate of the National School of Finance and
Management at Fairfield University.
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MANAGEMENT OF THE BANK
TRUSTEES OF THE BANK
The Directors of the Company are also Trustees of the Bank, with the
exception of Mr. Burke. Upon consummation of the Conversion, the current
Trustees of the Bank will become Directors of the stock chartered Bank. The
following table sets forth certain information regarding the Board of Trustees
of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD TERM
NAME AGE(1) WITH THE BANK EXPIRES
---- --- ---------------- -------
<S> <C> <C> <C>
Godfrey H. Carstens, Jr. 69 Trustee 2000
Robert S. Farrell 71 Trustee 2000
William C. Frederick, M.D. 69 Trustee 1999
James L. Kelley 55 Trustee 1998
Michael F. Manzulli 56 President, Chief Executive 2000
Office and Trustee
T. Ronald Quinlan, Jr. 70 Trustee 1998
Maurice K. Shaw 58 Trustee 1999
</TABLE>
- - - ----------------------
(1) As of June 30, 1997.
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT TRUSTEES
The following table sets forth certain information regarding the executive
officers of the Bank with the exception of Mr. Manzulli whose background is
discussed under "Management of the Company - Biographical Information."
<TABLE>
<CAPTION>
Position(s) Held
Name Age(1) With the Bank
---- --- ----------------
<S> <C> <C>
John M. McKenna 61 Executive Vice President
Stephen G.C. Campbell 54 Senior Vice President and Senior Auditor
Peter J. Esposito 54 Senior Vice President - Commercial Lending
Charles F. Hermann, III 54 Senior Vice President - Special Services
Andrew M. Sisock 43 Senior Vice President and Senior Financial Officer
Nelson C. Sundback 55 Senior Vice President - Information Systems/Operations
Robert J. O'Rourke 60 Vice President - Lending
John J. Amodio 55 Director of Commercial Banking Services
- - - --------------------------
</TABLE>
(1) As of June 30, 1997.
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<PAGE>
The executive officers of the Bank are elected annually and will hold
office in the converted Bank until the annual meeting of the Board of Directors
of the Bank held immediately after the first annual meeting of stockholders of
the Bank subsequent to Conversion, and until their successors are elected and
qualified or until death, resignation, retirement or removal by the Board of
Directors. Officers are re-elected by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
TRUSTEES OF THE BANK
Godfrey H. Carstens, Jr. has served as a Trustee of the Bank since 1973. He is
the owner and president of Carstens Electrical Supply Co., an electrical supply
company located in Staten Island, New York. He is also a member of the Board of
Trustees of Staten Island University Hospital, and of the West Brighton Civic
Association.
Robert S. Farrell has served as a Trustee of the Bank since 1973. He has been
president of H.S. Farrell, Inc., a lumber, millwork and building materials
supply company located in Staten Island, New York, since 1986, and has held
other positions with the firm for over fifty years. He is also a member of the
Board of the Northfield Local Development Corp., and of the Port Richmond Board
of Trade.
William C. Frederick, M.D. has served as a Trustee of the Bank since 1980. Dr.
Frederick is a surgeon in Staten Island and is affiliated with St. Vincent's
Hospital, Staten Island University Hospital and Bayley Seton Hospital.
James L. Kelley has served as a Trustee of the Bank since January 1997. Mr.
Kelley is a partner of the law firm of Lahr, Dillon, Manzulli, Kelley & Penett,
P.C., which serves as general counsel to the Bank. Mr. Kelly holds a B.S. from
St. Peter's College, New Jersey, and a Bachelor of Law degree from St. John's
University School of Law.
T. Ronald Quinlan, Jr. has served as a Trustee since 1978. Mr. Quinlan retired
in 1993 as owner and President of Quinlan Fuel Service, a fuel oil company
located in Staten Island, New York. He is a member of the West Brighton and
Lighthouse Civic Associations.
Maurice K. Shaw has served as a Trustee since 1979. He is Senior Vice President
in charge of corporate affairs of Brooklyn Union Gas Co., where he has been
employed since 1960. Mr. Shaw is a member of the Board of Directors of the
Staten Island Partnership, Inc., the Staten Island Economic Development Corp.
and the Staten Island Chamber of Commerce.
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<PAGE>
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT TRUSTEES
John M. McKenna joined the Bank in 1992 as Executive Vice President. Mr.
McKenna also serves as a Director and President of RCSB Corp. and Richmond
Enterprises, Inc. Mr. McKenna's primary responsibilities include overseeing the
general operations of the Bank, including finance, information systems, deposits
and facilities. Mr. McKenna has a B.S. from the City University of New York.
Stephen G.C. Campbell joined the Bank in 1980 as assistant vice president and
branch manager and has served in numerous managerial positions. He served as
Senior Vice President and Senior Loan Officer from December 1991 until May of
1997, when he was named Senior Vice President and Senior Auditor. He is
responsible for the administration and management of the Auditing Department.
Mr. Campbell attended Pace College and Rutgers University and is a graduate of
the National School of Finance and Management at Fairfield University.
Peter J. Esposito joined the Bank in 1975 as Real Estate Appraiser and
Inspector. From 1975 to 1979, he served as Assistant Secretary and Senior Real
Estate Appraiser. He was named Assistant Vice President of the Mortgage and
Servicing Department in 1985, and was promoted to the position of Vice President
in Charge of Commercial Real Estate and Construction Lending in 1992. In 1996,
he was appointed Senior Vice President of the aforementioned department, and was
simultaneously named head of the Business Services Division. Mr. Esposito holds
a professional designation as Senior Residential Appraiser with the Appraisal
Institute, formerly the Society of Real Estate Appraisers. He is a graduate of
the Realtor's Institute, Ithaca College. Mr. Esposito is also a licensed
insurance broker and possesses related experience in the construction and real
estate development fields. He currently serves on the Boards of Trustees of
both the South Shore Rotary and the Staten Island chapter of the Leukemia
Society and is involved with numerous charitable organizations.
Charles F. Hermann, III joined the Bank in 1968 and has served the Bank in
various positions. He was appointed Senior Vice President in December 1985 and
currently serves as Senior Vice President - Special Services. He is responsible
for the management of the Insurance and Security Departments of the Bank. Mr.
Hermann is also a Vice President and Director of RCSB Corp. and Richmond
Enterprises, Inc. He is a graduate of the American Institute of Banking and
attended St. John's University.
Nelson C. Sundback joined the Bank in 1968 and has served in numerous managerial
positions. He was named Senior Vice President -- Information Systems/Operations
in November 1993. His primary areas of responsibility include the management
and supervision of the Bank's Operations, Pension, Insurance, ATM and Network
Computer Departments. Mr. Sundback is also Secretary of RCSB Corp. and Richmond
Enterprises, Inc. Mr. Sundback attended St. John's University and the College
of Staten Island. Mr. Sundback is a graduate of the National School of Finance
and Management at Fairfield University and the American Institute of Banking.
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<PAGE>
John J. Amodio joined the Bank in April 1997 as Director of Commercial Banking
Services. From 1973 to 1980 Mr. Amodio was Senior Vice President, and from 1982
to 1991 was President and Chief Executive Officer of a Staten Island-based
commercial bank. Prior to joining the Bank, he was President of Amodio &
Associates, Ltd., a management consulting organization, from 1991 to 1995, and
was President of TAM Restaurant Group, Inc., a restaurant, catering and
concessions management firm, from 1995 until 1997. Mr. Amodio's primary
responsibility is to direct the development of the Bank's commercial banking
services. Mr. Amodio is a former director and president of the NYS Society of
Certified Public Accountants, Staten Island Chapter, Chairman of the Board of
Meals on Wheels of Staten Island, and is the Chairman of the Staten Island
Rotary Foundation. Mr. Amodio has a B.B.A. in Accounting from Iona College and
is a C.P.A. He is also a graduate of the Commercial Bank Management Program at
Columbia University.
Robert J. O'Rourke joined the Bank in 1996 as Vice President -- Lending. Prior
to joining the Bank, he was President of Robert O'Rourke Inc. Real Estate, a
firm he formed in 1992 which specialized in analysis, appraisal and coordinating
assignments of metropolitan New York area properties for financing and
certiorari purposes. Mr. O'Rourke has over eighteen years of financial
institution experience, the majority as a Senior and Executive Vice President in
charge of the mortgage and real estate department of a New York-based savings
bank. He is an MAI designated member of the Appraisal Institute and a Certified
General Appraiser in New York and New Jersey. He is a licensed real estate
broker in New York and is a member of the New York and Staten Island Real Estate
Boards. Mr. O'Rourke is a member of the Friendly Sons of St. Patrick-New York
and is a board member of the Staten Island Botanical Gardens. Mr. O'Rourke is
primarily responsible for overseeing the residential mortgage and consumer
lending departments of the Bank. Mr. O'Rourke has a B.A. from Fordham University
and is a graduate of the National School of Savings Banking, Fairfield
University.
MEETINGS AND COMMITTEES OF THE BOARDS OF THE BANK AND THE COMPANY
The Board of Trustees meets monthly and may have additional special
meetings as may be called by the President or at the written request of three
trustees. During the fiscal year ended June 30, 1997, the Board held twelve
meetings. There are currently eight committees of the Board of Trustees
consisting of the Executive/Finance Committee, the Examining/Audit Committee,
the Residential/Commercial/Construction Committee, the Loan Review Committee,
the Personnel Committee, the Insurance Committee, the By-Laws Committee and the
Buildings & Grounds Committee. Subsequent to the Conversion, the Board of
Trustees may consider and make revisions to the current structure of its
committees.
The Board of Trustees of the Bank has established the following committees:
The Executive/Finance Committee consists of the entire Board of Trustees.
The purpose of this Committee is to exercise the authority of the Board of
Trustees with respect to matters requiring action between meetings of the Board
of Trustees. Any actions by this Committee requires subsequent ratification by
the Board of Trustees at the next regular meeting. The Committee meets at least
four times per year as well as on an as needed basis.
The Examining/Audit Committee consists of Messrs. Farrell, Frederick,
Quinlan, Shaw and DeForest (Emeritus). The Bank's internal auditor and
compliance officer report to this committee. The duty of this committee is to
examine the records and affairs of the Bank in conformity with the Banking Laws
of the State of New York applying to examinations and the Federal laws and
regulations relating to bank independent audit committees, and to determine the
Bank's true financial condition and its safety and soundness. It inquires into
the policies of management for the purpose of determining whether such policies
are sound and consistent with the requirements of the law and inquires into and
reviews management's responsibility for the Bank's compliance with safety and
soundness laws and regulations, and management's responsibility for
104
<PAGE>
the Bank's system of internal controls, and into such other matters as are
necessary to enable the Trustees to determine whether adequate protection is
afforded depositors and reviews management reports and the reports of the Bank's
independent public accountant. The committee generally meets on a bimonthly
basis and met five times in fiscal 1997.
The Residential/Commercial/Construction Committee consists of Messrs.
Carstens, Farrell, Frederick, Quinlan and Shaw. This committee is responsible
for reviewing and approving mortgage loans, home equity loans, commercial real
estate, construction, and commercial loans in amounts within its designated
authority. The committee generally meets bimonthly, depending on loan volume,
and met 21 times in fiscal 1997.
The Loan Review Committee consists of Messrs. Carstens, Farrell, Frederick,
Quinlan and Shaw. This committee reviews the workout solutions of problem
loans, and approves the classification of assets and the establishment of
adequate valuation allowances. This committee meets at least semi-annually and
met three times in fiscal 1997.
The Personnel Committee consists of Messrs. Carstens, Farrell, Frederick
and Shaw. This committee is responsible for all matters regarding compensation
and fringe benefits. The committee meets at least semi-annually and met three
times in fiscal 1997.
The Insurance Committee consists of Messrs. Carstens, Frederick, Kelley and
Shaw. This committee is responsible for ensuring that adequate insurance
coverage is in place for the Bank's assets and trustees, officers and employees.
The committee meets at least semi-annually and met twice in fiscal 1997.
The Bylaws Committee consists of Messrs. Frederick, Kelley and Quinlan, and
is responsible for reviewing and proposing revisions to the By-Laws of the Bank,
as necessary. The committee meets on an as-needed basis and did not meet in
fiscal 1997.
The Buildings and Grounds Committee consists of Messrs. Carstens, Farrell,
Kelley and Quinlan. This committee is responsible for supervising the
maintenance and upkeep of the Bank's physical plant. This committee meets on an
as-needed basis and did not meet in fiscal 1997.
Additionally, the Bank has a number of other management committees
including the Asset/Liability Committee, the Interest Rate Risk Committee, the
Internal Control Committee, the Risk Management Committee, the Investment
Committee and the Compliance Committee.
The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Farrell, Frederick,
Quinlan and Shaw; the Pricing Committee consisting of the entire Board of
Directors; and the Compensation Committee consisting of Messrs. Carstens,
Farrell, Frederick and Shaw.
COMPENSATION OF TRUSTEES
Trustees of the Bank, except Mr. Manzulli, receive fees of $1,200 per Board
meeting attended and $650 per Committee meeting attended.
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<PAGE>
Trustees Emeritus
The Bank maintains a Board of Trustees Emeritus which currently consists of
three former Trustees of the Bank. Pursuant to the Bank's bylaws, Trustees are
automatically retired on December 31 of the year they reach age 75 and any
Trustee who retires because of such age limitation is eligible to be elected as
a Trustee Emeritus. Trustees Emeritus have no vote and receive the same meeting
fees as Trustees of the Bank.
106
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the fiscal year ended
June 30, 1997, to the Chief Executive Officer and the other executive officer of
the Bank who received salary and bonus in excess of $100,000 ("Named Executive
Officers").
<TABLE>
<CAPTION>
- - - ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
------------------------------------------------------
Annual Compensation(1) Awards Payouts
----------------------------------------------------------------------------------------------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Principal Compensation Stock Awards Options/SARs Payouts Compensation
Positions Year Salary Bonus($) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
- - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael F. Manzulli 1997 $324,416 - - - - - $26,980
President and Chief
Executive Officer
John M. McKenna 1997 $128,308 $6,500 - - - - $ 3,102
Executive Vice President and
Chief Operating Officer
</TABLE>
_________________________
(1) Under Annual Compensation, the column titled "Salary" includes salary
deferred by the Named Executive Officer under the Bank's 401(k) Plan and
the column titled "Bonus" consists of board approved discretionary bonus
as well as attendance bonuses, loan referral bonuses and recruitment
bonuses.
(2) For 1997, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total 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; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1997, the Bank had no restricted stock or stock
related plans in existence.
(3) Does not include awards pursuant to the Stock Program, which may be
granted in conjunction with a meeting of shareholders of the Company,
subject to regulatory and shareholder approval, as such awards were not
earned, vested or granted in fiscal 1997. For a discussion of the terms of
the Stock Program which is intended to be adopted by the Company, see
"-Benefit Plans - Stock Program." For 1997, the Bank had no stock plans in
existence.
(4) No stock options or SARs were earned or granted in 1997. For a discussion
of the Stock Option Plan which is intended to be adopted by the Company,
see "Benefit Plans - Stock Option Plan."
(5) For 1997, there were no payouts or awards under any long-term incentive
plan.
(6) Other compensation includes other benefits such as the Bank's matching
contribution under the Bank's 401(k) Plan, amounts contributed by the Bank
pursuant to the Bank's Benefit Restoration Plan, and automobile allowance.
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<PAGE>
REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to the NYBB regulations governing the Conversion, the Bank must
obtain the opinion of an independent compensation consultant as to whether or
not the total compensation for the executive officers, directors or trustees of
the Bank, viewed as a whole and on an individual basis, is reasonable and proper
in comparison to the compensation provided to executive officers, directors or
trustees of similar publicly-traded financial institutions. The Bank has
obtained an opinion from William M. Mercer, Incorporated, which provides that,
based upon published professional survey data of similarly situated publicly-
traded financial institutions operating in the relevant markets as of
September 28, 1997, with respect to the total cash compensation (base salary
and annual incentive) for executive officers and total compensation for trustees
of the Bank, such compensation, viewed as a whole and on an individual basis, is
reasonable and proper in comparison to the compensation provided to similarly
situated publicly-traded financial institutions, and that, with respect to the
amount of shares of Common Stock to be reserved under the ESOP, the Stock
Program and Stock Option Plan, as a whole, such amounts reserved for granting
are reasonable in comparison to similar publicly-traded financial institutions.
EMPLOYMENT AGREEMENTS
Upon the Conversion, the Bank intends to enter into employment agreements
with Messrs. ________________ and ____ other officers of the Bank (individually,
the "Executive"), and the Company intends to enter into employment agreements
with Messrs. Manzulli, Burke and Cangemi (collectively, the "Employment
Agreements"). The Employment Agreements are intended to ensure that the Bank and
the Company will be able to maintain a stable and competent management base
after the Conversion. The continued success of the Bank and the Company depends
to a significant degree on the skills and competence of the above referenced
officers.
The Employment Agreements provide for three-year terms for each Executive.
The terms of the Employment Agreements shall be extended on a daily basis unless
written notice of non-renewal is given by the Board of Directors. The Employment
Agreements provide that the Executive's base salary will be reviewed annually.
The base salaries which will be effective for such Employment Agreements for
Messrs. ________________ will be $_______, $_______, $_______, respectively. In
addition to the base salary, the Employment Agreements provide for, among other
things, participation in stock benefits plans and other fringe benefits
applicable to executive personnel. The agreements provide for termination by the
Bank or the Company for cause, as defined in the Employment Agreements, at any
time. In the event the Bank or the Company chooses to terminate the Executive's
employment for reasons other than for cause, or in the event of the Executive's
resignation from the Bank and the Company upon: (i) failure to re-elect the
Executive to his current offices; (ii) a material change in the Executive's
functions, duties or responsibilities; (iii) a reduction in the benefits and
perquisites being provided to the Executive under the Employment Agreement; (iv)
liquidation or dissolution of the Bank or the Company; or (v) a breach of the
agreement by the Bank or the Company, the Executive or, in the event of death,
his beneficiary would be entitled to receive an amount equal to the remaining
base salary payments due to the Executive for the remaining term of the
Employment Agreement and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank and the Company
during the remaining term of the agreement. The Bank and the Company would also
continue and pay for the Executive's life, health, dental and disability
coverage for the remaining term of the Agreement. Upon any termination of the
Executive, the Executive is subject to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary termination
follows a change in control of the Bank or the Company, the Executive or, in the
event of the Executive's death, his beneficiary, would be entitled to a
severance payment equal to the greater of: (i) the payments due for the
remaining
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terms of the agreement; or (ii) three times the average of the five preceding
taxable years' annual compensation. The Bank and the Company would also continue
the Executive's life, health, and disability coverage for thirty-six months.
Notwithstanding that both the Bank and Company Employment Agreements provide for
a severance payment in the event of a change in control, the Executive would
only be entitled to receive a severance payment under one agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company's Employment Agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under New York and
Delaware law, respectively. In the event of a change in control of the Bank or
the Company, the total amount of payments due under the Agreements, based solely
on cash compensation paid to the officers who will receive Employment Agreements
over the past five fiscal years and excluding any benefits under any employee
benefit plan which may be payable, would be approximately $___________.
CHANGE IN CONTROL AGREEMENTS
Upon Conversion, the Bank intends to enter into two-year Change in Control
Agreements (the "CIC Agreements") with Messrs. ________________, none of whom
will be covered by employment contracts. Commencing on the first anniversary
date and continuing on each anniversary thereafter, the Bank CIC Agreements may
be renewed by the Board of Directors of the Bank for an additional year. The
Bank's CIC Agreements will provide that in the event voluntary or involuntary
termination follows a change in control of the Company or the Bank, the officer
would be entitled to receive a severance payment equal to ___ times the
officer's average annual compensation for the five most recent taxable years.
The Bank would also continue and pay for the officer's life, health and
disability coverage for ___ months following termination. In the event of a
change in control of the Company or the Bank, the total payments that would be
due under the CIC Agreements, based solely on the current annual compensation
paid to the officers covered by the CIC Agreements and excluding any benefits
under any employee benefit plan which may be payable, would be approximately
$___________.
EMPLOYEE SEVERANCE COMPENSATION PLAN
The Bank's Board of Directors intends to, upon Conversion, establish the
Richmond County Savings Bank Employee Severance Compensation Plan ("Severance
Plan") which will provide eligible employees with severance pay benefits in the
event of a change in control of the Bank or the Company following Conversion.
Management personnel with Employment Agreements or CIC Agreements are not
eligible to participate in the Severance Plan. Generally, employees are
eligible to participate in the Severance Plan if they have completed at least
one year of service with the Bank. The Severance Plan vests in each participant
a contractual right to the benefits such participant is entitled to thereunder.
Under the Severance Plan, in the event of a change in control of the Bank or the
Company, eligible employees who are terminated from or terminate their
employment within one year (for reasons specified under the Severance Plan),
will be entitled to receive a severance payment. If the participant, whose
employment has terminated, has completed at least one year of service, the
participant will be entitled to a cash severance payment equal to one-twelfth of
annual compensation for each year of service up to a maximum of 199% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan are triggered, the total amount of
payments that would be due thereunder, based solely upon current salary levels,
would be approximately
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$___________. However, it is management's belief that substantially all of the
Bank's employees would be retained in their current positions in the event of a
change in control, and that any amount payable under the Severance Plan would be
considerably less than the total amount that could possibly be paid under the
Severance Plan.
BENEFIT PLANS
Retirement Plan. The Bank sponsors a defined benefit pension plan known as
The Retirement Plan of Richmond County Savings Bank in RSI Retirement Trust
("Retirement Plan"). The Retirement Plan is intended to satisfy the tax
qualification requirements of Section 401(a) of the Code.
Employees generally become eligible to participate in the Retirement Plan
upon their attainment of age 21 and the completion of one year of eligibility
service. The plan defines a year of eligibility service as a 12-month period,
coinciding with the employee's anniversary during which an employee completes
1,000 hours of service. The Retirement Plan excludes from becoming eligible to
participate employees (i) paid on an hourly-rate or contract basis, (ii)
regularly employed outside the Bank's own offices in connection with the
operation and maintenance of building and other property acquired through
foreclosure or deed, or (iii) leased employees.
The Retirement Plan provides for a normal retirement benefit to
participants upon retirement at or after the later of (i) attainment of age 65
or (ii) the fifth anniversary of initial participation in the plan. The annual
normal retirement benefit for a participant under the Retirement Plan equals the
sum of (i) 1.67% of the "Average Annual Earnings" (as defined in the plan)
multiplied by the participant's "Credited Service" (as defined by the plan) (up
to a maximum of 35 years); plus (ii) 0.23% of the participant's Average Annual
Earnings, which exceed the participant's "Covered Compensation" (as defined by
the plan) multiplied by the participant's credited service (up to maximum of 35
years); plus (iii) 1% of the participant's Average Annual Earnings, multiplied
by the participant's Credited Service which exceeds 35 years.
A participant may also become eligible to receive an early retirement
benefit upon the completion of at least ten consecutive years of "Vested
Service" (as defined in the plan) with the Bank and (i) attainment of age 60, or
(ii) completion of 30 years of vested service, or (iii) at the time the sum of
the participant's age and Vested Service equals or exceeds 85. Early retirement
benefits are generally calculated in the same manner as a participant's normal
retirement benefits but may be actuarially reduced if paid prior to the
participant's "Normal Retirement Date" (as defined by the plan). Participants
generally become vested in their benefits under the Retirement Plan upon
completing at least five years of Vested Service.
The plan generally pays benefits in the form of a straight life annuity
with respect to unmarried participants and in the form of a 50% qualified joint
and survivor annuity (with the spouse as designated beneficiary) for married
participants. Other forms of benefit payments, including a lump sum, are
available under the Retirement Plan.
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The following table sets forth the estimated annual benefits payable under
the Retirement Plan upon a participant's retirement at age 65 for the year ended
June 30, 1997, expressed in the form of a straight life annuity, and any related
amounts payable under the Benefit Restoration Plan (see description below).
Covered compensation under the Retirement Plan basically includes the base
salary for participants, and does not consider any cash bonus amounts. The
benefits listed in the table below for the Retirement Plan and Benefit
Restoration Plan are not subject to a deduction for social security benefits or
any other offset amount.
<TABLE>
<CAPTION>
Years of Service
Final Average -----------------------------------------------------------
Compensation 15 20 25 30 35 40
------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 13,215 $ 17,820 $ 22,025 $ 26,430 $ 30,835 $ 33,335
100,000 27,485 36,820 45,775 54,930 64,085 69,085
150,000 41,715 55,620 69,525 83,430 97,335 104,835
200,000 55,965 74,620 93,275 111,930 130,585 140,585
250,000 70,215 93,820 117,025 140,430 163,835 176,335
300,000 84,486 112,620 140,775 188,930 197,085 212,085
350,000 98,716 131,620 184,525 197,430 230,335 247,835
400,000 112,985 150,830 188,275 225,930 263,335 283,585
450,000 127,215 169,620 212,025 254,430 296,835 319,335
500,000 141,485 188,620 236,775 282,930 330,085 355,085
550,000 155,715 207,820 259,525 311,430 363,335 390,835
</TABLE>
The approximate years of service, as of June 30, 1997, for the named executive
officers are as follows:
Years of Service
----------------
Michael F. Manzulli 5
John M. McKenna 5
401(k) Plan. The Bank also sponsors the Richmond County Savings Bank 401(k)
Savings Plan ("401(k) Plan"), a tax-qualified profit sharing and salary
reduction plan under Sections 401(a) and 401(k) of the Code. Generally,
employees other than (i) employees compensated on an hourly, daily, commission,
fee or retainer basis or (ii) leased employees become eligible to participate in
the 401(k) Plan upon the attainment of age 21 and the completion of one year of
service (i.e., 12 months of service). Under the 401(k) Plan, participants may
make salary reduction contributions equal to 2% to 9% of their compensation or
the
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legally permissible limit (currently $9,500). The Bank matches 50% of the first
6% of compensation deferred by a participant.
Participants are always 100% vested in their salary reduction contributions.
Participants become 20% vested in Bank matching contributions after the
completion of two years of service with the Bank. Participants' vested interest
in Bank matching contribution increase by 20% for each additional year of
service completed, so that after the completion of 6 years of service,
participants are 100% vested in Bank matching contributions. A participant who
terminates employment due to death, disability, or retirement immediately
becomes fully vested in the Bank's matching contributions credited to his or her
account regardless of the participant's years of service. A participant's vested
portion of his or her 401(k) Plan account is distributable from the 401(k) Plan
upon the termination of the participant's employment, death, disability or
retirement. In addition, a participant may be eligible for hardship withdrawals
and loans under the 401(k) Plan. Any distribution made to a participant prior to
the participant's attainment of age 59 1/2 is subject to a 10% excise tax in
addition to federal income taxes. The Board of Directors may at any time
discontinue the Bank's contributions to employee accounts. For the years ended
June 30, 1997, 1996 and 1995, the Bank's matching contributions to the 401(k)
Plan were $136,000, $133,000 and $118,000, respectively.
The 401(k) Plan permits participants to direct the investment of their 401(k)
plan account into various investment alternatives. The investment accounts are
valued daily and participants are provided with information regarding the market
value of the participant's investments and all contributions made on his or her
behalf on at least a quarterly basis. In connection with the Conversion, the
Bank intends to amend the 401(k) Plan to permit participants to invest in an
"Employer Stock Fund" as one of the investment alternatives. The Employer Stock
Fund will be invested primarily in shares of Common Stock. The trustee may
follow the voting directions of 401(k) Plan participants investing in the
Employer Stock Fund; provided that the trustee determines such voting is
consistent with its fiduciary duties. However, the trustee is not required to
follow the voting directions of the 401(k) Plan participants with respect to
Common Stock held in the Employer Stock Fund.
ESOP. In connection with the Conversion, the Bank also intends to implement
an employee stock ownership plan. An ESOP is a tax-qualified retirement plan
designed to invest primarily in employer securities. The Bank will make
contributions to the ESOP on behalf of all ESOP participants. The ESOP will
provide eligible employees with the opportunity to receive a Bank-funded
retirement benefit based primarily on the value of the Common Stock. The Bank
anticipates that the eligibility requirements for the ESOP will be similar to
those of the 401(k) Plan. Specifically, the Bank anticipates all full-time
salaried employees of the Bank who have completed a year of service with the
Bank will be eligible to participate in the ESOP.
The Bank expects the ESOP to purchase 8.0% of the Common Stock issued in
connection with the Conversion, including the issuance of shares to the
Foundation. As part of the Conversion and in order to fund the ESOP's purchase
of the Common Stock issued in the Conversion, the ESOP intends to borrow funds
from the Company equal to 100% of the aggregate purchase price of the Common
Stock. Alternatively, the Company and Bank may choose to fund the ESOP's
purchase of stock through a loan from a third-party financial institution. The
Common Stock purchased by the ESOP with the loan proceeds will serve as
collateral for the loan, as described below. The term of the ESOP loan will be
20 years and the trustee will repay the loan principally from the Company's or
the Bank's contributions to the ESOP. Additionally, any dividends that may be
paid on unallocated stock held by the ESOP will also be used to repay the ESOP
loan. Subject to receipt of any necessary regulatory approvals or opinions, the
Bank may make additional contributions to the ESOP for repayment of the loan or
to reimburse the Company for contributions made by it. The interest rate for the
loan is expected to be at or near the prime rate.
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Shares of Common Stock purchased by the ESOP with the loan proceeds will
initially be pledged as collateral for the loan and will be held in a suspense
account until released for allocation among participants as the loan is repaid.
The trustee will release the pledged shares annually from the suspense account
in an amount proportional to the repayment of the ESOP loan for each plan year.
The released shares will then be allocated to the accounts of ESOP participants
based on each participant's compensation relative to all participants'
compensation. Participants will vest in their ESOP account at a rate of 20%
annually commencing after the completion of 2 years of service, with 100%
vesting upon the completion of 6 years of service. Participants will also
become fully vested in their accounts if their service terminates due to death,
retirement, disability, or upon the occurrence of a change in control. The ESOP
may reallocate forfeitures among remaining participants, in the same proportion
as contributions. Benefits under the ESOP will become payable upon death,
retirement, or separation from service. The annual contributions to the ESOP
are not fixed, so benefits payable under the ESOP cannot be estimated.
In connection with the establishment of the ESOP, the Board of Directors will
appoint a Committee of the Board of Directors and officers of the Bank to
administer the ESOP (the "ESOP Committee"). The Bank anticipates that this
Committee will appoint an unrelated trustee for the ESOP and the 401(k) Plan
Employer Stock Fund prior to the Conversion. The ESOP Committee may instruct
the trustee regarding investment of funds contributed to the ESOP and the 401(k)
Plan Employee Stock Fund. The ESOP trustee, subject to its fiduciary duties,
must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Subject to its fiduciary duties
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
the trustee will vote unallocated shares and allocated shares for which
participants provide no instructions in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock for which it has received instructions.
Supplemental Executive Retirement Plan. The Bank also maintains a non-
qualified deferral compensation plan, known as the Richmond County Savings Bank
Supplemental Executive Retirement Plan (the "SERP"). The SERP provides certain
employees with supplemental retirement income from the Bank when such amounts
cannot be paid from the tax-qualified Retirement Plan or 401(k) Plan.
Participants in the SERP receive a benefit equal to the amount they would have
received under the Retirement Plan and the 401(k) Plan, but for reductions in
such benefits imposed by operation of Sections 401(a)(17), 401(m), 401(k)(3),
402(g) and 415 of the Code. The Bank will amend the SERP to provide
participants with supplemental benefits intended to make up for reductions
imposed on the ESOP by operation of Sections 401(a), 401(m) and/or 415 of the
Code. The BRP is an unfunded plan, providing participants only with a
contractual right to obtain the benefits provided thereunder from the general
assets of the Bank. Currently, only Mr. Manzulli is eligible to participate in
the SERP.
Management Supplemental Executive Retirement Plan. The Bank intends to
implement a non-qualified Supplemental Executive Retirement Plan ("MSERP") to
provide certain officers and highly compensated employees with additional
retirement benefits. The MSERP benefit is intended to make up benefits lost
under the ESOP allocation procedures to participants who retire prior to the
complete repayment of the ESOP loan. At the retirement of a participant, the
benefits under the MSERP are determined by first: (i) projecting the number of
shares that would have been allocated to the participant under the ESOP if they
had been employed throughout the period of the ESOP loan (measured from the
participant's first date of ESOP participation); and (ii) reducing the number
determined by (i) above by the number of shares actually allocated to the
Participant's account under the ESOP; and second, by multiplying the number of
shares that represent the difference between such figures by the average fair
market value of the Common Stock over the preceding five years. Benefits under
the MSERP vest in 20% annual increments over a five year period commencing as of
the date of a Participant's participation in the MSERP. The vested portion of
the MSERP
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Participant's benefits are payable upon the retirement of the Participant upon
or after the attainment of age 65 or in accordance with the requirements of
early retirement under the Retirement Plan.
The Bank will amend the existing irrevocable grantor's trust ("grantor's
trust") established in connection with the SERP to hold the assets of the MSERP.
This trust would be funded with contributions from the Bank for the purpose of
providing the benefits promised under the terms of the MSERP. The grantor's
trust may hold a variety of assets including the Common Stock, other securities,
insurance contracts and cash. The MSERP participants have only the rights of
unsecured creditors with respect to the trust's assets, and will not recognize
income with respect to benefits provided by the MSERP until such benefits are
received by the participants. The assets of the grantor's trust are considered
part of the general assets of the Bank and are subject to the claims of the
Bank's creditors in the event of the Bank's insolvency. Earnings on the trust's
assets are taxable to the Bank.
Stock Option Plan. Following the Conversion, the Board of Directors of the
Company intends to adopt a stock-based benefit plan which would provide for the
granting of options to purchase Common Stock to certain individuals. Currently,
the Company anticipates granting stock options under a single stock-based
incentive plan which will combine the features of the Stock Program and the
Stock Option Plan (the "Master Stock-based Benefit Plan") covering full-time
employees and outside directors of the Company and its affiliates. However, it
is possible that the Company may establish separate option plans solely for
outside directors. At a meeting of stockholders of the Company following the
Conversion, which under applicable NYBB regulations may not be held earlier than
six months after the completion of the Conversion, the Board of Directors
intends to present the Stock Option Plan, or the Master Stock-based Benefit Plan
of which it is a part, to stockholders for approval. The Company anticipates
reserving an amount equal to 10% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 2,297,700 shares based
upon the issuance of 22,977,000 shares), for issuance under the Stock Option
Plan, or the Master Stock-based Benefit Plan of which it is a part. If the
Company implements an option plan within one year following completion of the
Conversion, NYBB regulations provide that no individual officer or employee of
the Bank may receive more than 25% of the options granted under the plan and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the options granted under the plan. NYBB and FDIC regulations
also provide that the exercise price of any options granted under any such plan
must equal or exceed the market price of the Common Stock as of the date of
grant.
The Company intends to design the stock option benefits provided under the
Stock Option Plan to attract and retain qualified personnel in key positions,
provide officers and key employees with a proprietary interest in the Company as
an incentive to contribute to the success of the Company and reward key
employees for outstanding performance. The Company may condition the granting
or vesting of stock options on the achievement of individual or Company-wide
performance goals, including the achievement by the Company or the Bank of
specified levels of net income, asset growth, return on equity or other specific
financial performance goals. The Company anticipates that the Stock Option Plan
will provide for the grant of: (i) options for employees to purchase the
Company's Common Stock intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Stock Options"); (ii) options for all
participants that do not qualify as incentive stock options ("Non-Statutory
Stock Options"); and (iii) Limited Rights (discussed below) which participants
may exercise only upon a change in control of the Bank or the Company. Unless
sooner terminated, the Stock Option Plan will be in effect for a period of ten
years from the earlier of adoption by the Board of Directors or approval by the
Company's stockholders. The Company intends to grant options with Limited
Rights at an exercise price equal to the fair market value of the underlying
Common Stock on the date of grant. Subject to any applicable NYBB and FDIC
regulations, upon exercise of "Limited Rights" in the event of a change in
control, the employee will be entitled to receive a lump sum cash payment equal
to the difference between the exercise price of the related option and the fair
market value of the shares of common stock subject to the option on the date of
exercise of the right in lieu
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of purchasing the stock underlying the option. The Company anticipates that all
options granted contemporaneously with stockholder approval of the Stock Option
Plan will qualify as Incentive Stock Options to the extent permitted under
Section 422 of the Code.
A committee of the Board of Directors will administer the Stock Option Plan
and will determine which officers and employees may receive options and Limited
Rights, whether such options will qualify as Incentive Stock Options, the number
of shares subject to each option, the exercise price of each option, the manner
of exercise of the options and the time when such options become exercisable.
If the Company adopts the Stock Option Plan in the form described above, an
employee will realize taxable income upon grant or exercise of any Incentive
Stock Option, provided that the employee does not dispose of the shares received
through the exercise of such option for at least one year after the date the
employee receives the stock in connection with the option exercise and two years
after the date of grant of the option (a "disqualifying disposition"). The
Company may not take a compensation expense deduction with respect to the grant
or exercise of Incentive Stock Options, unless the employee disposes of the
shares in a disqualifying disposition. In the case of a Non-Statutory Stock
Option and in the case of a disqualifying disposition of an Incentive Stock
Option, an employee will be deemed to receive ordinary income upon exercise of
the stock option in an amount equal to the amount by which the fair market value
of the Common Stock on the date of exercise exceeds the exercise price of the
option. The amount of taxable income realized by an optionee upon the exercise
of a Non-Statutory Stock Option or due to a disqualifying disposition of shares
acquired through the exercise of an Incentive Stock Option are a deductible
expense for tax purposes by the Company. Upon the exercise of a Limited Right,
the option holder realizes taxable income equal to the amount paid to him or her
upon exercise of the right and the Company receives a deduction equal to that
same amount.
Stock options under an option plan adopted by the Company would become vested
and exercisable in the manner specified by the committee responsible for
administering the plan, subject to applicable NYBB and FDIC regulations. The
Company anticipates options granted in connection with the Stock Option Plan
will remain exercisable for at least three months following the date on which
the employee ceases to perform services for the Bank or the Company, except that
in the event of death or disability, in which cases options accelerate and
become fully vested and remain exercisable for up to one year thereafter, or
such longer period as determined by the Company. However, any Incentive Stock
Options exercised more than three months following the date the employee ceases
to perform services as an employee, other than termination due to death or
disability, would be treated for tax purposes as a Non-Statutory Stock Option.
The Company also anticipates that in the event of retirement, if the optionee
continues to perform services as a Director, Director Emeritus or consultant on
behalf of the Bank, the Company or an affiliate, unvested options would continue
to vest in accordance with their original vesting schedule until the optionee
ceases to serve as a Director, Director Emeritus or consultant. If the Stock
Option Plan is adopted in the form described above, the Company, if requested by
the optionee, could elect, in exchange for vested options, to pay the optionee,
or beneficiary in the event of death, the amount by which the fair market value
of the Common Stock exceeds the exercise price of the options on the date of the
employee's termination of employment.
All options granted to outside directors under an option plan must, by law, be
Non-Statutory Stock Options and would vest and become exercisable in a manner
specified by the committee, subject to applicable NYBB and FDIC regulations, and
would expire upon the earlier of ten years following the date of grant or one
year following the date the optionee ceases to be a Director, Director Emeritus
or consultant. In the event of the death or disability of a participant, all
previously granted options would immediately vest and become fully exercisable.
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The Company also intends that, subject to any applicable NYBB or FDIC
regulations, the Stock Option Plan will provide for accelerated vesting of
previously granted options in the event of a change in control of the Company or
the Bank. A change in control would be defined in the plan document and would
generally occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of any class of equity security of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
Stock Program. Following the Conversion, the Company intends to establish the
Stock Program which would provide for the grant of awards of Common Stock to
officers, directors and employees of the Company and its affiliates including
the Bank as a method of providing officers, employees and non-employee directors
of the Bank and Company with a proprietary interest in the Company in a manner
designed to encourage such persons to remain with the Bank. The benefits under
the Stock Program may be provided for under either a separate plan for officers
and employees and a separate plan for outside directors or under the Master
Stock-based Benefit Plan which would combine the features of the Stock Program
with the Stock Option Plan. The Company intends to present the Stock Program or
the plan of which they are a part, for stockholder approval at a meeting of
stockholders, which pursuant to applicable NYBB regulations, may be held no
earlier than six months after the completion of the Conversion.
The Bank or Company expects to contribute funds to the Stock Program to enable
such plan or a trust established for such plan, to acquire, in the aggregate, an
amount equal to 4% of the shares of Common Stock issued in the Conversion,
including shares issued to the Foundation (or 919,080 shares based upon the
issuance of 22,977,000 shares). The Company will acquire these shares through
open market purchases, if permitted, or from authorized but unissued shares.
Although no specific award determinations have been made, the Company
anticipates that it will provide stock awards to the directors and employees of
the Company or Bank or their affiliates to the extent permitted by applicable
regulations. Shares of Common Stock granted pursuant to the Stock Program will
be awarded at no cost to the recipients. NYBB regulations provide that, to the
extent the Company implements the Stock Program within one year after the
Conversion, no individual employee may receive more than 25% of the shares of
any plan and non-employee directors may not receive more than 5% of any plan
individually or 30% in the aggregate for all directors.
A committee of the Board of Directors will administer the Stock Program or the
plan of which they are a part. Stock awards will not be transferable or
assignable. The Board intends to appoint an independent fiduciary to serve as
trustee of a trust established pursuant to the Stock Program. The Company may
make allocations and grants to officers and employees under the Stock Program in
the form of non performance-based grants and/or performance-based grants. The
Company may make the granting or vesting of stock awards under the Stock Program
conditioned upon the achievement of individual or Company-wide performance
goals, including the Company's or Bank's achievement of specified levels of net
income, return on assets, return on equity or other specified financial
performance goals and will be subject to applicable NYBB and FDIC regulations.
In the event of death, awards of Common Stock will become 100% vested. In
the event of disability, grants would be 100% vested upon termination of
employment of an officer or employee, or upon termination of service as a
director. In the event of retirement, if the participant continues to perform
services as a Director, Director Emeritus or consultant on behalf of the Bank,
the Company or an affiliate or, in the case of a retiring Director, Director
Emeritus, or as a consulting director, unvested grants will continue to vest in
accordance with their original vesting schedule until the recipient ceases to
perform such services at which time any unvested grants would lapse.
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The Company intends that, subject to any applicable NYBB or FDIC regulations,
the Stock Program described above would provide for accelerated vesting of
shares granted under the Stock Program in the event of a change in control of
the Bank or Company. A change in control, which will be defined in the plan
document, generally occurs when a person or group of persons acting in concert
acquires beneficial ownership of 20% or more of a class of equity securities of
the Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
results in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
When shares become vested in accordance with the stock programs described
above, the participants will recognize taxable income equal to the fair market
value of the Common Stock at that time. The Company may take a deduction equal
to that amount for the year in which it becomes taxable to the individual. When
shares become vested and are actually distributed in accordance with the Stock
Program, the participants also receive amounts equal to any accrued dividends
with respect thereto. Prior to vesting, recipients of grants may direct the
voting of the shares awarded to them. Shares not subject to grants and shares
allocated subject to the achievement of performance goals will be voted by the
trustee of the Stock Program, or the plan of which they are a part, in
accordance to the directions provided by individuals with respect to shares
subject to grants. Vested shares will be distributed to recipients as soon as
practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are acquired by
the Stock Program after the Conversion, the interests of existing shareholders
would be diluted. See "Pro Forma Data."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policies do not permit the Bank to make loans to any of its
Trustees. Two of the Bank's Trustees have loans with the Bank that predate
their becoming Trustees. Federal regulations require that all loans or
extensions of credit to executive officers and directors must be made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with the general public and
must not involve more than the normal risk of repayment or present other
unfavorable features. In addition, loans made to a director or executive
officer in excess of the greater of $25,000 or 5% of the Bank's capital and
surplus (up to a maximum of $500,000) must be approved in advance by a majority
of the disinterested members of the Board of Trustees.
The Bank currently makes loans to its executive officers on the same terms
and conditions offered to the general public. The Bank's policy provides that
all loans made by the Bank to its executive officers be made in the ordinary
course of business, on substantially the same terms, including collateral, as
those prevailing at the time for comparable transactions, with other persons and
may not involve more than the normal risk of collectability or present other
unfavorable features. In addition, the law firm of Lahr, Dillon, Manzulli,
Kelley & Penett, P.C. has a mortgage loan with the Bank. Such loan was made by
the Bank in the ordinary course of business, with no favorable terms and did
not involve more than the normal risk of collectability or present unfavorable
features. During fiscal 1997, the law firm of Lahr, Dillon, Manzulli, Kelley &
Penett, P.C. provided legal representation to the Bank for which it was paid
approximately $139,000 for legal fees and related services. Mr. Manzulli and
Mr. Kelley are partners with the firm.
The Company intends that all transactions between the Company and its
executive officers, directors, holders of 10% or more of the shares of any class
of its Common Stock and affiliates thereof, will contain terms no less favorable
to the Company than could have been obtained by it in arms-length negotiations
with unaffiliated persons and will be approved by a majority of independent
outside directors of the Company not having any interest in the transaction.
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SUBSCRIPTIONS BY EXECUTIVE OFFICERS, DIRECTORS AND TRUSTEES
The following table sets forth the number of shares of Common Stock that
the executive officers, Trustees and Directors, and their associates, propose to
purchase, assuming shares of Common Stock are issued at the minimum and maximum
of the Estimated Price Range (including shares issued to the Foundation) and
that sufficient shares will be available to satisfy their subscriptions. The
table also sets forth the total expected beneficial ownership of Common Stock as
to all Trustees, Directors and executive officers as a group.
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated of the Estimated Price
Price Range(1) Range(1)
---------------------------------- -----------------------------------
Number As a Percent Number As a Percent
of of Shares of of Shares
Name Amount Shares Offered Shares Offered
- - - ----------------------------- ----------------- ---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
Anthony E. Burke $ 250,000 25,000 0.15 25,000 0.11
Godfrey H. Carstens, Jr. 250,000 25,000 0.15 25,000 0.11
Robert S. Farrell 150,000 15,000 0.09 15,000 0.07
William C. Frederick, M.D. 250,000 25,000 0.15 25,000 0.11
James L. Kelley (2) 500,000 50,000 0.29 50,000 0.22
Michael F. Manzulli (2) 500,000 50,000 0.29 50,000 0.22
T. Ronald Quinlan, Jr. 100,000 10,000 0.06 10,000 0.04
Maurice K. Shaw 200,000 20,000 0.12 20,000 0.09
John M. McKenna 100,000 10,000 0.06 10,000 0.04
Thomas R. Cangemi 250,000 25,000 0.15 25,000 0.11
Stephen G.C. Campbell 75,000 7,500 0.04 5,000 0.03
Peter J. Esposito 75,000 7,500 0.04 7,500 0.03
Charles F. Hermann, III 125,000 12,500 0.07 12,500 0.05
Andrew M. Sisock 100,000 10,000 0.06 10,000 0.04
Nelson C. Sundback 100,000 10,000 0.06 10,000 0.04
Robert J. O'Rourke 75,000 7,500 0.04 7,500 0.03
--------- ------- ---- ------- ----
All Directors and Executive Officers
as a group (17 persons).......... $3,100,00 310,000 1.83% 310,000 1.35%
========= ======= ==== ======= ====
</TABLE>
- - - ----------------------
(1) Includes proposed subscriptions, if any, by associates. Does not
include orders by the ESOP. Intended purchases by the ESOP are
expected to be 8.0% of the shares issued in the Conversion, including
shares issued to the Foundation. Also does not include Common Stock
sold, Common Stock which may be awarded under the Stock Program to be
adopted equal to 4% of the Common Stock issued in the Conversion,
including shares issued to the Foundation, and Common Stock which may
be purchased pursuant to options which may be granted under the Stock
Option Plan equal to 10% of the number of shares of Common Stock
issued in the Conversion, including shares issued to the Foundation.
(2) Includes proposed subscriptions for $250,000 for a retirement plan
trust, the trustees of which include Messrs. Kelley and Manzulli.
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THE CONVERSION
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE PLAN
OF CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S ELIGIBLE ACCOUNT HOLDERS AND
THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE
SUPERINTENDENT.
GENERAL
On July 31, 1997, the Bank's Board of Trustees adopted the Plan of
Conversion pursuant to which the Bank will be converted from a New York State
chartered mutual savings bank to a New York State chartered stock savings bank.
It is currently intended that all of the capital stock of the Bank will be held
by the Company, which is incorporated under Delaware law. The Plan has been
approved by the Superintendent and the Bank has received a notice of intent not
to object to the Plan from the FDIC, subject to, among other things, approval of
the Plan by the Bank's Eligible Account Holders. A special meeting of Eligible
Account Holders has been called for this purpose to be held on _______, 1997.
The Company expects to receive approval from the OTS to become a savings
and loan holding company and to acquire all of the common stock of the Bank to
be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Bank to be issued in the Conversion.
The Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company or all of the common stock of the Bank, if
the holding company form of organization is not utilized, to be issued in the
Conversion.
The Plan provides that the Board of Trustees of the Bank, at any time prior
to the issuance of the Common Stock and for any reason, may decide not to use
the holding company form of organization in implementing the Conversion. Such
reasons may include possible delays resulting from overlapping regulatory
processing, or policies or conditions, which could adversely affect the Bank's
or the Company's ability to consummate the Conversion and transact its business
after the Conversion as contemplated herein and in accordance with the Bank's
operating policies. In the event that such a decision is made, the Bank will
withdraw the Company's registration statement from the SEC and will take all
steps necessary to complete the Conversion without the Company, including filing
any necessary documents with the Superintendent. In such event, and provided
there is no regulatory action, directive or other consideration upon which basis
the Bank determines not to complete the Conversion, if permitted by the
Superintendent, the Bank will issue and sell the common stock of the Bank and
subscribers will be notified of the elimination of the Company and resolicited
(i.e., be permitted to affirm their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their funds will be promptly refunded with interest,
or be permitted to modify or rescind their subscriptions) and notified of the
time period within which the subscriber must affirmatively notify the Bank of
his intention to affirm, modify or rescind his subscription. The following
description of the Plan assumes that a holding company form of organization will
be used in the Conversion. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described
below will apply to the conversion of the Bank from the mutual to stock form of
organization and the sale of the Bank's common stock.
The Plan provides generally that (i) the Bank will convert from a mutual
savings bank to a capital stock savings bank and (ii) the Company will offer
Common Stock for sale in the Subscription Offering to Eligible Account Holders,
Employee Plans, including the ESOP, and Supplemental Eligible Account Holders.
Concurrently, shares will be offered in the Community Offering to certain
members of the general
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public, subject to the prior rights of holders of subscription rights. It is
anticipated that all shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by the Company to the general public in a
Syndicated Community Offering. The Bank and Company have the right to accept or
reject, in whole or in part, any orders to purchase shares of the Common Stock
received in the Community Offering or Syndicated Community Offering.
The aggregate price of the shares of Common Stock to be sold in the
Conversion will be determined based upon an independent appraisal prepared by
Keller & Company, Inc. of the estimated pro forma market value of the Common
Stock giving effect to the Conversion. All shares of Common Stock to be issued
and sold in the Conversion will be sold at the same price. Keller's independent
appraisal will be updated and the final price of the shares will be determined
at the completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
independent appraisal has been performed by Keller, a consulting firm
experienced in the valuation and appraisal of savings institutions. See "-
Stock Pricing" for a determination of the estimated pro forma market value of
the Common Stock.
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available upon written request from the Bank and is
available for inspection at each branch office of the Bank and at the office of
the Superintendent. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
ESTABLISHMENT OF CHARITABLE FOUNDATION
General. In furtherance of the Bank's commitment to its local community,
the Plan of Conversion provides for the establishment of a charitable foundation
in connection with the Conversion. The Plan provides that the Bank and the
Company will establish the Foundation, which will be incorporated under Delaware
law as a non-stock corporation, and will fund the Foundation with Common Stock
of the Company, as further described below. The Company and the Bank believe
that the funding of the Foundation with Common Stock of the Company is a means
of establishing a common bond between the Bank and its community and thereby
enables the Bank's community to share in the potential growth and success of the
Company over the long term. By further enhancing the Bank's visibility and
reputation in its local community, the Bank believes that the Foundation will
enhance the long-term value of the Bank's community banking franchise. The
Foundation will be dedicated to charitable purposes within the Bank's local
community, including community development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community
development activities within the Bank's local community. The Bank received a
satisfactory CRA rating in its last CRA examination. The Foundation is being
formed as a complement to the Bank's existing community activities, not as a
replacement for such activities. The Bank intends to continue to emphasize
community lending and community development activities following the Conversion.
However, such activities are not the Bank's sole corporate purpose. The
Foundation, conversely, will be completely dedicated to community activities and
the promotion of charitable causes, and may be able to support such activities
in ways that are not presently available to the Bank. Since the Bank has a
Satisfactory record of serving its community under the CRA and already engages
in community development activities, the Bank believes that the Foundation will
enable the Company and the Bank to assist their local community in areas beyond
community development and lending. The Bank believes the establishment of the
Foundation will enhance its current activities under the CRA. In this regard,
the Board of Trustees believes the establishment of a charitable foundation is
consistent with the Bank's commitment
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to community service. The Board further believes that the funding of the
Foundation with Common Stock of the Company is a means of enabling the Bank's
community to share in the potential growth and success of the Company long after
completion of the Conversion. The Foundation will accomplish that goal by
providing for continued ties between the Foundation and Bank, thereby forming a
partnership with the Bank's community. The establishment of the Foundation will
also enable the Company and the Bank to develop a unified charitable donation
strategy and will centralize the responsibility for administration and
allocation of corporate charitable funds. Charitable foundations have been
formed by other financial institutions for this purpose, among others. The Bank,
however, does not expect the contribution to the Foundation to take the place of
the Bank's traditional community lending and charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's Bylaws,
the Foundation's Board of Directors initially will be comprised of seven
members, all of whom are existing Trustees of the Bank. In the future, the Board
of Directors of the Foundation may be expanded to include certain members of the
community. A Nominating Committee of the Board, which is to be comprised of a
minimum of three members of the board, will nominate individuals eligible for
election to the board of directors. The members of the Foundation, who are
comprised of its Board members, will elect the Directors at the annual meeting
of the Foundation from those nominated by the Nominating Committee. Directors
will be divided into three classes with each class appointed for three-year
terms. The certificate of incorporation of the Foundation provides that the
corporation is organized exclusively for charitable purposes, including
community development, as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further provides that no part of the
net earnings of the Foundation will inure to the benefit of, or be distributable
to, its directors, officers or members.
The authority for the affairs of the Foundation will be vested in the Board
of Directors of the Foundation. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. As directors of a nonprofit
corporation, directors of the Foundation will at all times be bound by their
fiduciary duty to advance the Foundation's charitable goals, to protect the
assets of the Foundation and to act in a manner consistent with the charitable
purpose for which the Foundation is established. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Company held by the
Foundation.
The Foundation's place of business will be located at the Company's
administrative offices and initially the Foundation is expected to have no
employees but will utilize the members of the staff of the Company or the Bank.
The Board of Directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation.
The Company intends to capitalize the Foundation with Common Stock of the
Company in an amount equal to 8.0% of the total amount of Common Stock to be
sold in connection with the Conversion. At the minimum, midpoint and maximum of
the Estimated Price Range, the contribution to the Foundation would equal
1,258,000, 1,480,000 and 1,702,000 shares, which would have a market value of
$12.6 million, $14.8 million, and $17.0 million, respectively, assuming the
Purchase Price of $10.00 per share. The Company and the Bank determined to fund
the Foundation with Common Stock rather than cash because it desired to form a
bond with its community in a manner that would allow the community to share in
the potential growth and success of the Company and the Bank over the long term.
The funding of the Foundation with stock also provides the Foundation with a
potentially larger endowment than if the Company contributed cash to the
Foundation since, as a shareholder, the Foundation will share in the potential
growth
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and success of the Company. As such, the contribution of stock to the Foundation
has the potential to provide a self-sustaining funding mechanism which reduces
the amount of cash that the Company, if it were not making the stock donation,
would have to contribute to the Foundation in future years in order to maintain
a level amount of charitable grants and donations.
The Foundation will receive working capital from any dividends that may be
paid on the Company's Common Stock in the future, and subject to applicable
federal and state laws, loans collateralized by the Common Stock or from the
proceeds of the sale of any of the Common Stock in the open market from time to
time as may be permitted to provide the Foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation, except where the
Board of Directors of the Foundation determines that the failure to sell an
amount of common stock greater than such amount would result in a long-term
reduction of the value of the Foundation's assets and as such would jeopardize
the Foundation's capacity to carry out its charitable purposes. Upon completion
of the Conversion and the contribution of shares to the Foundation immediately
following the Conversion, the Company would have 16,983,000, 19,980,000 and
22,977,000 shares issued and outstanding at the minimum, midpoint and maximum of
the Estimated Price Range. Because the Company will have an increased number of
shares outstanding, the voting and ownership interests of shareholders in the
Company's common stock would be diluted by 7.4%, as compared to their interests
in the Company if the Foundation was not established. For additional discussion
of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would likely be classified as a private foundation. The Foundation will submit
a request to the IRS to be recognized as an exempt organization. As long as the
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization.
Under Delaware law, the Company is authorized by statute to make charitable
contributions and case law has recognized the benefits of such contributions to
a Delaware corporation. In this regard, Delaware case law provides that a
charitable gift must be within reasonable limits as to amount and purpose to be
valid. Under the Code, the Company may deduct up to 10% of its taxable income
in any one year and any contributions made by the Company in excess of the
deductible amount may be carried forward and deducted in the Company's five
succeeding taxable years, subject, in each such year, to the 10% of taxable
income limitation. The Company and the Bank believe that the Conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised in the
Conversion. In making such a determination, the Company and the Bank considered
the dilutive impact of the contribution of Common Stock to the Foundation on the
amount of Common Stock available to be offered for sale in the Conversion.
Based on such consideration, the Company and Bank believe that the contribution
to the Foundation in excess of the 10% annual limitation is justified given the
Bank's capital position and its earnings, the substantial additional capital
being raised in the Conversion and the potential benefits of the Foundation to
the Bank's community. In this regard, assuming the sale of the Common Stock at
the midpoint of the Estimated Price Range, the Company would have pro forma
consolidated capital of $285.8 million or 24.26% of pro forma consolidated
assets and the Bank's pro forma leverage and risk-based capital ratios would be
15.9% and 30.7%, respectively. See "Regulatory Capital Compliance,"
"Capitalization," and "Comparison of Valuation and Pro Forma Information with No
Foundation." Thus, the amount of the
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contribution will not adversely impact the financial condition of the Company
and the Bank and the Company and the Bank therefore believe that the amount of
the charitable contribution is reasonable given the Company's and the Bank's pro
forma capital positions. As such, the Company and the Bank believe that the
contribution does not raise safety and soundness concerns.
The Company and the Bank have received an opinion of their independent tax
advisors that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company will be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution, subject to a limitation based on 10% of the
Company's annual taxable income. As discussed above, the Company, however, would
be able to carry forward any unused portion of the deduction for five years
following the contribution. If the Foundation would have been established in
fiscal 1997, the Company would have received a charitable contribution deduction
of approximately $2.1 million (based on the Bank's pre-tax income for fiscal
1997, an assumed tax rate of 47% and a contribution of Common Stock equal to
$17.0 million). The Company is permitted under the Code to carry over the excess
contribution over the five year period following the contribution to the
Foundation. Assuming the close of the Offerings at the midpoint of the Estimated
Price Range, the Company estimates that all of the deduction should be
deductible over the six-year period. Neither the Company nor the Bank expect to
make any further contributions to the Foundation within the first five years
following the initial contribution. After that time, the Company and the Bank
may consider future contributions to the Foundation. Any such decisions would be
based on an assessment of, among other factors, the financial condition of the
Company and the Bank at that time, the interests of shareholders and depositors
of the Company and the Bank, and the financial condition and operations of the
Foundation.
Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's tax benefit related to the
contribution to the Foundation would be expensed without tax benefit, resulting
in a reduction in earnings in the year in which the IRS makes such a
determination. See "Risk Factors - Establishment of Charitable Foundation."
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant. The Foundation will also be required to file an
annual report with the Charities Bureau of the Office of the Attorney General of
the State of New York.
PURPOSES OF CONVERSION
The Bank, as a New York State chartered mutual savings bank, does not have
stockholders and has no authority to issue capital stock. By converting to the
capital stock form of organization, the Bank will be structured in the form used
by commercial banks, most business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the Bank by providing a larger capital base on which the Bank may
operate, enhanced future access to capital markets,
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enhanced ability to diversify into other financial services related activities
and enhanced ability to render services to the public.
The holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock financial institutions, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Company will be in a position after the Conversion,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. While there are benefits
associated with the holding company form of organization, such form of
organization may involve additional costs associated with its maintenance and
regulation as a savings and loan company, such as additional administrative
expenses, taxes and regulatory filings or examination fees.
The potential impact of Conversion upon the Bank's capital base is
significant. At June 30, 1997, the Bank had Tier I Leverage capital of $99.1
million, or 10.02% of total assets. Assuming that $155.4 million of net proceeds
are realized from the sale of Common Stock (see "Pro Forma Data" for the basis
of this assumption) and assuming that 50% of the net proceeds are used by the
Company to purchase the capital stock of the Bank, the Bank's Tier I Leverage
capital would increase to $168.1 million, resulting in a pro forma leverage
capital ratio of 15.89% giving effect to the Conversion. In the event that the
holding company form of organization is not utilized and all the net proceeds,
at the midpoint of the Estimated Price Range, are retained by the Bank, the
Bank's core capital would increase to $254.5 million, resulting in a pro forma
leverage capital ratio of 24.06% at June 30, 1997. The investment of the net
proceeds from the sale of the Common Stock will provide the Bank with additional
income to further increase its capital position.
After completion of the Conversion, the unissued Common Stock and preferred
stock authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and applicable regulatory approvals, to
raise additional equity capital through further sales of securities, and to
issue securities in connection with possible acquisitions. At the present time,
the Company has no plans with respect to additional offerings of securities,
other than the issuance of additional shares upon exercise of stock options
under the Stock Option Plan or the possible issuance of authorized but unissued
shares to the Stock Program. Following the Conversion, the Company will also be
able to use stock-based benefit plans to attract and retain executive and other
personnel for itself and its subsidiaries. See "Management of the Bank -
Executive Compensation."
EFFECTS OF CONVERSION
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution. However,
this ownership interest is tied to the depositor's account and has no tangible
market value separate from such deposit account. Any depositor who opens a
deposit account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which may have realizable value
only in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time, as owners, would have a claim to
share pro
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rata in any residual surplus and reserves after other claims, including claims
of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds representing the
liquidation account established in connection with the Conversion.
Additionally, permanent nonwithdrawable capital stock is created and offered to
depositors which represents the ownership of the institution's net worth,
subject to certain claims of Eligible Account Holders with respect to amounts
representing the liquidation account. THE COMMON STOCK IS SEPARATE AND APART
FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit account the seller may hold in the institution.
No assets of the Company or the Bank will be distributed in connection with
the Conversion other than pursuant to the payment of expenses incurred in
connection therewith.
Continuity. While the Conversion is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
Superintendent and the FDIC. After Conversion, the Bank will continue to
provide services for depositors and borrowers under current policies by its
present management and staff.
The Trustees of the Bank at the time of Conversion will serve as Directors
of the Bank after the Conversion. The Directors of the Company will consist of
the same individuals who will serve on the Board of Directors of the Bank. All
officers of the Bank at the time of Conversion will retain their positions after
the Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank at
the time of Conversion will automatically continue as a depositor after the
Conversion, and each deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the Conversion. Depositors
will continue to hold their existing passbooks and other evidences of their
accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by the
Conversion, and the amount, interest rate, maturity and security for each loan
will remain as it was contractually fixed prior to the Conversion.
Effect on Voting Rights of Depositors. In its current mutual form, voting
rights and control of the Bank are vested exclusively in the Board of Trustees.
After the Conversion, direction of the Bank will be under the control of the
Board of Directors of the Bank. The Company, as the holder of all of the
outstanding common stock of the Bank, will have exclusive voting rights with
respect to any matters concerning the Bank requiring stockholder approval,
including the election of Directors of the Bank.
After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Common Stock will
have exclusive voting rights with respect to any matters concerning the Company.
Each holder of Common Stock will, subject to the restrictions and limitations
set forth in the Company's Certificate of Incorporation discussed below, be
entitled to vote on any matters to be considered by the Company's stockholders,
including the election of directors of the Company.
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Tax Effects. The Bank has received an opinion of counsel with regard to
federal income taxation which indicates that the adoption and implementation of
the Plan of Conversion set forth herein will not be taxable for Federal income
tax purposes to the Bank or its Eligible Account Holders or the Company, subject
to the limitations and qualifications in such opinion. The Bank has also
received an opinion from Ernst & Young LLP that, with respect to New York State
banking and franchise taxes, sales and use taxes, stock transfer taxes and real
property transfer gains taxes, the Conversion will not result in a tax
liability, and, with respect to New York State real estate transfer gains taxes,
a position may be taken that the Conversion is tax free. The opinion of Ernst &
Young LLP does provide that the Company will be required to pay a New York State
license fee as a foreign corporation equal to 1/20% of the apportioned par value
of the Common Stock issued by the Company, subject to the limitations and
qualifications contained in such opinions. See "- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to liquidate,
all claims of creditors (including those of depositors, to the extent of deposit
balances) would be paid first. Thereafter, if there were any assets remaining,
depositors would have a claim to receive such remaining assets, pro rata, based
upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account," if any, to certain depositors (as
described in "- Liquidation Rights," below), with any assets remaining
thereafter distributed to the Company as the holder of the Bank's capital stock.
STOCK PRICING
The Plan of Conversion requires that the purchase price of the Common Stock
must be based on the appraised pro forma market value of the Common Stock, as
determined on the basis of an independent appraisal. The Bank and the Company
have retained Keller to make such appraisal. For its services in making such
appraisal, Keller will receive a fee of $31,000, including fees related to the
preparation of a business plan for the Company and Bank, and will be reimbursed
for certain of its expenses in an amount not to exceed $1,000. The Bank and the
Company have agreed to indemnify Keller and its employees and affiliates against
certain losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as the independent appraiser,
except where Keller's liability results from its negligence or willful
misconduct.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the Bank,
including liquidity, capitalization, asset composition, funding mix, amount of
intangible assets owned, and level of interest rate risk; the economic,
demographic and competitive aspects of the Bank's existing marketing area; the
quality and depth of the Bank's management; certain historical, financial and
other information relating to the Bank; a comparative evaluation of the
operating and financial statistics of the Bank with those of other savings
institutions; the aggregate size of the offering of the Common Stock; the impact
of Conversion on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; the trading market for securities
of comparable institutions and general conditions in the market for such
securities; and recent regulatory matters. In particular, the appraisal
considered the Bank's financial condition and projected and historical operating
results, including income and expense trends, asset size, loan portfolio
composition, non-performing loans and assets, interest rate sensitivity
position, capital position, and yields on assets and costs of liabilities in
comparison to other publicly-traded thrifts with assets greater than or equal to
$200 million and less than or equal to $2.0 billion located in the State of New
York, the states contiguous to New York plus the States of Delaware and
Maryland. The Board of Trustees of the Bank and Board of Directors of the
Company have
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reviewed the appraisal of Keller in determining the reasonableness and adequacy
of such appraisal consistent with NYBB and FDIC regulations and have reviewed
the methodology and reasonableness of assumptions utilized by Keller in the
preparation of such appraisal and established the Estimated Price in a manner
consistent with this appraisal.
On the basis of the foregoing, Keller has advised the Company and the Bank
that, in its opinion dated as of September 12, 1997, the estimated pro forma
market value of the Common Stock being sold in connection with the Conversion
ranged from a minimum of $157.3 million to a maximum of $212.8 million (the
"Valuation Price Range") with a midpoint of $185.0 million. The Board of
Trustees established the Estimated Price Range of $157.3 million to $212.8
million within the Valuation Price Range based on the issuance of 15,725,000 to
21,275,000 shares at the Purchase Price of $10.00 per share. The Estimated
Price Range may be amended with the approval of the Superintendent and FDIC, if
required, if necessitated by subsequent developments in the financial condition
of the Company or the Bank or market conditions generally.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES OF
COMMON STOCK. KELLER DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID KELLER VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK. THE APPRAISAL CONSIDERS
THE BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF THE BANK. MOREOVER, BECAUSE SUCH APPRAISAL IS NECESSARILY
BASED UPON ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE
SUBJECT TO CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS
PURCHASING SUCH SHARES IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH
SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING
VALUATION OF THE PRO FORMA MARKET VALUE THEREOF. The appraisal of Keller may be
inspected by any Eligible Account Holder or Supplemental Eligible Account Holder
at the Bank's main office located at 1214 Castleton Avenue, Staten Island, New
York, during regular business hours of the Bank. Copies of the appraisal may
also be requested by Eligible Account Holders or Supplemental Eligible Account
Holders; provided, however, that such Eligible Account Holders or Supplemental
Eligible Account Holders shall be responsible for all costs associated with the
copying and transmittal of such appraisal.
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock being sold in the Conversion may be increased to
24,466,250 shares due to regulatory considerations, or changes in the market and
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause Keller to conclude
that the value of the Common Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription and Community Offerings.
If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Bank and the Company, after consulting with the
Superintendent and FDIC, may terminate the Plan and return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or
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money order, extend or hold a new Subscription and Community Offering, establish
a new Estimated Price Range, commence a resolicitation of subscribers or take
such other actions as permitted by the Superintendent and FDIC in order to
complete the Conversion. In the event that a resolicitation is commenced, unless
an affirmative response is received within a reasonable period of time, all
funds will be promptly returned to investors as described above. A
resolicitation following the conclusion of the Subscription and Community
Offerings would not exceed 45 days or, if following the Syndicated Community
Offering, would not exceed 60 days, unless such resolicitation period is further
extended by the Superintendent or FDIC for periods of up to 60 days not to
extend beyond _______________, 1999.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence the Syndicated Community Offering during the Subscription and
Community Offerings subject to prior rights of subscribers. All shares of
Common Stock will be sold at the same price per share in the Syndicated
Community Offering as in the Subscription and Community Offerings. See "--
Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
Keller to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to Superintendent
and FDIC approval. If such confirmation is not received, the Bank may extend
the Conversion, extend, reopen or commence new Subscription and Community
Offerings or Syndicated Community Offering, establish a new Estimated Price
Range and commence a resolicitation of all subscribers with the approval of the
Superintendent and FDIC or take such other actions as permitted by the
Superintendent and FDIC in order to complete the Conversion, or terminate the
Plan and cancel the Subscription and Community Offerings and/or the Syndicated
Community Offering. In the event market or financial conditions change so as to
cause the aggregate purchase price of the shares to be below the minimum of the
Estimated Price Range or more than 15% above the maximum of such range, and the
Company and the Bank determine to continue the Conversion, subscribers will be
resolicited (i.e., be permitted to continue their orders, in which case they
will need to affirmatively reconfirm their subscriptions prior to the expiration
of the resolicitation offering or their subscription funds will be promptly
refunded with interest at the Bank's passbook rate of interest, or be permitted
to decrease or cancel their subscriptions). Any change in the Estimated Price
Range must be approved by the Superintendent and FDIC. A resolicitation, if
any, following the conclusion of the Subscription and Community Offerings would
not exceed 45 days, or if following the Syndicated Community Offering, 60 days,
unless further extended by the Superintendent for periods up to 60 days not to
extend beyond _______________, 1999. If such resolicitation is not effected,
the Bank will return all funds promptly with interest at the Bank's passbook
rate of interest on payments made by check, bank draft or money order.
Copies of the appraisal report of Keller including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Bank and the other locations specified under "Additional Information."
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NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the commencement of
the Subscription and Community Offerings, the total number of shares to be sold
in the Conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
price per share is not below the minimum of the Estimated Price Range or more
than 15% above the maximum of the Estimated Price Range. Based on a fixed
purchase price of $10.00 per share and Keller's estimate of the pro forma market
value of the Common Stock ranging from a minimum of $157.3 million to a
maximum, as increased by 15%, of $244.7 million, the number of shares of Common
Stock expected to be issued is between a minimum of 15,725,000 shares and a
maximum, as adjusted by 15%, of 24,466,250 shares. The actual number of shares
issued between this range will depend on a number of factors and shall be
determined by the Bank and Company subject to Superintendent and FDIC approval,
if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Bank after consultation with
the Superintendent and FDIC, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the Superintendent and FDIC. If the number of shares issued in the
Conversion is increased due to an increase of up to 15% in the Estimated Price
Range to reflect changes in market or financial conditions, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares. See "- Limitations on
Common Stock Purchases."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the sale
of Common Stock in the Conversion will be increased by a number of shares equal
to 8.0% of the Common Stock issued in the Conversion to fund the Foundation.
Assuming the sale of shares in the Offerings at the maximum of the Estimated
Price Range, the Company will issue 1,702,000 shares of its Common Stock from
authorized but unissued shares to the Foundation immediately following the
completion of the Conversion. In that event, the Company will have total shares
of Common Stock outstanding of 22,977,000 shares. Of that amount, the Foundation
will own 7.4%. Funding the Foundation with authorized but unissued shares will
have the effect of diluting the ownership and voting interests of persons
purchasing shares in the Conversion by 7.4% since a greater number of shares
will be outstanding upon completion of the Conversion than would be if the
Foundation were not established. See "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with the Bank who had a balance of $100 or more as of June 30,
1996; (2) the Employee Plans, including the ESOP; (3) holders of deposit
accounts with a balance
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of $100 or more as of September 30, 1997. All subscriptions received will be
subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion and as described below under "- Limitations on Common Stock
Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the amount permitted
to be purchased in the Community Offering, currently $250,000 of Common Stock,
subject to the overall maximum purchase limitation. See "- Limitations on
Common Stock Purchases." Subscription rights received by officers and trustees
of the Bank and their associates based on increased deposits in the Bank in the
one-year period preceding June 30, 1996 will be subordinated to all other
subscription rights of Eligible Account Holders.
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common Stock will be allocated so as to
permit each subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Eligible Account Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible Account
Holder has an ownership interest. Failure to list an account could result in
less shares being allocated than if all accounts had been disclosed.
Priority 2: Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders, the Employee Plans, including the ESOP, will receive, without payment
therefor, second priority, nontransferable subscription rights to purchase, in
the aggregate, up to 10% of Common Stock issued in the Conversion, including any
increase in the number of shares of Common Stock to be issued in the Conversion
after the date hereof as a result of an increase of up to 15% in the maximum of
the Estimated Price Range. The ESOP intends to purchase 8.0% of the shares to
be issued in connection with the Conversion, including shares issued to the
Foundation, or 1,358,640 shares and 1,838,160 shares, based on the issuance of
16,983,000 shares and 22,977,000 shares, respectively. Subscriptions by the
ESOP will not be aggregated with shares of Common Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's trustees,
officers, employees or associates thereof. See "Management of the Bank -
Benefit Plans - ESOP."
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after the satisfaction of subscriptions by
Eligible Account Holders and the Employee Plans, each Supplemental Eligible
Account Holder will receive, without payment therefor, as third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the amount permitted to be purchased in the Community Offering,
currently $250,000 of Common Stock, subject to the overall maximum purchase
limitation. See "- Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription after the satisfaction of
subscriptions by Eligible Account Holders and the Employee Plans, the shares of
Common Stock will be allocated so as to permit each subscribing Supplemental
Eligible Account Holder, to the extent
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possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares subscribed for.
Thereafter, unallocated shares will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all remaining Supplemental Eligible Account
Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his or her stock order form all accounts in which such
Supplemental Eligible Account Holder has an ownership interest. Failure to list
an account could result in less shares being allocated than if all accounts had
been disclosed. The subscription rights received by Eligible Account Holders
will be applied in partial satisfaction of the subscription rights to be
received as a Supplemental Eligible Account Holder.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire on the Expiration Date ( _________________, 1997) at ____, New York
time, unless extended for up to 45 days by the Bank and Company or such
additional periods with the approval of the Superintendent and FDIC, if
required. Subscription rights which have not been exercised prior to the
Expiration Date will become void. The Bank will not execute orders until all
shares of Common Stock have been subscribed for or otherwise sold. If all
shares have not been subscribed for or sold within 45 days after the Expiration
Date, unless such period is extended with the consent of the Superintendent and
FDIC, all funds delivered to the Bank pursuant to the Subscription Offering will
be returned promptly to the subscribers with interest and all withdrawal
authorizations will be canceled. If an extension beyond the 45 day period
following the Expiration Date is granted, the Bank will notify subscribers of
the extension of time and of any rights of subscribers to modify or rescind
their subscriptions and have their funds returned promptly with interest, and of
the time period within which subscribers must affirmatively notify the Bank of
their intention to confirm, modify, or rescind their subscription. If an
affirmative response to any resolicitation is not received by the Company from a
subscriber, such order will be rescinded and all subscription funds will be
promptly returned with interest. Such extensions may not go beyond
_______________, 1999.
The Plan of Conversion provides that the Company complete the sale of the
Common Stock within 45 days after the close of the Subscription Offering. In
the event that the Company is unable to complete the sale of Common Stock and
effect the conversion within the 45-day time period, one or more extensions,
with each such extension up to 60 days, may be granted but such extensions may
not go beyond __________, 1999 unless waived by the Superintendent and FDIC, if
necessary. If an extension is granted, each subscriber will have the right to
affirm, increase, decrease or rescind the subscription at any time prior to 20
days before the end of the extension period or at any time prior to the date of
the commencement of the Syndicated Community Offering. No assurance can be
given that an extension would be granted if requested. If an extension is
granted, the Company will notify subscribers of such extension and of any rights
of subscribers to modify or rescind their subscriptions.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of Eligible Account Holders, the ESOP and Supplemental
Eligible Account Holders, the Bank has determined to offer shares pursuant to
the Plan to certain members of the general public. The Plan provides that with
regard to shares offered in the Community Offering, the Bank and Company may
establish relative preferences, priorities and allocations of shares among
persons, including institutional investors, subscribing for shares. The Bank
and the Company have made no decisions on such preference at this time and will
make such determination upon a review of subscriptions received in connection
with the Community Offering. Such persons, together with associates of and
persons acting in concert with such persons, may purchase up to $250,000 of
Common Stock, subject to the maximum overall purchase limitation and
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exclusive of shares issued pursuant to an increase in the Estimated Price Range
by up to 15%. See "- Limitations on Common Stock Purchases." This amount may be
increased to up to a maximum of 5% of the Common Stock issued or decreased to
less than $250,000 at the sole discretion of the Company and the Bank. THE
OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING
CATEGORY IS SUBJECT TO THE RIGHT OF THE BANK AND THE COMPANY, IN ITS SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS, IN WHOLE OR IN PART, EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
EXPIRATION DATE.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of preferred subscribers after completion of the Subscription
and Community Offerings and the filling of institutional investor orders, such
stock will be allocated first to each preferred subscriber whose order is
accepted by the Bank, in an amount equal to the lesser of 100 shares or the
number of shares subscribed for by each such preferred subscriber, if possible.
Thereafter, unallocated shares will be allocated among the preferred subscribers
whose order remains unsatisfied on a 100 shares per order basis until all such
orders have been filled or the remaining shares have been allocated. If there
are any shares remaining, shares will be allocated to other persons of the
general public who purchase in the Community Offering applying the same
allocation described above for preferred subscribers.
RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Company and the Bank will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. The Plan provides that the
Bank and the Company are not required to offer stock in the Subscription
Offering to any person who resides in a foreign country.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Company have engaged Sandler O'Neill as a consultant and
financial advisor in connection with the offering of the Common Stock, and
Sandler O'Neill has agreed to assist the Bank and the Company in its
solicitation of subscriptions and purchase orders for shares of Common Stock in
the Offerings. Sandler O'Neill will receive a fee equal to 1.75% of the
aggregate Purchase Price of all shares sold in the Offerings, excluding in each
case shares purchased by trustees, directors, officers and employees of the Bank
or Company and any immediate family member thereof and the Employee Plans,
including the ESOP, for which Sandler O'Neill will not receive a fee. In the
event that a selected dealers agreement is entered into in connection with a
Syndicated Community Offering, the Company and Bank will pay a fee (to be
negotiated at such time under such agreement) to such selected dealers, any
sponsoring dealers fees, and a management fee to Sandler O'Neill of 1.5% for
shares sold by a NASD member firm pursuant to a selected dealers agreement;
provided, however, that the aggregate fees payable to Sandler O'Neill for Common
Stock sold by them pursuant to such a selected dealers agreement shall not
exceed 1.75% of the aggregate Purchase Price and provided, further, however,
that the aggregate fees payable to Sandler O'Neill and the selected dealers will
not exceed 7% of the aggregate purchase price of the Common Stock sold by
selected dealers. Fees to Sandler O'Neill and to any other broker-dealer may be
deemed to be underwriting fees, and Sandler O'Neill and such broker-dealers may
be deemed to be underwriters. Sandler O'Neill will also be reimbursed for its
reasonable out-of-pocket expenses, including legal fees, in an amount not to
exceed $200,000. Notwithstanding the foregoing, in the event the Offerings are
not consummated or Sandler O'Neill ceases, under certain circumstances after the
subscription solicitation activities are commenced, to provide assistance to the
Company, Sandler O'Neill will be reimbursed for its reasonable out-of-pocket
expenses as described above. The Company and the Bank have agreed to indemnify
Sandler O'Neill for reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities Act.
Sandler O'Neill has received advances towards its marketing and financial
advisory service fees totaling
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$50,000. Total marketing fees to Sandler O'Neill are expected to be $2.5 million
and $3.3 million at the minimum and the maximum of the Estimated Price Range,
respectively. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.
Sandler O'Neill will also perform proxy solicitation services, conversion
agent services and records management services for the Bank in the Conversion
and will receive a fee for these services of $65,000, plus reimbursement of
reasonable out-of-pocket expenses.
Directors, Trustees and executive officers of the Company and Bank may
participate in the solicitation of offers to purchase Common Stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. Other employees of the Bank may participate in the Offering in
ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase Common Stock or provide advice regarding the purchase of Common Stock.
The Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, Trustees, directors and employees to participate in the sale of Common
Stock. No officer, Trustee, director or employee of the Company or the Bank
will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
Sandler O'Neill has not prepared any report or opinion constituting
recommendations or advice to the Bank or the Company. In addition, Sandler
O'Neill has expressed no opinion as to the prices at which the Common Stock to
be issued in the Offerings may trade. Furthermore, Sandler O'Neill has not
verified the accuracy or completeness of the information contained in the
Prospectus.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from the Bank's
deposit account (which may be given by completing the appropriate blanks in the
stock order form), must be received by the Bank at any of its offices by _____,
New York time, on the Expiration Date. Stock order forms which are not received
by such time or are executed defectively or are received without full payment
(or appropriate withdrawal instructions) are not required to be accepted. In
addition, the Bank and Company are not obligated to accept orders submitted on
photocopied or facsimilied stock order forms and will not accept stock order
forms unaccompanied by an executed certification form. Notwithstanding the
foregoing, the Company and Bank shall have the right, each in their sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Common Stock for which they subscribe in the Community Offering at
any time prior to 48 hours before the completion of the Conversion. The Company
and the Bank have the right to waive or permit the correction of incomplete or
improperly executed forms, but do not represent that they will do so. Once
received, an executed stock order form may not be modified, amended or rescinded
without the consent of the Bank unless the Conversion has not been completed
within 45 days after the end of the Subscription and Community Offerings, unless
such period has been extended.
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In order to ensure that Eligible Account Holders and Supplemental Eligible
Account Holders are properly identified as to their stock purchase priorities,
depositors as of the Eligibility Record Date (June 30, 1996) and/or the
Supplemental Eligibility Record Date (September 30, 1997) must list all accounts
on the stock order form giving all names in each account and the account number.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments
made by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Conversion. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the purchase
price from his deposit account, the Bank will do so as of the effective date of
the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed IRAs and other Qualified Plan accounts, such as
Keogh accounts, may use the assets of such IRAs and other Qualified Plan
accounts, to purchase shares of Common Stock in the Subscription and Community
Offerings, provided that such IRAs or other Qualified Plan accounts are not
maintained at the Bank. Persons with self-directed IRAs or Qualified Plan
accounts maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, directors and ten percent shareholders
who use self-directed IRA or Qualified Plan account funds to purchase shares of
Common Stock in the Subscription and Community Offerings, make such purchases
for the exclusive benefit of the IRAs or Qualified Plan accounts.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the address specified in properly completed stock order forms,
as soon as practicable following consummation of the sale of all shares of
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the NYBB regulations prohibit
any person with subscription rights, including the Eligible Account Holders, the
ESOP and Supplemental Eligible Account Holders, from transferring or entering
into any agreement or understanding to transfer the legal or beneficial
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ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Such rights may be exercised
only by the person to whom they are granted and only for his or her account.
Each person exercising such subscription rights will be required to certify that
he or she is purchasing shares solely for his or her own account and that he or
she has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.
THE BANK AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. THE COMPANY
AND THE BANK HAVE THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART IN THEIR SOLE
DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. Neither Sandler O'Neill nor
any registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to the overall maximum purchase limitation, no person, together with any
associate or group of persons acting in concert, will be permitted to subscribe
in the Syndicated Community Offering for more than $250,000 of Common Stock;
provided, however, that shares of Common Stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to an overall maximum purchase limitation of
1.0% of the shares offered, exclusive of an increase in shares issued pursuant
to an increase in the Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the Bank's passbook rate of interest from the date such
payment is actually received by the Bank until completion or termination of the
Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will
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send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Company with the approval
of the Superintendent and FDIC. Such extensions may not be beyond
_______________, 1999. See "- Stock Pricing" above for a discussion of rights
of subscribers, if any, in the event an extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the amount permitted to be purchased in
the Community Offering, currently $250,000 of Common Stock, subject to
the overall maximum purchase limitation described in (7) below;
(3) The Employee Plans, including the ESOP, are permitted to purchase, in
the aggregate, up to 10% of the shares of Common Stock issued in the
Conversion, including shares issued in the event of an increase in the
Estimated Price Range of 15%, and the ESOP intends to purchase 8.0% of
the shares of Common Stock issued in connection with the Conversion,
including shares issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently
$250,000 of Common Stock, subject to the overall maximum purchase
limitation described in (7) below;
(5) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to
$250,000 of Common Stock, subject to the overall maximum purchase
limitation described in (7) below;
(6) Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert
with such persons, may purchase in the Syndicated Community Offering
up to $250,000 of Common Stock subject to the overall maximum purchase
limitation described in (7) below and, provided further, that shares
of Common Stock purchased in the Community Offering by any persons,
together with associates of and persons acting in concert with such
persons, will be aggregated with
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purchases in the Syndicated Community Offering in applying the
$250,000 purchase limitation;
(7) Eligible Account Holders and Supplemental Eligible Account Holders may
purchase stock in the Community Offering and Syndicated Community
Offering, subject to the purchase limitations described in (5) and (6)
above, provided that, except for the ESOP, the overall maximum number
of shares of Common Stock subscribed for or purchased in all
categories of the Conversion by any person, together with associates
of and groups of persons acting in concert with such persons, shall
not exceed 1.0% of the shares of Common Stock offered in the
Conversion and exclusive of an increase in the total number of shares
issued due to an increase in the Estimated Price Range of up to 15%;
and
(8) No more than 25% of the total number of shares issued in the
Conversion may be purchased by Trustees, Directors and officers of the
Bank or Company and their associates in the aggregate, excluding
purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of depositors of
the Bank or subscribers for Common Stock, both the individual amount permitted
to be subscribed for and the overall maximum purchase limitation may be
increased to up to a maximum of 5% of the Common Stock to be issued at the sole
discretion of the Company and the Bank. If such amount is increased,
subscribers for the maximum amount will be, and certain other large subscribers
in the sole discretion of the Bank may be, given the opportunity to increase
their subscriptions up to the then applicable limit.
The overall maximum purchase limitation may not be reduced to less than
1.0%, and the individual amount permitted to be subscribed for may not be
reduced by the Bank to less than .10% without the further approval of members or
resolicitation of subscribers. An Eligible Account Holder or Supplemental
Eligible Account Holder may not purchase individually in the Subscription
Offering the overall maximum purchase limit of 1.0% of the shares offered, but
may make such purchase, together with associates of and persons acting in
concert with such person, by also purchasing in other available categories of
the Conversion, subject to availability of shares and the maximum overall
purchase limit for purchases in the Conversion.
The term "associate" of a person is defined to mean: (i) any corporation
(other than the Bank or a majority-owned subsidiary of the Bank) of which such
person is an officer, partner or 10% stockholder; (ii) any trust or other estate
in which such person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity; provided, however, such term shall
not include any employee stock benefit plan of the Bank in which such person has
a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity; and (iii) any relative or spouse of such person, or any
relative of such spouse, who either has the same home as such person or who is a
trustee or officer of the Bank. Trustees are not treated as associates of each
other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Management of the Bank -
Subscriptions by Executive Officers, Directors and Trustees," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion" and
"Restrictions on Acquisition of the Company and the Bank."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its present
mutual form, each depositor would have a claim to receive their pro rata share
of any assets of the Bank remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). To
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the extent there are remaining assets, a depositor would have a claim to receive
a pro rata share of any such remaining assets in the same proportion as the
value of such depositor's deposit accounts to the total value of all deposit
accounts in the Bank at the time of liquidation. After the Conversion, each
depositor, in the event of a complete liquidation, would have a claim as a
creditor of the same general priority as the claims of all other general
creditors of the Bank. However, except as described below, their claim would be
solely in the amount of the balance in their deposit account plus accrued
interest. Such depositor would not have an interest in the value or assets of
the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders in an amount equal to the surplus and reserves of the Bank as of
the date of its latest balance sheet contained in the final Prospectus used in
connection with the Conversion. Such liquidation account will not be reflected
as an asset or liability on the Company's or the Bank's financial statements
subsequent to the Conversion. Eligible Account Holders, if they were to
continue to maintain their deposit account at the Bank, would, on a complete
liquidation of the Bank, have a claim to an interest in the liquidation account
after payment of all creditors prior to any payment to the stockholders of the
Bank. Each Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, demand account, NOW account, money
market deposit account, and certificate of deposit account, with a balance of
$100 or more held in the Bank on June 30, 1996 ("Deposit Account"). Each
Eligible Account Holder will have a claim to a pro rata interest in the total
liquidation account for each of his Deposit Accounts based on the proportion
that the balance of each such Deposit Account on the June 30, 1996 eligibility
record date bore to the balance of all Deposit Accounts in the Bank on such
date.
If, however, at the close of business on the last day of any period for
which the Bank or Company has prepared audited financial statements subsequent
to the effective date of the Conversion ("annual closing date"), the amount in
any Deposit Account is less than the amount in such Deposit Account on any other
annual closing date, then such person's interest in the liquidation account
relating to such Deposit Account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
Deposit Account is withdrawn or closed. For purposes of the liquidation
account, time deposit accounts shall be deemed to be closed upon maturity
regardless of any renewal thereof. In addition, no interest in the liquidation
account would ever be increased despite any subsequent increase in the related
Deposit Account. Any assets remaining after the above liquidation rights of
Eligible Account Holders are satisfied would be distributed to the Company as
the sole stockholder of the Bank.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon the receipt by
the Bank of either a favorable ruling from the IRS or an opinion of counsel with
respect to federal income taxation, and an opinion of its independent auditors
with respect to certain New York state taxation, to the effect that the
Conversion will not be a taxable transaction to the Company, the Bank, Eligible
Account Holders or Supplemental Eligible Account Holders, except as noted below.
The federal and New York tax consequences will remain unchanged in the event
that a holding company form of organization is not utilized.
No private ruling has been requested from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, which has been filed with the SEC as an exhibit to
the Company's Registration Statement to the effect that for federal income tax
purposes, among other matters: (i) the Bank's change in form from mutual to
stock ownership will constitute a reorganization under section 368(a)(1)(F) of
the Code and neither the Bank nor the Company will recognize any gain or loss as
a result of the Conversion; (ii) no gain or loss will be recognized to the Bank
or the Company upon the purchase of the Bank's capital stock by the Company or
to the Company upon the
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purchase of its Common Stock in the Conversion; (iii) no gain or loss will be
recognized by Eligible Account Holders or Supplemental Eligible Account Holders
upon the issuance to them of deposit accounts in the Bank in its stock form plus
their interests in the liquidation account in exchange for their deposit
accounts in the Bank; (iv) the tax basis of the depositors' deposit accounts in
the Bank immediately after the Conversion will be the same as the basis of their
deposit accounts immediately prior to the Conversion; (v) the tax basis of each
Eligible Account Holder's interest in the liquidation account will be zero; (vi)
no gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the distribution to them of nontransferable
subscription rights to purchase shares of the Common Stock, provided that the
amount to be paid for the Common Stock is equal to the fair market value of such
stock; and (vii) the tax basis to the stockholders of the Common Stock of the
Company purchased in the Conversion will be the amount paid therefor and the
holding period for the shares of Common Stock purchased by such persons will
begin on the date on which their subscription rights are exercised. Ernst &
Young LLP has opined, subject to the limitations and qualifications in its
opinion, that: the Conversion will not be a taxable transaction for the purposes
of the New York State banking franchise taxes, sales and use taxes, stock
transfer taxes, and real property transfer gains taxes; a position may be taken
that the Conversion will likely not be a taxable transaction for purposes of the
New York State real estate transfer taxes; and the Company, as a foreign
corporation, will be subject to a license fee at a rate of 1/20% of the
apportioned par value of the Common Stock issued. Certain portions of both the
federal and the state and local tax opinions are based upon the opinion of
Keller that subscription rights issued in connection with the Conversion will
have no value.
In the opinion of Keller, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common Stock
at a price equal to its estimated fair market value, which will be the same
price as the Purchase Price for the unsubscribed shares of Common Stock. If the
subscription rights granted to Eligible Account Holders or Supplemental Eligible
Account Holders are deemed to have an ascertainable value, such recipients could
be taxed either on the receipt or exercise of such subscription rights.
Unlike private rulings, an opinion of counsel is not binding on the IRS and
the IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion by a
Director, Trustee or an executive officer of the Bank or Company will be subject
to a restriction that the shares not be sold for a period of one year following
the Conversion, except in the event of the death of such Director, Trustee or
executive officer. Each certificate for such restricted shares will bear a
legend giving notice of this restriction on transfer, and instructions will be
issued to the effect that any transfer within such time period of any
certificate or record ownership of such shares other than as provided above is a
violation of such restriction. Any shares of Common Stock issued at a later
date as a stock dividend, stock split, or otherwise, with respect to such
restricted stock will be subject to the restriction that they may not be sold
for a period of one year following the Conversion. The Directors, Trustees and
executive officers of the Bank or Company will also be subject to the insider
trading rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by Trustees,
Directors, executive officers (or any person who was an executive officer or
Trustee of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the
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Superintendent. This restriction does not apply, however, to the purchase of
Common Stock pursuant to the Stock Program or Stock Option Plan.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides
that, if deemed necessary or desirable by the Board of Trustees of the Bank, the
Plan may be substantively amended prior to the solicitation of proxies from
Eligible Account Holders by a vote of the Board of Trustees; amendment of the
Plan thereafter requires the approval of the Superintendent and FDIC. The Plan
will terminate if the sale of all shares of stock being offered pursuant to the
Plan is not completed prior to 24 months after the date of the approval of the
Plan by the Superintendent unless a longer time period is permitted by governing
laws and regulations. The Plan may be terminated by a vote of the Board of
Trustees of the Bank at any time prior to the Special Meeting, and thereafter by
such a vote with the approval of the Superintendent and FDIC.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank from
the mutual to the stock form of organization and in connection therewith, a
Restated Organization Certificate and Bylaws to be adopted by Eligible Account
Holders of the Bank. The Plan also provides for the concurrent formation of a
holding company. See "The Conversion - General." Certain provisions in the
Company's Certificate of Incorporation and Bylaws and in its management
remuneration provided for in the Conversion, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, the Bank's
Restated Organization Certificate and Bylaws and management remuneration
provided for in the Conversion may have anti-takeover effects as described
below. Finally, regulatory restrictions may make it difficult for persons or
companies to acquire control of either the Company or the Bank.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have
the effect of discouraging a future takeover attempt which is not approved by
the Board of Directors but which individual Company stockholders may deem to be
in their best interests or in which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also render the removal of the
current Board of Directors or management of the Company more difficult. The
following description of certain of the provisions of the Certificate of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each case to such Certificate of Incorporation and Bylaws,
which are incorporated herein by reference. See "Additional Information" as to
how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or
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indirectly, by a person who beneficially owns in excess of 10% of the then
outstanding shares of Common Stock (the "Limit") be entitled or permitted to any
vote in respect of the shares held in excess of the Limit. Beneficial ownership
is determined pursuant to Rule 13d-3 of the General Rules and Regulations
promulgated pursuant to the Exchange Act, and includes shares beneficially owned
by such person or any of his affiliates (as defined in the Certificate of
Incorporation), shares which such person or his affiliates have the right to
acquire pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or otherwise
and shares as to which such person and his affiliates have sole or shared voting
or investment power, but shall not include shares that are subject to a publicly
solicited revocable proxy and that are not otherwise deemed to be beneficially
owned by such person and his affiliates. No Director or officer (or any
affiliate thereof) of the Company shall, solely by reason of any or all of such
Directors or officers acting in their capacities as such, be deemed to
beneficially own any shares beneficially owned by any other Director or officer
(or affiliate thereof) nor will the ESOP or any similar plan of the Company or
the Bank or any trustee with respect thereto (solely by reason of such trustee's
capacity) be deemed to beneficially own any shares held under any such plan. The
Certificate of Incorporation of the Company further provides that the provisions
limiting voting rights may only be amended upon the vote of the holders of at
least 80% of the voting power of all then outstanding shares of capital stock
entitled to vote thereon (after giving effect to the provision limiting voting
rights).
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of the members of the Board. Each class shall serve a staggered term,
with approximately one-third of the total number of Directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the Whole Board of
Directors. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board, including a vacancy created by an increase in
the number of Directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the Directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the
Company. Directors may be removed by the shareholders only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all then
outstanding shares of capital stock entitled to vote thereon.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be
called only by a resolution adopted by a majority of the Whole Board of
Directors of the Company. The Certificate of Incorporation also provides that
any action required or permitted to be taken by the stockholders of the Company
may be taken only at an annual or special meeting and prohibits stockholder
action by written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 75 million shares of Common Stock and 5 million shares of
preferred stock. The shares of Common Stock and preferred stock were authorized
in an amount greater than that to be issued in the Conversion to provide the
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
preferred stock, including voting rights, conversion rates, and liquidation
preferences.
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As a result of the ability to fix voting rights for a series of preferred stock,
the Board has the power to the extent consistent with its fiduciary duty to
issue a series of preferred stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board currently has no plans for the issuance of additional
shares, other than the issuance of shares in the Conversion, including shares
contributed to the Foundation, and the issuance of additional shares upon
exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with Interested
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock
entitled to vote thereon to approve certain "Business Combinations" with an
"Interested Stockholder," each as defined therein, and related transactions.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, the approval of the holders of at least 80% of the shares of
capital stock entitled to vote thereon is required for any business combination
involving an Interested Stockholder (as defined below) except (i) in cases where
the proposed transaction has been approved by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Interested
Stockholder and were Directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient. The term "Interested
Stockholder" is defined to include, among others, any individual, a group acting
in concert, corporation, partnership, association or other entity (other than
the Company or its subsidiary) who or which is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include: (i) any merger or
consolidation of the Company or any of its subsidiaries with any Interested
Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an
Interested Stockholder or any corporation which is, or after such merger or
consolidation would be, an Affiliate of an Interested Stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or
with any Interested Stockholder or Affiliate of 25% or more of the assets of the
Company or combined assets of the Company and its subsidiary; (iii) the issuance
or transfer to any Interested Stockholder or its Affiliate by the Company (or
any subsidiary) of any securities of the Company (or any subsidiary) in exchange
for any cash, securities or other property the value of which equals or exceeds
25% of the fair market value of the Common Stock of the Company; (iv) the
adoption of any plan for the liquidation or dissolution of the Company proposed
by or on behalf of any Interested Stockholder or Affiliate thereof; and (v) any
reclassification of securities, recapitalization, merger or consolidation of the
Company with any of its subsidiaries which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company or subsidiary owned directly or indirectly, by an
Interested Stockholder or Affiliate thereof. The Trustees and executive
officers of the Bank are purchasing in the aggregate approximately 1.4% of the
shares of the Common Stock based on the maximum of the Estimated Price Range,
including shares issued to the Foundation. In addition, the ESOP intends to
purchase 8.0% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Additionally, the Company expects to
acquire 4% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, on behalf of the Stock Program and
expects to grant options to issue an amount equal to 10% of the Common Stock
issued in connection with the Conversion, including shares issued to the
Foundation, under the Stock Option Plan to directors and executive officers. As
a result, Directors, executive officers and employees have the potential to
control the voting of approximately 21.2% of the Company's Common Stock on a
fully diluted basis at the maximum of the
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Estimated Price Range, thereby enabling them to prevent the approval of the
transactions requiring the approval of at least 80% of the Company's outstanding
shares of voting stock described herein above.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein), to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the stockholders of the Company, give due
consideration to all relevant factors, including, without limitation, those
factors that directors of any subsidiary (including the Bank) may consider in
evaluating any action that may result in a change or potential change of control
of such subsidiary, and the social and economic effects of acceptance of such
offer on: the Company's present and future customers and employees and those of
its subsidiaries (including the Bank); the communities in which the Company and
the Bank operate or are located; the ability of the Company to fulfill its
corporate objectives as a bank holding company; and the ability of the Bank to
fulfill the objectives of a stock savings bank under applicable statutes and
regulations. By having these standards in the Certificate of Incorporation of
the Company, the Board of Directors may be in a stronger position to oppose such
a transaction if the Board concludes that the transaction would not be in the
best interest of the Company, even if the price offered is significantly greater
than the then market price of any equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
Directors, Director and officer indemnification by the Company and amendment of
the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws may
be amended by a majority of the Whole Board of Directors, or by a vote of the
holders of at least 80% (after giving effect to the provision limiting voting
rights) of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of the Company. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
Director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. Certain
provisions of the Stock Option Plan and Stock Program provide for accelerated
benefits to participants in the event of a change in control of the Company or
the Bank or a tender or exchange offer for their stock. See "Management of the
Bank - Benefit Plans - Stock Option Plan," and "- Benefit Plans - Stock
Program." The Company and the Bank have also entered into agreements with key
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officers and intends to establish the Severance Compensation Plan which will
provide such officers and eligible employees with additional payments and
benefits on the officer's termination in connection with a change in control of
the Company or the Bank. See "Management of the Bank - Employment Agreements,"
"- Change in Control Agreements" and "- Employee Severance Compensation Plan."
The foregoing provisions and limitations may make it more difficult for
companies or persons to acquire control of the Bank. Additionally, the
provisions could deter offers to acquire the outstanding shares of the Company
which might be viewed by stockholders to be in their best interests.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws are in the best interest of the Company
and its stockholders. An unsolicited non-negotiated takeover proposal can
seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of the Company and its stockholders to encourage potential acquirors
to negotiate directly with management and that these provisions will encourage
such negotiations and discourage non-negotiated takeover attempts.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the corporation's
directors who are also officers and certain employee stock plans; (iii) any
business combination with an Interested Stockholder that is approved by the
board of directors and by a two-thirds vote of the outstanding voting stock not
owned by the Interested Stockholder; and (iv) certain business combinations that
are proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the board of directors. A corporation may exempt itself from the requirements
of the statute by adopting an amendment to its certificate of incorporation or
bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
RESTRICTIONS IN THE BANK'S RESTATED ORGANIZATION CERTIFICATE AND NEW BYLAWS
Although the Board of Trustees of the Bank is not aware of any effort that
might be made to obtain control of the Bank after Conversion, the Board of
Trustees believes that it is appropriate to adopt certain provisions permitted
by General Regulations of the NYBB to protect the interests of the converted
Bank and its stockholders from any hostile takeover. Such provisions may,
indirectly, inhibit a change in control of the Company, as the Bank's sole
stockholder. See "Risk Factors - Certain Anti-Takeover Provisions."
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The Bank's Restated Organization Certificate will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of the Bank by any
person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of three years
following the date of completion of the Conversion. Any stock in excess of 10%
acquired in violation of the charter provision will not be counted as
outstanding for voting purposes. This limitation shall not apply to any
transaction in which the Bank forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter or appraisal rights. In the event
that holders of revocable proxies for more than 10% of the shares of the Common
Stock of the Company seek, among other things, to elect one-third or more of the
Company's Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Bank, the Board of
Directors of the Bank will be able to assert this provision of the Bank's
Restated Organization Certificate against such holders. Although the Board of
Directors of the Bank is not currently able to determine when and if it would
assert this provision of the Bank's Restated Organization Certificate, the Board
of Directors, in exercising its fiduciary duty, may assert this provision if it
were deemed to be in the best interests of the Bank, the Company and its
stockholders. It is unclear, however, whether this provision, if asserted,
would be successful against such persons in a proxy contest which could result
in a change in control of the Bank indirectly through a change in control of the
Company.
In addition, stockholders will not be permitted to call a special meeting
of stockholders or to cumulate their votes in the election of Directors.
Furthermore, the Bank's Restated Organization Certificate and Bylaws provide for
the election of three classes of directors to staggered terms. The staggered
terms of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion.
Finally, the Restated Organization Certificate provides for the issuance of
shares of preferred stock on such terms, including conversion and voting rights,
as may be determined by the Bank's Board of Directors without stockholder
approval. Although the Bank has no arrangements, understandings or plans at the
present time for the issuance or use of the shares of undesignated preferred
stock (the "Preferred Stock") proposed to be authorized, the Board of Trustees
believes that the availability of such shares will provide the Bank with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which may arise. In the event of a
proposed merger, tender offer or other attempt to gain control of the Bank of
which management does not approve, it might be possible for the Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Trustees
does not intend to issue any Preferred Stock except on terms which the Board
deems to be in the best interest of the Bank and its then existing stockholders.
REGULATORY RESTRICTIONS
New York State Banking Board Conversion Regulations. NYBB regulations
prohibit any person, prior to the completion of the Conversion, from
transferring, or from entering into any agreement or understanding to transfer,
to the account of another, legal or beneficial ownership of the subscription
rights issued under the Plan or the Common Stock to be issued upon their
exercise. NYBB regulations also prohibit any person, prior to the completion of
the Conversion, from offering, or making an announcement of an offer
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or intent to make an offer, to purchase such subscription rights or Common
Stock. See "The Conversion - Restrictions on Transfer of Subscription Rights and
Shares."
For one year following the Conversion, NYBB regulations prohibit any person
from acquiring or making an offer to acquire more than 10% of the stock of any
converted savings institution, except with the prior approval of the
Superintendent.
OTS Regulations. In addition, any proposal to acquire 10% of any class of
equity security of the Company generally would be subject to approval by the OTS
under the Change in Bank Control Act (the "CBCA") and the HOLA. The OTS requires
all persons seeking control of a savings institution, either directly or
indirectly through its holding company, to obtain regulatory approval prior to
offering to obtain control. Federal law generally provides that no "person,"
acting directly or indirectly or through or in concert with one or more other
persons, may acquire directly or indirectly "control," as that term is defined
in OTS regulations, of an OTS-regulated savings and loan holding company without
giving at least 60 days' written notice to the OTS and providing the OTS an
opportunity to disapprove the proposed acquisition. Such acquisitions of control
may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially less competition; (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
Such change in control restrictions on the acquisition of holding company stock
are not limited to a set time period but will apply for as long as the
regulations are in effect. Persons holding revocable or irrevocable proxies may
be deemed to be beneficial owners of such securities under OTS regulations and
therefore prohibited from voting all or the portion of such proxies in excess of
the 10% aggregate beneficial ownership limit. Such regulatory restrictions may
prevent or inhibit proxy contests for control of the Company or the Bank which
have not received prior regulatory approval. Acquisitions of control of a
savings bank are subject to the approval of the FDIC under the CBCA. However,
transactions involving the company for which OTS approval must be sought under
HOLA are exempted from this requirement.
New York State Bank Holding Company Regulation. Under New York Banking
Law, the prior approval of the NYBD is required before: (1) any action is taken
that causes any company to become a bank holding company; (2) any action is
taken that causes any banking institution to become or to be merged or
consolidated with a subsidiary of a bank holding company; (3) any bank holding
company acquires direct or indirect ownership or control of more than 5% of the
voting stock of a banking institution; (4) any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. See "Regulation and
Supervision - Holding Company Regulation - New York State Holding Company
Regulation." Accordingly, the prior approval of the NYBB would be required
before any bank holding company, as defined in the banking law, could acquire 5%
of more of the common stock of the company.
New York State Change in Control Regulation. Prior approval of the NYBB is
also required before any action is taken that causes any company to acquire
direct or indirect control of a banking institution. Control is presumed to
exist if any company directly or indirectly owns, controls or holds with power
to vote 10% or more of the voting stock of a banking institution or of any
company that owns, controls or holds with power to vote 10% or more of the
voting stock of a banking institution. Accordingly, prior approval of the NYBB
would be required before any company could acquire 10% or more of the Common
Stock of the Company.
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Federal Reserve Board Regulations. In the event the Bank does not qualify
to be a QTL and does not elect to be treated as a "savings association" under
Section 10 of HOLA, attempts to acquire control of the Bank become subject to
regulations of the Federal Reserve Board under the CBCA.
DESCRIPTION OF CAPITAL STOCK
OF THE COMPANY
GENERAL
The Company is authorized to issue 75 million shares of Common Stock having
a par value of $.01 per share and 5 million shares of preferred stock having a
par value of $.01 per share (the "Preferred Stock"). Based on the sale of
Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 8% of the Common Stock sold in the
Conversion to the Foundation, the Company currently expects to issue up to
26,423,550 shares of Common Stock (based on the maximum of the Estimated Price
Range, as adjusted by 15%) and no shares of Preferred Stock in the Conversion.
Except for shares issued in connection with the Conversion, the Company
presently does not have plans to issue Common Stock. Each share of the
Company's Common Stock will have the same relative rights as, and will be
identical in all respects with, each other share of Common Stock. Upon payment
of the Actual Purchase Price for the Common Stock, in accordance with the Plan
of Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock of the Company will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the
FDIC.
COMMON STOCK
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of Common Stock of the Company will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the
Company issues Preferred Stock, the holders thereof may have a priority over the
holders of the Common Stock with respect to dividends.
Voting Rights. Upon the Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect
the Company's Board of Directors and act on such other matters as are required
to be presented to them under Delaware law or as are otherwise presented to them
by the Board of Directors. Except as discussed in "Restrictions on Acquisition
of the Company and the Bank," each holder of Common Stock will be entitled to
one vote per share. Stockholders will not have any right to cumulate votes in
the election of Directors. If the Company issues Preferred Stock, holders of
the Preferred Stock may also possess voting rights. Certain matters require an
80% stockholder vote (after giving effect to the provision limiting voting
rights). See "Restrictions on Acquisition of the Company and the Bank."
As a New York State mutual savings bank, corporate powers and control of
the Bank are vested in its Board of Trustees, who elect the officers of the Bank
and who fill any vacancies on the Board of Trustees as it exists upon
Conversion. Subsequent to Conversion, voting rights will be vested exclusively
in the owners of the shares of capital stock of the Bank, which will be the
Company, and voted at the direction of
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the Company's Board of Directors. Consequently, the holders of the Common Stock
will not have direct control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up of
the Bank, the Company, as holder of the Bank's capital stock would be entitled
to receive, after payment or provision for payment of all debts and liabilities
of the Bank (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the special liquidation account to Eligible
Account Holders (see "The Conversion - Liquidation Rights"), all assets of the
Bank available for distribution. In the event of liquidation, dissolution or
winding up of the Company, the holders of its Common Stock would be entitled to
receive, after payment or provision for payment of all of its debts and
liabilities, all of the assets of the Company available for distribution. If
Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the Common Stock of the Company
will not be entitled to preemptive rights with respect to any shares which may
be issued. The Common Stock is not subject to redemption.
Indemnification and Limit on Liability. The Company's Certificate of
Incorporation contains provisions which limit the liability of directors,
officers and employees of the Company and indemnify such individuals. Such
provisions provide that each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the Company shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the Delaware General Corporation Law against all expense, liability and loss
reasonably incurred. Under certain circumstances, the right to indemnification
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition. In addition,
a Director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages except for liability for any breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, under Section 174 of the
Delaware General Corporation, or for any transaction from which the Director
derived an improper personal benefit.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. The Company presently does not have plans to issue Preferred Stock.
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DESCRIPTION OF CAPITAL STOCK OF THE BANK
GENERAL
In the event the holding company form of organization is not utilized in
connection with the Conversion, the Bank may offer shares of its common stock in
connection with the Conversion. The following is a discussion of the capital
stock of the Bank.
The Restated Organization Certificate of the Bank, to be effective upon the
Conversion, authorizes the issuance of capital stock consisting of 75 million
shares of common stock, par value $0.01 per share, and 5 million shares of
preferred stock, par value $0.01 per share, which preferred stock may be issued
in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common
stock of the Bank will have the same relative rights as, and will be identical
in all respects with, each other share of common stock. After the Conversion,
the Board of Directors will be authorized to approve the issuance of common
stock up to the amount authorized by the Restated Organization Certificate
without the approval of the Bank's stockholders. Assuming that the holding
company form of organization is utilized, all of the issued and outstanding
common stock of the Bank will be held by the Company as the Bank's sole
stockholder. THE CAPITAL STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY
THE FDIC.
COMMON STOCK
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the Bank's
common stock will possess exclusive voting rights in the Bank. Each holder of
shares of common stock will be entitled to one vote for each share held.
Shareholders shall not be entitled to cumulate their votes for the election of
directors. See "Restrictions on Acquisition of the Company and the Bank - Anti-
Takeover Effects of the Company's Certificate of Incorporation and Bylaws and
Management Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding up
of the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders, all assets of the Bank
available for distribution in cash or in kind. If additional preferred stock is
issued subsequent to the Conversion, the holders thereof may also have priority
over the holders of common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. Upon receipt by the Bank of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is [Transfer Agent].
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EXPERTS
The consolidated financial statements of the Bank and its subsidiaries as
of June 30, 1997 and 1996, and for each of the years in the three-year period
ended June 30, 1997, have been included herein in reliance upon the report of
Ernst & Young LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. Such report includes an explanatory paragraph relating to changes in
accounting principles.
William M. Mercer, Incorporated has consented to the publication herein of
the summary of its opinion relating to compensation matters.
Keller & Company, Inc. has consented to the publication herein of the
summary of its report to the Bank and Company setting forth its opinion as to
the estimated pro forma market value of the Common Stock upon Conversion and its
opinion with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Bank and Company by Muldoon, Murphy &
Faucette, Washington, D.C., special counsel to the Bank and Company. The
federal income tax consequences of Richmond County Savings Foundation will be
passed upon for the Bank and the Company by Ernst & Young LLP, independent
certified public accountants. Muldoon, Murphy & Faucette will rely as to
certain matters of Delaware law on the opinion of Morris, Nichols, Arsht &
Tunnell. New York State and New York City income tax consequences will be
passed upon by Ernst & Young LLP. Certain legal matters will be passed upon for
Sandler O'Neill by Thacher Proffitt & Wood, New York, N.Y.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information,
including the Conversion Valuation Appraisal Report, which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
In addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. The
Conversion Valuation Appraisal Report may also be inspected by Eligible Account
Holders and Supplemental Eligible Account Holders at the offices of the Bank
during normal business hours. This Prospectus contains a description of the
material terms and features of all material contracts, reports or exhibits to
the registration statement required to be described; however, the statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Bank has filed an application for approval of conversion with the
Superintendent and the FDIC. Pursuant to the rules and regulations of the
Superintendent, this Prospectus omits certain information
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contained in that application. The application may be examined at the principal
office of the Superintendent, Two Rector Street, New York, New York 10006.
The Company has filed with the Office of Thrift Supervision an Application
to Form a Holding Company. This Prospectus omits certain information contained
in such Application. Such Application may be inspected at the offices of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section [12(g)] of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
Federal Deposit Insurance Corporation under Section [12(g)] of the Exchange Act
and, upon such registration, the Bank and the holders of its stock will become
subject to the same obligations and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the Company
and the Restated Organization Certificate and Bylaws of the Bank are available
without charge from the Bank. The Bank's principal office is located at 1214
Castleton Avenue, Staten Island, New York and its telephone number is (718) 448-
2800.
151
<PAGE>
Richmond County Savings Bank
Consolidated Financial Statements
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Statements of Financial
Condition as of June 30, 1997 and 1996................................... F-3
Consolidated Statements of Income for the
Years Ended June 30, 1997, 1996 and 1995................................. 35
Consolidated Statements of Changes in Net Worth for the
Years Ended June 30, 1997, 1996 and 1995................................. F-4
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1997, 1996 and 1995................................. F-5 to F-6
Notes to Consolidated Financial Statements.................................. F-7 to F-26
</TABLE>
All schedules are omitted because they are not required or applicable, or the
required information is shown in the financial statements or notes thereto.
The financial statements of Richmond County Financial Corp. have been omitted
because Richmond County Financial Corp. has not yet issued any stock, has no
assets and no liabilities, and has not conducted any business other than of an
organizational nature.
F-1
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Trustees
Richmond County Savings Bank
We have audited the accompanying consolidated statements of financial condition
of Richmond County Savings Bank (the "Bank") as of June 30, 1997 and 1996, and
the related consolidated statements of income, changes in net worth and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Bank at
June 30, 1997 and 1996, and the consolidated results of its operations and its
cash flows for each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the Bank adopted, as of
July 1, 1994, Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions."
/s/ Ernst & Young LLP
August 22, 1997
F-2
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30
1997 1996
------------------------
(In Thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 26,543 $ 29,272
Federal funds sold 6,000 20,000
Receivable from broker -- 7,531
Securities held to maturity:
Investment securities (market value: 1997--$205,362;
1996--$306,609) 205,201 307,700
Mortgage-backed and mortgage related securities
(market value: 1997--$186,593; 1996--$80,631) 185,122 80,284
Securities available for sale:
Investment securities 19,706 21,659
Mortgage-backed and mortgage related securities 27,398 1,394
Loans receivable:
Real estate mortgage loans 471,601 394,957
Other loans 30,127 29,109
Less allowance for loan losses (5,470) (4,796)
------------------------
Total loans receivable, net 496,258 419,270
Banking premises and equipment, net 12,058 11,568
Accrued interest receivable 8,268 9,212
Other real estate owned 662 612
Net deferred tax assets 2,942 2,978
Other assets 3,212 3,003
------------------------
Total assets $993,370 $914,483
========================
Liabilities and net worth
Liabilities:
Deposits $884,531 $817,928
Escrow accounts 1,287 1,288
Accrued and other liabilities 6,687 5,366
------------------------
Total liabilities 892,505 824,582
Net worth 100,865 89,901
------------------------
Total liabilities and net worth $993,370 $914,483
========================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Changes in Net Worth
<TABLE>
<CAPTION>
Net Unrealized
Gain on
Securities
Surplus Undivided Available
Fund Profits for Sale Total
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance--June 30, 1994 $15,538 $58,012 $ -- $ 73,550
Unrealized net gain, net of
applicable income taxes,
upon adoption of SFAS 115 -- -- 64 64
Change in unrealized holding
gains and losses, net of
applicable income taxes -- -- 3 3
Net income for the year ended
June 30, 1995 755 6,795 -- 7,550
-----------------------------------------------------------------
Balance--June 30, 1995 16,293 64,807 67 81,167
Change in unrealized holding
gains and losses, net of
applicable income taxes -- -- 4 4
Net income for the year ended
June 30, 1996 -- 8,730 -- 8,730
-----------------------------------------------------------------
Balance--June 30, 1996 16,293 73,537 71 89,901
Change in unrealized holding
gains and losses, net of
applicable income taxes -- -- 239 239
Net income for the year ended
June 30, 1997 -- 10,725 -- 10,725
-----------------------------------------------------------------
Balance--June 30, 1997 $16,293 $84,262 $310 $100,865
=================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended June 30
1997 1996 1995
----------------------------------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 10,725 $ 8,730 $ 7,550
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of bank premises and equipment 928 750 549
Amortization of deposit premium 313 313 313
Amortization of deferred fees (479) (580) (570)
Amortization of investment premiums/discounts 1,039 2,769 4,753
Provision for loan losses 1,080 1,600 600
Earned discounts on loans purchased (158) (158) (158)
Net realized losses (gains) on sales of
securities and loans 107 (42) 12
Decrease (increase) in receivable from broker 7,531 (7,531) --
Decrease (increase) in net deferred tax assets 36 (450) (1,251)
Decrease (increase) in accrued interest receivable 944 (575) 455
Increase in accrued and other liabilities 1,321 1,013 2,396
(Increase) decrease in other assets (782) 8,387 (8,238)
----------------------------------
Net cash provided by operating activities 22,605 14,226 6,411
Cash flows from investing activities
Increase in loans receivable, net (78,523) (37,920) (37,819)
Loan sales to FHLMC, FNMA and SONYMA 2,004 9,972 1,609
Loan purchases (910) -- --
Investment securities held to maturity:
Maturities and redemptions 127,005 107,658 125,877
Purchases (17,611) (150,256) (90,365)
Investment securities available for sale:
Sales and redemptions 11,938 10 2,132
Purchases (17,678) (1,064) (2,273)
Mortgage-backed and mortgage related securities
held to maturity:
Maturities 3,609 -- --
Principal collected 25,315 21,305 9,757
Purchases (133,668) (15,197) (29,218)
Mortgage-backed and mortgage related securities
available for sale:
Sales and redemptions -- 5,940 --
Principal collected 479 410 505
Purchases (26,478) -- --
Net additions to banking premises and equipment (1,418) (1,897) (2,095)
----------------------------------
Net cash used in investing activities (105,936) (61,039) (21,890)
</TABLE>
F-5
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended June 30
1997 1996 1995
--------------------------------
(In Thousands)
<S> <C> <C> <C>
Cash flows from financing activities
(Decrease) increase in escrow accounts $ (1) $ (881) $ 591
Net increase in deposits 66,603 53,866 15,425
--------------------------------
Net cash provided by financing activities 66,602 52,985 16,016
--------------------------------
Net (decrease) increase in cash and cash
equivalents (16,729) 6,172 537
Cash and cash equivalents at beginning of year 49,272 43,100 42,563
--------------------------------
Cash and cash equivalents at end of year $ 32,543 $49,272 $43,100
================================
Income taxes paid $ 8,733 $ 7,080 $ 6,423
================================
Interest paid on deposits $ 27,707 $26,254 $22,426
================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements
June 30, 1997
1. General
Richmond County Savings Bank (the "Bank") is a New York State chartered mutual
savings bank. The Bank operates twelve branches in the borough of Staten Island
and one branch in the borough of Brooklyn, in the City of New York. The Bank
originates secured residential and commercial real estate loans (primarily
residential) and provides other financial services to customers primarily within
this region. The Bank's primary revenues are derived from these banking
activities and its portfolios of investment and mortgage- backed and mortgage
related securities. The Bank is subject to regulation by the Federal Deposit
Insurance Corporation and the New York State Banking Department.
2. Summary of Significant Accounting Policies
The following is a description of the significant accounting principles followed
by the Bank and its wholly-owned subsidiaries. The policies conform to generally
accepted accounting principles and to general practice within the banking
industry:
Basis of Presentation: The consolidated financial statements of the Bank
include the accounts of the Bank and its wholly-owned subsidiaries, RCSB
Corporation and Richmond Enterprises, Inc. All significant intercompany
balances and transactions between the Bank and its subsidiaries have been
eliminated. Certain prior year balances have been reclassified to conform
with current year presentation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from the estimates.
Securities Held to Maturity: Investment securities and mortgage-backed and
mortgage related securities for which the Bank has the positive intent and
ability to hold to maturity are stated at cost, adjusted for amortization of
premiums and discounts which are recognized as adjustments to interest income
over the life of the security so as to provide a level yield.
Securities Available for Sale: Investment securities and mortgage-backed and
mortgage related securities not classified as trading nor as held to maturity
are classified as available for sale and are carried at fair value.
Unrealized gains or losses on securities available for sale are included as a
separate component of net worth, net of applicable income taxes. Gains and
F-7
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
losses on the disposition of securities available for sale are recognized
using the specific identification method.
Loans Receivable: Loans receivable are stated at unpaid principal balances,
less unearned discounts and net deferred origination and commitment fees.
Loan origination and commitment fees and certain direct costs incurred in
connection with loan originations are deferred and amortized to income over
the life of the related loans as an adjustment to yield. Loans held for sale
are stated at the lower of cost or market value.
The Bank does not accrue interest on loans which are more than ninety days
delinquent as to principal or interest unless, in the opinion of management,
collection is probable, with the exception of single-family-home loans
secured by real estate, where accrual is discontinued after six months. Any
accrued but unpaid interest previously recorded on these loans is reversed
against current period interest income. Effective July 1, 1997, the Bank
revised this policy such that it does not accrue interest on any loans,
including single-family loans secured by real estate, which are more than
ninety days delinquent as to principal or interest unless, in the opinion of
management, collection is probable. The effect of this change in policy was
immaterial.
Effective July 1, 1995, the Bank adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosures."
The impact of adoption on the Bank's financial position and results of
operations was immaterial.
Allowance for Loan Losses: The allowance for loan losses is based on
management's periodic review and evaluation of the loan portfolio and the
potential for loss in light of the current composition of the loan portfolio,
current and prospective economic conditions, and other relevant factors.
Assessing the adequacy of the allowance for loan losses is inherently
subjective as it requires making material estimates, including the amount and
timing of future cash flows expected to be received on impaired loans, that
may be susceptible to significant change. In the opinion of management, the
allowance, when taken as a whole, is adequate to absorb estimated loan losses
inherent in the Bank's entire portfolio.
F-8
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Other Real Estate Owned: Other real estate owned, consisting of properties
acquired through foreclosure, is carried at the lower of carrying amount or
fair value less cost to sell.
Banking Premises and Equipment: Banking premises and equipment are recorded
at cost. Depreciation and amortization are provided for in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated
service lives (3 to 20 years) on a straight-line basis. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.
Expenditures for improvements and major renewals are capitalized, while the
cost of ordinary maintenance, repairs and minor improvements is charged to
operations.
Mortgage Servicing Rights: Effective July 1, 1996, the Bank adopted SFAS No.
122, "Accounting for Mortgage Servicing Rights" as superseded by SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." The impact of adoption on the Bank's
financial position and results of operations was immaterial.
Income Taxes: The Bank uses the liability method to account for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured at currently enacted income tax rates applicable
to the period in which they are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Statutory Transfers to Surplus: In accordance with the provisions of New York
State Banking Law and Banking Board regulations, 10% of net income (excluding
that of subsidiaries) is credited to surplus until such time as total net
worth is at least equal to 10% of the amount due to depositors.
Consolidated Statement of Cash Flows: For purposes of the consolidated
statement of cash flows, the Bank defines cash and cash equivalents as cash
and due from banks, federal funds sold and time deposits with original
maturities of three months or less.
F-9
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
3. Securities Held to Maturity
The amortized cost of investment securities, net of premiums and discounts, and
mortgage-backed and mortgage related securities held to maturity and their
related estimated fair values at June 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies $ 92,215 $ 394 $ (272) $ 92,337
Corporate and other debt obligations 112,986 443 (404) 113,025
------------------------------------------------
$205,201 $ 837 $ (676) $205,362
================================================
Mortgage-backed and mortgage related
securities:
Federal Home Loan Mortgage Corporation
Pass-Through Certificates $ 82,237 $1,534 $ (187) $ 83,584
Private Issuer Pass-Through Certificates 3,276 5 -- 3,281
Federal Home Loan Mortgage Corporation
Real Estate Mortgage Investment Conduits 32,248 130 (42) 32,336
Private Issuer Real Estate Mortgage
Investment Conduits 67,361 179 (148) 67,392
------------------------------------------------
$185,122 $1,848 $ (377) $186,593
================================================
<CAPTION>
1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies $149,565 $ 385 $ (977) $148,973
Corporate and other debt obligations 158,135 570 (1,069) 157,636
------------------------------------------------
$307,700 $ 955 $(2,046) $306,609
================================================
Mortgage-backed and mortgage related
securities:
Federal Home Loan Mortgage Corporation
Pass-Through Certificates $ 80,284 $ 993 $ (646) $ 80,631
================================================
</TABLE>
F-10
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
3. Securities Held to Maturity (continued)
The amortized cost and estimated fair value of investment and mortgage-backed
and mortgage related securities held-to-maturity by contractual maturity at June
30, 1997 are as follows:
<TABLE>
<CAPTION>
Mortgage-Backed and Mortgage
Investment Securities Related Securities
------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
-------------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Year ended June 30:
1998 $ 85,115 $ 85,365 $ 2,197 $ 2,198
1999-2002 116,333 116,255 32,871 32,792
2003-2008 2,693 2,679 -- --
2009 and thereafter 1,060 1,063 150,054 151,603
-------------------------------------------------------------
$205,201 $205,362 $185,122 $186,593
=============================================================
</TABLE>
Proceeds from maturities and redemptions of securities held to maturity for the
years ended June 30, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
(In Thousands)
<S> <C> <C> <C>
Proceeds $130,614 $107,658 $125,877
Gross gains 5 9 1
Gross losses 129 1 1
</TABLE>
On November 15, 1995, the Financial Accounting Standards Board issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." In accordance with provisions in
that Special Report, the Bank chose to reclassify securities from held-to-
maturity to available for sale. At the date of the transfer, the amortized cost
of those securities was $25,981,369 and the unrealized gain on those securities
was $94,287, net of tax, which was included in net worth.
F-11
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
4. Securities Available for Sale
The amortized cost of investment securities, net of premiums and discounts, and
mortgage-backed and mortgage related securities available for sale and their
related estimated fair values at June 30, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Marketable equity securities:
Preferred $14,027 $132 $ (1) $14,158
Common 3,578 305 (69) 3,814
Mutual funds 1,629 105 -- 1,734
------------------------------------------------
$19,234 $542 $(70) $19,706
================================================
Mortgage-backed and mortgage related
securities:
Government National Mortgage
Association Pass-Through
Certificates $11,710 $151 $(37) $11,824
Federal Home Loan Mortgage
Corporation Real Estate Mortgage
Investment Conduits 4,693 -- (7) 4,686
Private Issuer Real Estate Mortgage
Investment Conduits 10,881 19 (12) 10,888
------------------------------------------------
$27,284 $170 $(56) $27,398
================================================
</TABLE>
F-12
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
4. Securities Available for Sale (continued)
<TABLE>
<CAPTION>
1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Marketable equity securities:
Preferred $ 27 $ - $ (2) $ 25
Common 109 81 (34) 156
Mutual funds 1,521 7 (2) 1,526
------------------------------------------------
1,657 88 (38) 1,707
Debt securities:
U.S. Government and agencies 19,967 44 (59) 19,952
------------------------------------------------
$21,624 $132 $(97) $21,659
================================================
Mortgage-backed and mortgage related
securities:
Government National Mortgage
Association Pass-Through
Certificates $ 1,292 $102 $ - $ 1,394
================================================
</TABLE>
The amortized cost and estimated fair value of mortgage-backed and mortgage
related securities by contractual maturity at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
----------------------------
(In Thousands)
<S> <C> <C>
Years ended June 30:
1998 $ - $ -
1999-2002 1 1
2003-2008 34 35
2009 and thereafter 27,249 27,362
----------------------------
$27,284 $27,398
============================
</TABLE>
Proceeds from sales and redemptions of securities available for sale for the
years ended June 30, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------
(In Thousands)
<S> <C> <C> <C>
Proceeds $11,938 $5,950 $2,132
Gross gains 40 19 -
Gross losses 24 - 20
</TABLE>
F-13
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
5. Loans Receivable
Loans receivable at June 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------------
(In Thousands)
<S> <C> <C>
One-to-four family mortgage loans $394,588 $325,139
Multi-family mortgage loans 2,705 1,238
Commercial real estate mortgage loans 40,713 39,892
Construction and development loans, principally
residential 18,343 12,812
Home equity loans 16,729 18,054
---------------------
473,078 397,135
Less unearned discounts and net deferred
origination and commitment fees (1,477) (2,178)
---------------------
Total real estate mortgage loans 471,601 394,957
Consumer and student loans 23,589 22,932
Commercial loans 6,662 6,300
---------------------
30,251 29,232
Less unearned discounts and net deferred
origination and commitment fees (124) (123)
---------------------
Total other loans 30,127 29,109
Less allowance for loan losses (5,470) (4,796)
---------------------
Total loans receivable, net $496,258 $419,270
=====================
</TABLE>
Included in real estate mortgage loans are $1,345,843 and $1,851,300 of
mortgages serviced by third parties as of June 30, 1997 and 1996, respectively,
and $0 and $1,155,282 of loans held for sale as of June 30, 1997 and 1996,
respectively.
The Bank sells real estate mortgage loans to the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), and
the State of New York Mortgage Association ("SONYMA"). These loans are then
serviced by the Bank under agreements which specify a servicing fee based on a
percentage of the outstanding principal balances. The FHLMC, FNMA, and SONYMA
loan servicing portfolios totaled $40,672,907, $570,309, and $8,875,350 at June
30, 1997 and $41,801,765, $576,210, and $7,157,689 at June 30, 1996,
respectively, and are not included in the consolidated financial statements.
F-14
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
5. Loans Receivable (continued)
Real estate mortgage loans on nonaccrual status totaled $2,673,574, $2,756,510,
and $2,291,417 at June 30, 1997, 1996, and 1995, respectively. If interest on
the nonaccrual loans had been accrued, such income would have been $276,092,
$225,506, and $113,664, respectively.
A summary of the changes in the allowance for loan losses for the years ended
June 30, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year $4,796 $3,275 $3,106
Provision charged to operations 1,080 1,600 600
Charge offs, net of recoveries (406) (79) (431)
--------------------------------
Balance at end of year $5,470 $4,796 $3,275
================================
</TABLE>
6. Banking Premises and Equipment
Banking premises and equipment at June 30, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
-----------------------
(In Thousands)
<S> <C> <C>
Land $ 2,850 $ 2,850
Banking houses and improvements 6,742 6,140
Leasehold improvements 2,847 2,635
Furniture, fixtures and equipment 3,835 3,517
Automobiles 40 51
-----------------------
16,314 15,193
Less accumulated depreciation and amortization (4,256) (3,625)
-----------------------
$12,058 $11,568
=======================
</TABLE>
F-15
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
7. Deposits
At June 30, 1997 and 1996, deposits consist of the following:
<TABLE>
<CAPTION>
Average Average
1997 Rate 996 Rate
---------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Certificates of deposit $298,066 5.37% $253,927 5.16%
Savings 437,694 2.78 436,669 2.78
Money market demand accounts 37,782 3.45 33,988 3.45
Noninterest-bearing demand
deposits 92,959 -- 78,113 --
NOW accounts 18,030 2.26 15,231 2.24
------------ ------------
$884,531 $817,928
============ ============
</TABLE>
Contractual maturities of certificates of deposit accounts at June 30, 1997 are
as follows:
<TABLE>
<CAPTION>
Certificates
of $100,000 All Other Total
or More Certificates Certificates
----------------------------------------------
(In Thousands)
Year ending June 30:
<S> <C> <C> <C>
1998 $17,551 $191,526 $209,077
1999 5,837 53,741 59,578
2000 200 6,529 6,729
2001 792 4,237 5,029
2002 and thereafter 3,061 14,592 17,653
----------------------------------------------
$27,441 $270,625 $298,066
==============================================
</TABLE>
F-16
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
8. Income Taxes
Significant components of the Bank's deferred tax assets and liabilities as of
June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $2,576 $2,259
Deferred loan fees 338 604
Book over tax amortization 262 213
Non-accrual interest income 370 257
Postretirement benefits 1,660 1,547
Capital loss carryforward -- 14
-------------------
Gross deferred tax assets 5,206 4,894
Deferred tax liabilities:
Tax bad debt reserves 1,159 1,159
Tax over book depreciation 426 369
Prepaid pension expense 402 277
Discount accretion 1 47
Securities available for sale 276 64
-------------------
Gross deferred tax liabilities 2,264 1,916
-------------------
Net deferred tax assets $2,942 $2,978
===================
</TABLE>
In view of the Bank's current and projected future earnings trend, management
believes that it is more likely than not that the entire net deferred tax assets
will be utilized. Accordingly, no valuation allowance was deemed necessary for
the net deferred tax assets for the years ended June 30, 1997 and 1996.
F-17
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
Significant components of the provision (benefit) for income taxes attributable
to continuing operations for the years ended June 30, 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $6,278 $4,526 $4,815
State and local 3,361 2,732 2,191
--------------------------------
9,639 7,258 7,006
Deferred:
Federal (106) (275) (54)
State and local (70) (180) (33)
--------------------------------
(176) (455) (87)
--------------------------------
$9,463 $6,803 $6,919
================================
</TABLE>
The table below presents a reconciliation between the reported tax provision and
the tax provision for the years ended June 30, 1997, 1996 and 1995 computed by
applying the statutory federal income tax rate (35% for the years ended June 30,
1997, 1996, and 1995) to income before provision for income taxes.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------
(In Thousands)
<S> <C> <C> <C>
Federal income tax provision at statutory rates $7,066 $5,437 $5,525
Increase (reduction) in tax resulting from:
State and local income taxes, net of
federal income tax effect 2,139 1,659 1,402
Other 258 (293) (8)
-------------------------------
$9,463 $6,803 $6,919
===============================
</TABLE>
For federal income tax purposes, prior to 1996, if certain definitional tests
and other conditions were met, the Bank was allowed a special bad debt deduction
in determining its taxable income. The deduction was based on either specified
experience formulas or a percentage of taxable income. Federal tax legislation
enacted during 1996 repealed the special bad debt deduction provisions. As a
result, a large thrift institution such as the Bank is required to use the
specific charge-off method in computing its federal bad debt deduction for tax
years beginning after December 31, 1995. However, New York State enacted
legislation which, among other things, would permit a large thrift institution
such as the Bank to continue to use the bad debt reserve method for both New
York State and New York City tax purposes.
F-18
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The 1996 Federal tax legislation also provided that a large thrift institution
such as the Bank is required to recapture the excess of its tax bad debt
reserves at December 31, 1995 over the balance of such reserves as of December
31, 1987 (the "base year"), whether the additions were made under the percentage
of taxable income method or the experience method. The Bank will be required to
recapture its excess bad debt reserves, for which deferred taxes have been
recognized, over a six-year period on a straight-line basis beginning in
calendar year 1998. The base year reserve will remain subject to recapture in
the case of certain excess distributions to and redemptions of shareholders or
if the Bank ceases to be a bank. The New York State legislation provides that
the recapture of excess bad debt reserves is not required for either New York
State or New York City tax purposes.
At June 30, 1997, the base year bad debt reserve for federal income tax purposes
was approximately $9.6 million, for which deferred taxes are not required to be
recognized. Bad debt reserves maintained for New York State and New York City
tax purposes as of June 30, 1997, for which deferred taxes are not required to
be recognized, amounted to approximately $34 million. Accordingly, deferred tax
liabilities of approximately $7.2 million have not been recognized as of June
30, 1997.
9. Employee Benefit Plans
Defined Benefit Plan
The Bank, through its participation in the RSI Retirement Trust, contributes to
a pension plan covering substantially all of its employees. The pension plan
benefit formula is based upon years of service and average compensation over the
final years of service. The Bank's policy is to make quarterly contributions to
the plan equal to the amount necessary to satisfy the funding requirements of
ERISA. Plan assets are principally invested in pooled investment funds in the
RSI Retirement Trust, which is a registered investment company.
F-19
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans (continued)
The following table sets forth the funded status of the Bank's defined benefit
plan for the years ended June 30, 1997 and 1996 in accordance with Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions":
<TABLE>
<CAPTION>
1997 1996
------------------------
(In Thousands)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 6,640 $ 6,120
Nonvested benefits 266 735
------------------------
Accumulated benefit obligation $ 6,906 $ 6,855
========================
Plan assets at fair value $10,852 $ 9,766
Projected benefit obligation (8,569) (8,379)
------------------------
Plan assets in excess of projected benefit obligation 2,283 1,387
Unrecognized (gain) (1,619) (687)
Unrecognized transition (asset) (76) (111)
Unrecognized past service liability (25) (27)
------------------------
Prepaid pension asset included in other assets $ 563 $ 562
========================
</TABLE>
The expected long-term rate of return on plan assets for plan years 1997 and
1996 was 8.00%. The rate of increase in future compensation levels was 6.00% and
5.50% for plan years 1997 and 1996, respectively. The weighted average discount
rate was 8.00% and 7.50% for plan years 1997 and 1996, respectively.
Pension expense for the years ended June 30, 1997, 1996 and 1995 includes the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 478 $ 453 $ 362
Interest cost 671 614 584
Actual return on plan assets (854) (773) (616)
Net amortization and deferrals (94) (38) (38)
-----------------------------
Net pension expense $ 201 $ 256 $ 292
=============================
</TABLE>
F-20
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans (continued)
Defined Contribution Plan
The Bank also provides a 401(k) Savings Plan open to salaried employees meeting
certain eligibility requirements. Participants contribute 2% to 9% of pre-tax
compensation. The Bank makes matching contributions in an amount equal to 50% of
an employee's contributions, up to 6%. Participants may invest in any or all of
six investment funds, which are managed by the 401(k) Plan's trustee, RSI
Retirement Trust.
Postretirement Benefit Plan
The Bank provides postretirement medical and life insurance benefits for
eligible retired employees.
Effective July 1, 1994, the Bank adopted SFAS No. 106, "Employer's Accounting
for Postretirement Benefits Other Than Pensions." The Bank uses actuarial-basis
accrual accounting for all employer provided postretirement benefits other than
pensions. This requires the recognition of a transition obligation for the
difference between the accumulated postretirement benefit obligation ("APBO")
and the liability currently recognized on the statement of financial condition.
Upon adoption of SFAS No. 106, the Bank immediately recognized its entire net
transition obligation by recording a charge of $2,489,000 ($1,315,950 on an
after-tax basis) as the cumulative effect of this change in accounting
principle.
The following table sets forth the funded status and amounts recognized in the
Bank's consolidated statements of financial condition at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------------------
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(1,025) $ (894)
Fully eligible active plan participants (300) (207)
Other active plan participants (1,471) (1,545)
Unrecognized net actuarial gain (498) (434)
----------------------
Accrued postretirement benefit cost included in
accrued and other liabilities $(3,294) $(3,080)
======================
</TABLE>
F-21
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
9. Employee Benefit Plans (continued)
The Bank's postretirement benefits expense for the years ended June 30, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------
(In Thousands)
<S> <C> <C> <C>
Interest cost on accumulated
postretirement benefit obligations $ 201 $ 190 $ 205
Service cost attributable to service
during the year 120 120 140
Amortization of actuarial gain (20) (16) --
----- ----- -----
$ 301 $ 294 $ 345
=========================
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e. health care cost trend rate) is 12.5% for the initial
year and is assumed to decrease gradually to 6% in 2003 with 1.0% annual
decreases thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation at June 30, 1997 by $327,000
(11.7%). The increase in the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 would be $44,000
(12.1%).
The weighted-average discount rate at June 30, 1997 and 1996 was 8%. The rate of
increase in future compensation levels at June 30, 1997 and 1996 was 5.5%.
10. Commitments and Contingencies
Lease Commitments
The Bank conducts a portion of its banking operations in leased facilities under
noncancellable operating leases expiring at various periods through 2002. These
leases contain renewal options and certain of the leases provide for increases
based upon various escalation clauses. Rent expense was $353,642, $339,656, and
$324,152 for the years ended June 30, 1997, 1996, and 1995, respectively.
F-22
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
10. Commitments and Contingencies (continued)
The future minimum lease payments under such operating leases are as follows:
<TABLE>
<CAPTION>
Amount
------------------
(In Thousands)
<S> <C>
Years ended June 30:
1998 $ 362
1999 366
2000 362
2001 357
2002 and thereafter 2,603
------------------
$4,050
==================
</TABLE>
Litigation
The Bank is a defendant in legal actions arising in the ordinary course of
business. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from such actions will not materially
affect the Bank's consolidated financial position.
Loan Commitments
There were outstanding commitments to make loans (primarily fixed rate
residential) at June 30, 1997 and 1996 of $49,373,635 and $54,522,128,
respectively. Loan commitments have credit risk essentially the same as that
involved in extending loans to customers and are subject to the Bank's normal
credit policy. These commitments are not reflected in the accompanying
consolidated statements of financial condition. Management expects that all loan
originations will be funded from existing liquidity and normal monthly cash
flow.
Lines of Credit
At June 30, 1997 and 1996, the Bank had available lines of credits with other
financial institutions aggregating $10,000,000 and $20,000,000 respectively. As
of June 30, 1997 and 1996, no amounts were outstanding under these lines of
credit.
F-23
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
11. Regulatory Requirements
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier I capital to risk-weighted assets, and Tier I capital to average
assets (all as defined in the regulations). Management believes, as of June 30,
1997, that the Bank meets all capital adequacy requirements to which it is
subject.
Based on its regulatory capital ratios at June 30, 1997, the Bank is categorized
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 I risk-based, and Tier I leverage ratios as set forth in
the table. The Bank's actual capital amounts and ratios are also presented in
the table (in thousands).
<TABLE>
<CAPTION>
To Be Well Capitalized Under
For Capital Adequacy Prompt Corrective Action
Actual Purposes Provisions
------------------- ------------------------------ ------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total Capital greater than greater than
(to Risk Weighed Assets) $103,910 19.71% $42,181 8.00% $52,726 10.00%
Tier I Capital greater than greater than
(to Risk Weighed Assets) $ 99,063 18.79% $21,090 4.00% $31,635 6.00%
Tier I Capital greater than greater than
(to Average Assets) $ 99,063 10.02% $39,562 4.00% $49,452 5.00%
As of June 30, 1996:
Total Capital greater than greater than
(to Risk Weighed Assets) $ 92,194 19.20% $38,414 8.00% $48,017 10.00%
Tier I Capital greater than greater than
(to Risk Weighed Assets) $ 88,029 18.33% $19,207 4.00% $28,810 6.00%
Tier I Capital greater than greater than
(to Average Assets) $ 88,029 9.65% $36,483 4.00% $45,604 5.00%
</TABLE>
F-24
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
12. Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally the
timing of future cash flows and the discount rate.
Because assumptions are inherently subjective in nature, the estimated fair
values cannot be substantiated by comparison to independent market quotes and in
many cases, the estimated fair values would not necessarily be realized in an
immediate sale or settlement of the instrument. The disclosure requirements of
SFAS No. 107 exclude certain financial instruments and all nonfinancial
instruments. Accordingly, the aggregate fair value amounts presented do not
represent management's estimation of the underlying value of the Bank.
The carrying values and estimated fair values of the Bank's material financial
instruments as of June 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
Carrying Value Fair Carrying Value Fair
Value Value
-------------------------- -------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 26,543 $ 26,543 $ 29,272 $ 29,272
Federal funds sold 6,000 6,000 20,000 20,000
Receivable from broker -- -- 7,531 7,531
Securities held to maturity:
Investment securities 205,201 205,362 307,700 306,609
Mortgage-backed and mortgage related
securities 185,122 186,593 80,284 80,631
Securities available for sale:
Investment securities 19,706 19,706 21,659 21,659
Mortgage-backed and mortgage related
securities 27,398 27,398 1,394 1,394
Real estate mortgage loans receivable 471,601 472,868 394,957 401,330
Other loans receivable 30,127 30,089 29,109 29,322
Financial liabilities
Deposits 884,531 838,358 817,928 770,139
</TABLE>
F-25
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
12. Fair Value of Financial Instruments (continued)
The following methods and assumptions were used by the Bank in estimating the
fair values of financial instruments:
Cash and Due from Banks, Federal Funds Sold and Receivable from Broker:
Carrying amounts approximate fair value since these instruments are either
payable on demand or have short-term maturities.
Securities Held to Maturity and Securities Available for Sale: The estimated
fair values of securities held to maturity and securities available for sale
are based on independent dealer quotations and quoted market prices.
Real Estate Mortgage Loans and Other Loans Receivable: The estimated fair
values of real estate mortgage loans and other loans receivable are based on
discounted cash flow calculations that apply interest rates currently being
offered by the Bank for loans with similar remaining maturities to a schedule
of aggregated expected monthly maturities.
Deposits: The estimated fair values of deposits are based on discounted cash
flow calculations that apply interest rates currently being offered by the Bank
for deposits with similar remaining maturities to a schedule of aggregated
expected monthly maturities.
13. Subsequent Events
On July 31, 1997, the Board of Trustees of the Bank unanimously adopted a plan
of Conversion (the "Plan of Conversion") whereby the Bank would convert from a
New York State chartered mutual bank to a New York State chartered stock
institution and offer shares of common stock in a subscription and community
offering. As part of the conversion, newly authorized shares of a new stock
holding company will be offered to the Bank's depositors and employee benefit
plans in accordance with applicable state and federal regulations. The amount
and pricing of the proposed stock offering will be based upon an independent
appraisal of the Bank.
The Plan of Conversion must be approved by eligible depositors as of June 30,
1996 as well as the New York State Banking Department. In addition, the FDIC
must issue a Letter of Non-objection with respect to the Plan of Conversion.
F-26
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Richmond County Financial Corp., Richmond County Savings Bank or
Sandler O'Neill & Partners, L.P. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction. Neither the delivery of this Prospectus
nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of Richmond County Financial Corp. or
Richmond County Savings Bank since any of the dates as of which information is
furnished herein or since the date hereof.
------------------------------
TABLE OF CONTENTS
Page
----
Summary of the Conversion and the Offerings...................................
Selected Consolidated Financial and Other
Data of the Bank............................................................
Risk Factors..................................................................
Richmond County Financial Corp................................................
Richmond County Savings Bank..................................................
Richmond County Savings Foundation............................................
Regulatory Capital Compliance.................................................
Use of Proceeds...............................................................
Dividend Policy...............................................................
Market for the Common Stock...................................................
Capitalization................................................................
Pro Forma Data................................................................
Consolidated Statements of Income.............................................
Management's Discussion and...................................................
Analysis of Financial Condition
and Results of Operations...................................................
Business of the Bank..........................................................
Federal and State Taxation....................................................
Regulation and Supervision....................................................
Management of the Company.....................................................
Management of the Bank........................................................
The Conversion................................................................
Restrictions on Acquisition of the
Company and the Bank.......................................................
Description of Capital Stock of the Company...................................
Transfer Agent and Registrar..................................................
Experts.......................................................................
Legal and Tax Opinions........................................................
Additional Information........................................................
Index to Financial Statements.................................................
-----------------------------
Until , 1997 or 25 days after commencement of the
-----------
Syndicated Community Offering, if any, whichever is later, all
dealers effecting transactions in the registered securities, may be required to
deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
21,275,000 Shares
[LOGO]
RICHMOND COUNTY FINANCIAL CORP.
(Proposed Holding Company for
Richmond County Savings Bank)
COMMON STOCK
(par value $0.01 per share)
----------
PROSPECTUS
----------
Sandler O'Neill & Partners, L.P.
_______________ ___, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC filing fee(1).......................................... $ 80,072
NYBD filing fee............................................ 5,000
OTS filing fee............................................. 2,000
NASD filing fee............................................ 5,000
Nasdaq National Market fee(1).............................. 50,000
Printing, postage and mailing.............................. 740,000
Legal fees and expenses (including underwriter's
counsel................................................... 850,000
Accounting fees and expenses............................... 400,000
Appraisers' fees and expenses (including
business plan)............................................ 67,000
Marketing fees, selling commissions, and
underwriter's expenses.................................... 2,905,000
Proxy solicitation fees and expenses....................... 35,000
Conversion agent fees and expenses......................... 65,000
Transfer agent fees and expenses........................... 20,000
Certificate printing....................................... 15,000
Telephone, temporary help and other equipment.............. 400,000
Blue Sky fees and expenses................................. 10,000
Miscellaneous.............................................. 75,000
----------
TOTAL $5,679,072
==========
</TABLE>
- - - --------------------
(1) Actual expenses based upon the registration of 26,423,550 shares at $10.00
per share. All other expenses are estimated.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter I of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
<PAGE>
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in
this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statue, the Corporation's Certificate of
Incorporation, Bylaws, agreement, vote of stockholders of Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself and
any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of the Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the
<PAGE>
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law; or (iv) for any transaction
from which the Director derived an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
None.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Richmond County Savings Bank and Sandler O'Neill
& Partners, L.P.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Restated Organization Certificate and
Stock Bylaws of Richmond County Savings Bank)
3.1 Certificate of Incorporation of Richmond County Financial Corp.
3.2 Bylaws of Richmond County Financial Corp.
3.3 Restated Organization Certificate and Stock Bylaws of Richmond County
Savings Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Richmond County Financial Corp.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of Ernst & Young re: State Tax Matters
10.1 Form of Richmond County Savings Bank Employee Stock Ownership Plan and
Trust
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Proposed Employment Agreement between Richmond County Savings Bank
and certain executive officers
10.4 Form of Proposed Employment Agreement between Richmond County Financial
Corp. and certain executive officers
10.5 Form of Proposed Change in Control Agreement between Richmond County
Savings Bank and certain executive officers
10.6 Form of Proposed Richmond County Savings Bank Employee Severance
Compensation Plan
10.7 Form of Proposed Management Supplemental Executive Retirement Plan
23.1 Consent of Ernst & Young LLP
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.
23.5 Consent of William M. Mercer, Incorporated
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft of Richmond County Savings Foundation Gift Instrument*
- - - ------------------------
* To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Borough of Staten
Island, State of New York, on October 2, 1997.
Richmond County Financial Corp.
By: /s/ Michael F. Manzulli
-------------------------------
Michael F. Manzulli
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Michael F. Manzulli Chairman of the Board and October 2, 1997
- - - ------------------------------ Chief Executive Officer
Michael F. Manzulli (principal executive
officer)
/s/ Andrew M. Sisock Vice President and Accounting October 2, 1997
- - - ------------------------------ Officer (principal accounting
Andrew M. Sisock and financial officer)
/s/ Anthony E. Burke Director October 2, 1997
- - - ------------------------------
Anthony E. Burke
/s/ Godfrey H. Carstens, Jr. Director October 2, 1997
- - - ------------------------------
Godfrey H. Carstens, Jr.
/s/ Robert S. Farrell Director October 2, 1997
- - - ------------------------------
Robert S. Farrell
/s/ William C. Frederick, M.D. Director October 2, 1997
- - - ------------------------------
William C. Frederick, M.D.
/s/ James L. Kelley Director October 2, 1997
- - - ------------------------------
James L. Kelley
/s/ T. Ronald Quinlan, Jr. Director October 2, 1997
- - - ------------------------------
T. Ronald Quinlan, Jr.
/s/ Maurice K. Shaw Director October 2, 1997
- - - ------------------------------
Maurice K. Shaw
</TABLE>
<PAGE>
Exhibit 1.1
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE]
Sandler O'Neill
July 30, 1997
Mr. Michael F. Manzulli
President and Chief Executive Officer
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Dear Mr. Manzulli:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as an independent
financial advisor to Richmond County Savings Bank (the "Bank") in connection
with the Bank's proposed conversion from mutual to stock form (the
"Conversion"), including the offer and sale of certain shares of the common
stock of the proposed new holding company for the Bank (the "Holding Company")
to the Bank's eligible account holders in a Subscription Offering, to members of
the Bank's community in a Direct Community Offering and, under certain
circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm
the terms and conditions of our engagement.
ADVISORY SERVICES
- - - -----------------
Sandler O'Neill will act as a consultant and advisor to the Bank and the
Holding Company and will work with the Bank's management, counsel, accountants
and other advisors in connection with the Conversion and the Offerings. We
anticipate that our services will include the following, each as may be
necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 2 Sandler O'Neill
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
SYNDICATED COMMUNITY OFFERING
- - - -----------------------------
If any shares of the Holding Company's common stock remain available after
the expiration of the Subscription Offering and the Direct Community Offering,
at the request of the Bank and subject to the continued satisfaction of the
conditions set forth in the second paragraph under the caption "Definitive
Agreement" below, Sandler O'Neill will seek to form a syndicate of registered
dealers to assist in the sale of such common stock in a Syndicated Community
Offering on a best efforts basis, subject to the terms and conditions set forth
in a selected dealers agreement. Sandler O'Neill will endeavor to limit the
aggregate fees to be paid by the Bank under any such selected dealers agreement
to an amount competitive with gross underwriting discounts charged at such time
for underwritings of comparable amounts of stock sold at a comparable price per
share in a similar market environment, which shall not exceed 7% of the
aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 3 Sandler O'Neill
FEES
- - - ----
If the Conversion is consummated, the Bank agrees to pay Sandler O'Neill
for its services hereunder the fees set forth below:
1. a fee of one and three quarters percent (1 3/4%) of the aggregate
Actual Purchase Price of the shares of common stock sold in the
Subscription Offering to eligible account holders, current depositors
and in the Direct Community Offering, excluding in each case shares
purchased by (i) any employee benefit plan of the Holding Company or
the Bank established for the benefit of their respective directors,
officers and employees, and (ii) any director, officer or employee of
the Holding Company or the Bank or members of their immediate
families; and
2. with respect to any shares of the Holding Company's common stock sold
by any NASD member firm (other than Sandler O'Neill) under any
selected dealers agreement in the Syndicated Community Offering, (a)
the sales commission payable to the selected dealer under such
agreement, (b) any sponsoring dealer's fees, and (c) a management fee
to Sandler O'Neill of one and one-half percent (1.50%). Any fees
payable to Sandler O'Neill for common stock sold by Sandler O'Neill
under any such agreement shall be limited to an aggregate of one and
three quarters percent (1 3/4%) of the Actual Purchase Price of such
shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of the
reasons provided for under the second paragraph of the section of this letter
captioned "Definitive Agreement," or (ii) the Conversion is terminated by the
Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable out-of-
pocket expenses incurred in connection with its engagement hereunder.
All fees payable to Sandler O'Neill hereunder shall be payable in cash at
the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
COSTS AND EXPENSES
- - - ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder
and the expenses to be borne by the Bank pursuant to the following paragraph,
the Bank agrees to reimburse Sandler
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 4 Sandler O'Neill
O'Neill, upon request made from time to time, for its reasonable out-of-pocket
expenses incurred in connection with its engagement hereunder, regardless of
whether the Conversion is not consummated, including, without limitation, legal
fees, advertising, promotional, syndication, and travel expenses; provided,
--------
however, that Sandler O'Neill shall document such expenses to the reasonable
- - - -------
satisfaction of the Bank (said expenses shall not exceed $200,000, unless agreed
by Bank). The provisions of this paragraph are not intended to apply to or in
any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
--------
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
- - - -------
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
POST-CONVERSION GENERAL ADVISORY SERVICES
- - - -----------------------------------------
If the Conversion is consummated, Sandler O'Neill agrees to act as an
independent financial advisor to the Holding Company and its subsidiaries in
connection with the Holding Company's general strategic planning ("General
Advisory Services"). In connection with such General Advisory Services, we
would expect to work with the Holding Company's management, its counsel,
accountants and other advisors to assess the Holding Company's strategic
alternatives and help implement a tactical plan to enhance the value of the
Holding Company. We anticipate that our activities would include, as
appropriate, those activities outlined in Exhibit A hereto. Sandler O'Neill
shall provide such services at the Holding Company's request for a period of one
year following the completion of the Conversion; provided, however, that the
-------- -------
Holding Company shall reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with providing such services. Thereafter, if
both parties wish to continue the relationship, the parties will enter into a
separate advisory services agreement on terms and conditions to be negotiated at
such time. Notwithstanding the above the Bank and Holding Company are under no
obligation to receive or request such services.
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 5 Sandler O'Neill
DUE DILIGENCE REVIEW
- - - --------------------
Sandler O'Neill's obligation to perform the services contemplated by this
letter shall be subject to the satisfactory completion of such investigation and
inquiries relating to the Bank and the Holding Company, and their respective
directors, officers, agents and employees, as Sandler O'Neill and its counsel in
their sole discretion may deem appropriate under the circumstances. In this
regard, the Bank agrees that, at its expense, it will make available to Sandler
O'Neill all information which Sandler O'Neill requests, and will allow Sandler
O'Neill the opportunity to discuss with the Bank's and the Holding Company's
management the financial condition, business and operations of the Bank and the
Holding Company. The Bank and the Holding Company acknowledge that Sandler
O'Neill will rely upon the accuracy and completeness of all information received
from the Bank and the Holding Company and their directors, trustees, officers,
employees, agents, independent accountants and counsel.
BLUE SKY MATTERS
- - - ----------------
The Bank agrees that if Sandler O'Neill's counsel does not serve as counsel
with respect to blue sky matters in connection with the Offerings, the Bank will
cause the counsel performing such services to prepare a Blue Sky Memorandum
related to the Offerings including Sandler O'Neill's participation therein and
shall furnish Sandler O'Neill a copy thereof addressed to Sandler O'Neill or
upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
- - - ---------------
Other than disclosure to other firms made part of any syndicate of selected
dealers or as required by law or regulation, Sandler O'Neill agrees that it will
not disclose any Confidential Information relating to the Bank obtained in
connection with its engagement hereunder (whether or not the Conversion is
consummated). As used in this paragraph, the term "Confidential Information"
shall not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Sandler O'Neill, (ii) was
available to Sandler O'Neill on a non-confidential basis prior to its disclosure
to Sandler O'Neill by the Bank, or (iii) becomes available to Sandler O'Neill on
a non-confidential basis from a person other than the Bank who is not otherwise
known to Sandler O'Neill to be bound not to disclose such information pursuant
to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
- - - ---------------
A) Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 6 Sandler O'Neill
Sandler O'Neill and its affiliates and their respective partners, directors,
officers, employees, agents and controlling persons within the meaning of
Section 15 of the Securities Act of 1933 or Section 20 of the Securities
Exchange Act (Sandler O'Neill and each such person being an "Indemnified Party")
harmless from and against any and all losses, claims, damages and liabilities,
joint or several, to which such Indemnified Party may become subject under
applicable federal or state law, or otherwise, related to or arising out of the
Conversion or the engagement of Sandler O'Neill pursuant to, or the performance
by Sandler O'Neill of the services contemplated by, this letter, and will
reimburse any Indemnified Party for all expenses (including reasonable legal
fees and expenses) as they are incurred, including expenses incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party; provided, however, that the Bank and the
-------- -------
Holding Company will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense (i) arises out of or is based upon any
untrue statement of a material fact or the omission of a material fact required
to be stated therein or necessary to make not misleading any statements
contained in any proxy statement or prospectus (preliminary or final), or any
amendment or supplement thereto, or any of the applications, notices, filings or
documents related thereto made in reliance on and in conformity with written
information furnished to the Bank by Sandler O'Neill expressly for use therein,
or (ii) is primarily attributable to the gross negligence, willful misconduct or
bad faith of Sandler O'Neill. If the foregoing indemnification is unavailable
for any reason, the Bank and the Holding Company agree to contribute to such
losses, claims, damages, liabilities and expenses in the proportion that its
financial interest in the Conversion bears to that of Sandler O'Neill.
CROSS INDEMNIFICATION
- - - ---------------------
B) Sandler O'Neill agrees to indemnify and hold harmless the Holding Company,
the Bank, their directors and trustees, each of their officers who signed the
Registration Statement, and each person, if any, who controls the Holding
Company within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities and Exchange Act of 1934 against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only to the extent that such
loss, liability, claim, damage or expense is found in a final judgement by a
court of competent jurisdiction to have resulted solely from (i) the bad faith,
willful, misconduct or gross negligence of Sandler O'Neill, or (ii) an untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact contained in any final prospectus, or any amendment
or supplement thereto, made in reliance upon and in conformity with information
furnished to the Bank by Sandler O'Neill expressly for use therein.
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 7 Sandler O'Neill
DEFINITIVE AGREEMENT
- - - --------------------
Sandler O'Neill and the Bank agree that (a) except as set forth in clause
(b), the foregoing represents the general intention of the Bank and Sandler
O'Neill with respect to the services to be provided by Sandler O'Neill in
connection with the Offerings, which will serve as a basis for Sandler O'Neill
commencing activities, and (b) the only legal and binding obligations of the
Bank, the Holding Company and Sandler O'Neill with respect to the subject matter
hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement
shall be in form and content satisfactory to Sandler O'Neill, the Bank and the
Holding Company and their respective counsel and shall contain standard
indemnification provisions mutually acceptable to the Bank, the Holding Company
and Sandler O'Neill.
Sandler O'Neill's execution of such Agency Agreement shall also be subject
to (i) Sandler O'Neill's satisfaction with its investigation of the Bank's
business, financial condition and results of operations, (ii) preparation of
offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to December
31, 1998.
ELIMINATION OF HOLDING COMPANY
- - - ------------------------------
If the Board of Directors of the Bank, for any reason, elects not to proceed
with the formation of the Holding Company but determines to proceed with the
Conversion and substitute the common stock of the Bank for the common stock of
the Holding Company, all of the provisions of this letter relating to the common
stock of the Holding Company will be deemed to pertain to the common stock of
the Bank on the same terms and conditions that such provisions pertain to the
common stock of the Holding Company and all of the references in this letter to
the Holding Company shall be deemed to refer to the Bank or shall have no
effect, as the context of the reference requires.
<PAGE>
Richmond County Savings Bank
July 30, 1997
Page 8 Sandler O'Neill
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
--------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
Richmond County Savings Bank
By: /s/ Michael F. Manzulli
--------------------------------------
Michael F. Manzulli
President and Chief Executive Officer
<PAGE>
EXHIBIT A Sandler O'Neill
GENERAL ADVISORY SERVICES
- - - --------------------------------------------------------------------------------
1. A review and analysis of the Holding Company's current business and
financial characteristic, including its operating strategies, balance sheet
composition, historical operating performance, branch structure and market
share, and the Holding Company's competitive position relative to selected
peer groups;
2. Creation of a base case financial model to serve as a benchmark for
analyzing alternative strategies and market environments;
3. An analysis of the impact on the franchise value of altering the Holding
Company's dividend policy, implementing a stock repurchase program, or
changing the asset mix or other operating activities;
4. An analysis of the Holding Company's acquisition resources, objectives and
capacity to compete for acquisition opportunities;
5. A summary of recent merger and acquisition trends in the financial services
industry, including tactics employed by others and typical terms and values
involved;
6. A review of other strategic alternatives which could provide long-term
benefits and enhanced value to the Holding Company;
7. A review of the Holding Company's advance defensive preparation plans,
including a comprehensive financial valuation and an analysis of stock
ownership and trading activities;
8. A review with the Board of Directors of the Holding Company of Sandler
O'Neill's findings, with periodic updates as may be requested;
9. Ongoing general advice and counsel to management and the Board of Directors
of the Holding Company with respect to strategic and tactical issues; and
10. Rendering such other financial advisory and investment banking services as
may from time to time be agreed upon by Sandler O'Neill and the Holding
Company.
<PAGE>
[LETTERHEAD OF SANDLER O'NEILL APPEARS HERE]
July 30, 1997 Sandler O'Neill
Mr. Michael F. Manzulli
President and Chief Executive Officer
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Dear Mr. Manzulli:
Sandler O'Neill Corporate Strategies, a division of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), is pleased to act as conversion agent to
Richmond County Savings Bank (the "Bank") in connection with the Bank's proposed
conversion from mutual to stock form (the "Conversion"). This letter is to
confirm the terms and conditions of our engagement.
SERVICES AND FEES
- - - -----------------
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a fee of
$65,000. This fee is based upon a total number of unconsolidated accounts of
approximately 133,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
<PAGE>
Richmond County Bank
July 30, 1997
Page 2 Sandler O'Neill
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual
or additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$10,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
- - - ------------------
In addition to any fees that may be payable to Sandler O'Neill hereunder,
the Bank agrees to reimburse Sandler O'Neill, upon request made from time to
time, for its reasonable out-of-pocket expenses incurred in connection with its
engagement hereunder regardless of whether the Conversion is consummated,
including, without limitation, travel, lodging, food, telephone, postage,
listings, forms and other similar expenses; provided, however, that Sandler
-------- -------
O'Neill shall document such expenses to the reasonable satisfaction of the Bank.
The provisions of this paragraph are not intended to apply to or in any way
impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon this
agreement or the payments made to Sandler O'Neill pursuant hereto, including,
but not limited to, any applicable sales, use, excise and similar taxes, shall
be paid by the Bank as the same become due, and the Bank shall, upon request by
Sandler O'Neill, pay the same either to Sandler O'Neill or to the appropriate
taxing authority at any time during, or after the termination of, this
Agreement; provided, however, that the Bank shall not be responsible for the
payment of any state, federal, or local franchise or income taxes based upon the
net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
- - - --------------------------------
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform
<PAGE>
Richmond County Bank
July 30, 1997
Page 3 Sandler O'Neill
Sandler O'Neill within a reasonable period of time of any changes in the Plan
which require changes in Sandler O'Neill's services. If a substantial expense
results from any such change, the parties shall negotiate an equitable
adjustment in the fee.
LIMITATIONS
- - - -----------
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no duties or
obligations other than those specifically set forth herein; (b) will be regarded
as making no representations and having no responsibilities as to the validity,
sufficiency, value or genuineness of any order form or any stock certificates or
the shares represented thereby, and will not be required to and will make no
representations as to the validity, value or genuineness of the offer; (c) shall
not be liable to any person, firm or corporation including the Bank by reason of
any error of judgment or for any act done by it in good faith, or for any
mistake of law or fact in connection with this agreement and the performance
hereof unless caused by or arising out of its own willful misconduct, bad faith
or gross negligence; (d) will not be obliged to take any legal action hereunder
which might in its judgment involve any expense or liability, unless it shall
have been furnished with reasonable indemnity satisfactory to it; and (e) may
rely on and shall be protected in acting in reliance upon any certificate,
instrument, opinion, notice, letter, telex, telegram, or other document or
security delivered to it and in good faith believed by it to be genuine and to
have been signed by the proper party or parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
- - - ---------------
The Bank agrees to indemnify and hold Sandler O'Neill and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons (Sandler O'Neill and each such person being an "Indemnified
Party") harmless from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under applicable federal or state law, or otherwise, related to or
arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses
<PAGE>
Richmond County Bank
July 30, 1997
Page 4 Sandler O'Neill
incurred in connection with the investigation of, preparation for or defense of
any pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party. The Bank will not be liable
under the foregoing indemnification provision to the extent that any loss,
claim, damage, liability or expense is found in a final judgment by a court of
competent jurisdiction to have resulted primarily from Sandler O'Neill's willful
misconduct, bad faith or gross negligence.
MISCELLANEOUS
- - - -------------
The following addresses shall be sufficient for written notices to each
other:
If to you: Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Attention: Mr. Michael F. Manzulli
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement between
the parties with respect to the subject matter hereof and can be altered only by
written consent signed by the parties. This Agreement is governed by the laws
of the State of New York.
<PAGE>
Richmond County Bank
July 30, 1997
Page 5 Sandler O'Neill
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-------------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
Richmond County Savings Bank
By: /s/ Michael F. Manzulli
------------------------------------
Mr. Michael F. Manzulli
President and Chief Executive Officer
<PAGE>
APPENDIX A Sandler O'Neill
----------
OUTLINE OF CONVERSION AGENT SERVICES
------------------------------------
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the Conversion
Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting.
5. Produce final report of vote.
A-1
<PAGE>
Sandler O'Neill
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgement letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A-2
<PAGE>
EXHIBIT 2.1
PLAN OF CONVERSION FOR
RICHMOND COUNTY SAVINGS BANK
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Richmond
County Savings Bank, Staten Island, New York ("INSTITUTION") into a state-
chartered capital stock savings bank under the name Richmond County Savings
Bank. The Board of Trustees of the INSTITUTION currently contemplates that all
of the stock of the INSTITUTION shall be held by a Delaware corporation (the
"Holding Company"). The Board of Trustees has carefully considered the
alternatives available to the INSTITUTION with respect to its corporate
structure and has determined that a mutual to stock conversion as described in
this Plan is in the best interests of the INSTITUTION, its depositors and the
community served by the INSTITUTION. The Board of Trustees believes that the
decline in mutuality is placing mutual savings associations, such as the
INSTITUTION, at a disadvantage to the increasing base of stock thrift and
commercial bank institutions. The restructuring of the INSTITUTION into the
capital stock form of organization will enable the INSTITUTION to expand the
INSTITUTION'S franchise, compete more effectively with commercial banks and
other financial institutions for new business opportunities, and as a stock
institution, to increase its equity capital base and access the capital markets
when needed. The use of the Holding Company, if so utilized, would also provide
greater organizational and operating flexibility. Shares of capital stock of
the INSTITUTION will be sold to the Holding Company and the Holding Company will
offer the Conversion Stock upon the terms and conditions set forth herein
<PAGE>
to the Eligible Account Holders, the Employee Plans established by the
INSTITUTION or Holding Company and the Supplemental Eligible Account Holders in
the respective priorities set forth in this Plan. Any shares of Conversion Stock
not subscribed for by the foregoing classes of persons will be offered for sale
to certain members of the public either directly by the INSTITUTION and the
Holding Company through a Community Offering or a Syndicated Community Offering
or through an underwritten firm commitment public offering or through a
combination thereof. In the event that the INSTITUTION decides not to utilize
the Holding Company in conversion, Conversion Stock of the INSTITUTION, in lieu
of the Holding Company, will be sold as set forth above and in the respective
priorities set forth in this Plan. In addition to the foregoing, the INSTITUTION
and the Holding Company intend to provide employment or severance agreements to
certain management employees and certain other benefits to the trustees,
officers and employees of the INSTITUTION as described in the Prospectus for the
Conversion Stock.
In furtherance of the INSTITUTION's commitment to its community, this Plan
provides for the establishment of a charitable foundation as part of the
Conversion. The charitable foundation is intended to complement the
INSTITUTION's existing community reinvestment activities in a manner that will
allow the INSTITUTION's local community to share in the growth and profitability
of the Holding Company and the INSTITUTION over the long term. Consistent with
the INSTITUTION's goal, the Holding Company intends to donate to the charitable
foundation immediately following the Conversion a number of shares of its
authorized but unissued Common Stock in an amount up to 8% of the common stock
issued in the Conversion.
This Plan, which has been unanimously approved by the Board of Trustees of
the INSTITUTION present at a duly called meeting of the Board, must also be
approved by the Eligible
-2-
<PAGE>
Account Holders of the INSTITUTION by: (1) the affirmative vote of at least
seventy-five percent (75%) in amount of deposit liabilities of Eligible Account
Holders represented in person or by proxy at the Special Meeting; and, (2) if
required by the FDIC, the affirmative vote of at least a majority of the amount
of votes eligible to be cast at the Special Meeting. The Board of Trustees shall
appoint an independent custodian and tabulator to receive and hold proxies to be
voted at the Special Meeting and count the votes cast in favor of and in
opposition to the Plan. Prior to the submission of this Plan to the Eligible
Account Holders for consideration, the Plan must be approved by the
Superintendent of Banks of the State of New York or his or her designees
("Superintendent") and certain waivers must be granted by the New York Banking
Board and the Plan must be not objected to by the FDIC.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Deposit
--------------
Account in the INSTITUTION.
Acting in Concert - The term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan
-3-
<PAGE>
will not be deemed to be acting in concert with any other Tax-Qualified Employee
Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefit Plan or with its
trustee or a person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the plan will be
aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with any
---------
Person, means (i) any corporation or organization (other than the Holding
Company, the INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity except that: (a) for the purposes of Sections 8 and 11 hereof, the
term "Associate" does not include any Non-Tax-Qualified Employee Stock Benefit
Plan or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and (b) for purposes of aggregating total shares that may be held by
Officers and Directors the term "Associate" does not include any Tax-Qualified
or Non-Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person or who is a Trustee, Director or Officer of the INSTITUTION or the
Holding Company, if utilized, or any of its parents or subsidiaries.
Banking Law - The term Banking Law shall mean the Banking Law of the State
-----------
of New York.
Banking Board - The term Banking Board means the Banking Board of the State
-------------
of New York.
-4-
<PAGE>
Community Offering - The term Community Offering means the offering for sale
------------------
to certain members of the general public directly by the INSTITUTION or the
Holding Company, if utilized, of any shares not subscribed for in the
Subscription Offering.
Conversion - The term Conversion shall mean (a) the restatement of the
----------
Bank's Organization Certificate to authorize the issuance of capital stock in
accordance with the Banking Law and the Conversion Regulations and to otherwise
conform to the requirements of a New York stock savings bank and (b) the
issuance of the capital stock of the Bank in accordance with this Plan.
Conversion Regulations - The term Conversion Regulations shall mean Part 86
----------------------
of the General Regulations of the New York Banking Board and the regulations of
the Federal Deposit Insurance Corp., but only to the extent such regulations
conflict with Part 86 of the General Regulations of the New York Banking Board.
Conversion Stock - The term Conversion Stock means the $.01 par value common
----------------
stock offered and issued by the Holding Company or the $.01 par value Common
Stock offered and issued by the INSTITUTION, if the Holding Company form of
organization is not utilized, upon conversion.
Deposit Account - The term Deposit Account means all deposits of the
---------------
INSTITUTION as defined in Section 9019 of the Banking Law of New York, and
includes without limitation, savings, time, demand, negotiable orders of
withdrawal (NOW), money market and passbook accounts maintained by the
INSTITUTION.
Effective Date - The term Effective Date shall mean the effective date of
--------------
the Conversion and shall be the date of consummation of the Conversion in
accordance with the Conversion Regulations.
-5-
<PAGE>
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the INSTITUTION and is June 30,
1996.
Employees - The term Employees means all Persons who are employed by the
---------
INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified Employee
--------------
Stock Benefit Plans, including the Employee Stock Ownership Plan ("ESOP"),
approved or ratified by the Board of Trustees of the INSTITUTION or the Board of
Directors of the Holding Company.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Trustees of the
INSTITUTION within which the aggregate amount of Common Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated
pro forma market value of the Conversion Stock as determined by the Independent
Appraiser prior to the Subscription Offering and as it may be amended from time
to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the Conversion to Participants and others in a
Subscription, Community, Syndicated Community, or underwritten firm commitment
public offering, or through a combination thereof.
-6-
<PAGE>
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the INSTITUTION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Institution - The term INSTITUTION means Richmond County Savings Bank,
-----------
Staten Island, New York.
Maximum Subscription Price - The term Maximum Subscription Price means the
--------------------------
amount per share of Conversion Stock to be paid initially by Participants in the
Subscription Offering and persons in the Community Offering.
Officer - The term Officer means an executive officer of the INSTITUTION
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice President, Vice President in charge of principal business functions,
Secretary and Controller and any Person participating in major policy making
functions of the INSTITUTION.
Order Form - The term Order Form means any form together with attached cover
----------
letter, sent by the INSTITUTION to any Participant or Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Subscription and Community Offerings.
Participants - The term Participants means the Employee Plans, Eligible
------------
Account Holders and Supplemental Eligible Account Holders.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
-7-
<PAGE>
Plan - The term Plan means this Plan of Conversion of the INSTITUTION as it
----
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
Prospectus - The term Prospectus shall mean the offering circular or
----------
prospectus utilized to offer Conversion Stock in accordance with the Plan of
Conversion.
Public Offering - The term Public Offering means the underwritten, firm
---------------
commitment offering to the public through one or more underwriters.
Qualifying Deposit - The term Qualifying Deposit means the aggregate of one
------------------
or more Deposit Accounts in the INSTITUTION with an aggregate balance of $100 or
more at the close of business on the Eligibility Record Date. Deposit Accounts
with aggregate total deposit balances of less than $100 shall not constitute a
Qualifying Deposit.
SEC - The term SEC refers to the Securities and Exchange Commission.
---
Special Meeting - The term Special Meeting means the special meeting of
---------------
depositors, and any adjournments thereof, held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering of
---------------------
Conversion Stock for purchase through Order Forms to Participants.
Subscription Price Range - The term Subscription Price Range is the per
------------------------
share price range established by the INSTITUTION prior to commencement of the
Subscription and Community Offerings, and is based on the valuation of the
Independent Appraiser.
Superintendent - The term Superintendent shall mean the Superintendent of
--------------
Banks of the State of New York.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the
-8-
<PAGE>
INSTITUTION. The Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding the Superintendent's approval of the application
for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except Officers, Trustees and their Associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering means
-----------------------------
the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Syndicated Community Offering Price - The term Syndicated Community Offering
-----------------------------------
price means the per share price submitted with orders for shares of Conversion
Stock in the Syndicated Community Offering.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. For purposes of
Section 9 of this Plan, the INSTITUTION'S profit sharing and/or 401 plan shall
be considered a Tax-Qualified Employee Stock Benefit Plan only to the extent of
the unallocated funds, if any, over which investment authority is vested solely
with the trustee(s) of those plans. The INSTITUTION or Holding Company may make
scheduled discretionary contributions to a Tax-Qualified Employee Stock Benefit
Plan provided such contributions do not cause the INSTITUTION to fail to meet
its regulatory capital requirement. A "Non-Tax-Qualified Employee Stock Benefit
Plan" is any defined benefit plan or defined contribution plan which is not so
qualified.
-9-
<PAGE>
Trustee - The term Trustee shall mean a member of the Board of Trustees of
-------
the INSTITUTION.
Voting Members - The term Voting Members means those persons qualifying as
--------------
Eligible Account Holders.
Voting Record Date - The term Voting Record Date means the date fixed by the
------------------
Trustees in accordance with the Conversion Regulations for determining
eligibility to vote at the Special Meeting.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Trustees of the INSTITUTION, the
Plan shall be submitted together with all other requisite material to the
Superintendent for approval or waiver by the Banking Board, if necessary, and
shall be submitted to the FDIC with all other requisite material for non-
objection. Promptly upon adoption of the Plan by the Board of Trustees, the
INSTITUTION will cause notice of the adoption of the Plan by the Board of
Trustees of the INSTITUTION to be conspicuously posted at its principal office
and at each of its branch offices and will also cause notice of the adoption of
the Plan to be published in a newspaper having general circulation in each
community in which an office of the INSTITUTION is located and will issue a
press release containing the material terms of Conversion. Following approval
by the Superintendent and non-objection by the FDIC and receipt of all necessary
waivers by the Banking Board, if necessary, the Plan will be submitted to a vote
of the Eligible Account Holders at the Special Meeting called for that purpose.
Eligible Account Holders will also be given the opportunity to request a copy of
the Plan and the proposed Restated Organization Certificate and proposed Bylaws.
The Special Meeting shall be held upon written notice given no less than 20 days
nor more than 45 days from the last date
-10-
<PAGE>
on which such Notice is mailed to Eligible Account Holders. The notice of the
Special Meeting, proxy card and proxy statement or short-form proxy statement
shall be sent to each Eligible Account Holder and shall be accompanied by a
Prospectus and Order Form. Separate and readily distinguishable postage-paid
envelopes shall be provided for the return of proxy cards and Order Forms. At
the Special Meeting, each Eligible Account Holder shall be entitled to cast one
vote in person or by proxy for every one hundred dollars ($100) such Eligible
Account Holder had on deposit with the Bank as of the Eligibility Record Date;
provided, however, that no Eligible Account Holder shall be eligible to cast
more than one thousand (1,000) votes.
The Superintendent shall be notified of the results of the Special Meeting
within five days after the conclusion of the Special Meeting by a certificate
signed by the Chief Executive Officer and Secretary of the Bank. The Plan must
be approved by: 1) the affirmative vote of at least seventy-five percent (75%)
in amount of deposit liabilities of Eligible Account Holders represented in
person or by proxy at such Special Meeting; and, 2) if required by the FDIC, the
affirmative vote of at least a majority of the amount of votes entitled to be
cast at such Special Meeting. In such event, the Bank will take all other
necessary steps to effect the Conversion subject to the terms and conditions of
this Plan. If the Plan is not so approved upon conclusion of the Special
Meeting and any adjournments thereof, the Plan shall terminate, the Bank will
remain in mutual form and all funds submitted in the Subscription Offering and
Community Offering and Syndicated Community Offering will be returned to
subscribers, with interest as provided herein, and all withdrawal authorizations
will be cancelled. The Conversion must be completed within 24 months of the
approval of the Plan by the Superintendent, unless a longer time period is
permitted by governing laws and regulations.
-11-
<PAGE>
The Board of Trustees of the INSTITUTION intends to take all necessary steps
to form the Holding Company, including the filing of an Application with the
Superintendent and the appropriate regulatory authority which will govern the
activities of the Holding Company. In the event that the Holding Company is
utilized, upon conversion the INSTITUTION will issue its capital stock to the
Holding Company and the Holding Company will issue and sell the Conversion Stock
in accordance with this Plan.
The Board of Trustees of the INSTITUTION may determine for any reason at any
time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the Conversion, in which case, the Holding
Company's Registration Statement will be withdrawn from the SEC, the INSTITUTION
will take all steps necessary to complete the conversion from the mutual to the
stock form of organization, including filing any necessary documents with the
Superintendent, FDIC and the appropriate regulatory authority which will govern
the activities of the Holding Company, and will issue and sell the Conversion
Stock in accordance with this Plan. In such event, any subscriptions or orders
received for Conversion Stock of the Holding Company shall be deemed to be
subscriptions or orders for Conversion Stock of the INSTITUTION and the
INSTITUTION shall take such steps as permitted or required by the
Superintendent, FDIC or the SEC. Any references to the Holding Company in this
Plan shall mean the INSTITUTION in the event the Holding Company is eliminated
in Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
-12-
<PAGE>
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application with the Superintendent and the
appropriate regulatory authority which will govern the activities of the Holding
Company and a Registration Statement to be filed with the SEC. The INSTITUTION
shall be a wholly-owned subsidiary of the Holding Company unless the Holding
Company is eliminated in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans and Supplemental
Eligible Account Holders in the respective priorities set forth in Sections 8
through 10 of this Plan. The Subscription Offering may be commenced as early as
the mailing of the Proxy Statement for the Special Meeting and must be commenced
in time to complete the Conversion within the time period specified in
Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 11 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting and, in that event, the Community Offering may also be
commenced prior to the Special Meeting and may commence concurrently with the
Subscription Offering. The offer and sale of Conversion Stock prior to the
Special Meeting shall, however, be conditioned upon approval of the Plan by the
Eligible Account Holders.
If feasible, any shares of Conversion Stock remaining after the Subscription
and Community Offerings, will be sold in a Syndicated Community Offering or
alternatively in a Public Offering, as determined by the Holding Company and the
INSTITUTION, as provided in Section 12 of this Plan in a manner that will
achieve the widest distribution of the Conversion Stock. The sale of all
-13-
<PAGE>
Conversion Stock subscribed for in the Subscription and Community Offerings will
be consummated simultaneously on the date the sale of Conversion Stock in the
Syndicated Community Offering or Public Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to offer to pay fees on a per share basis to
qualifying brokers, as determined by the INSTITUTION in its sole discretion, who
assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Trustees
of the INSTITUTION and Board of Directors of the Holding Company, if the holding
company form of organization is utilized, immediately prior to the commencement
of the Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the
Superintendent and FDIC, if necessary. In particular, the total number of
shares may be increased by up to 15% of the number of shares offered in the
Subscription and Community Offering if the Estimated Price Range is increased
subsequent to the commencement of the Subscription and Community Offering to
reflect changes in market and financial conditions and the Actual Purchase Price
in the aggregate is not more than 15% above the maximum of the Estimated Price
Range.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price in accordance with the
Conversion Regulations. The aggregate purchase price for all shares of
Conversion Stock shall equal the estimated consolidated pro forma market value
of the Holding Company as of the Effective Date and will not be inconsistent
with the estimated consolidated pro forma market value of the Holding Company
established immediately
-14-
<PAGE>
prior to the commencement of the Subscription and Community Offerings. The
estimated consolidated pro forma market value of the INSTITUTION or the Holding
Company, if utilized, will be determined for such purpose by the Independent
Appraiser in accordance with the Conversion Regulations. Prior to the
commencement of the Subscription and Community Offerings, an Estimated Price
Range will be established, which range will vary within 15% above to 15% below
the average of the minimum and maximum of such price range. The number of shares
of Conversion Stock to be issued and the purchase price per share may be
increased or decreased by the INSTITUTION. In the event that the aggregate
purchase price of the Conversion Stock is below the minimum of the Estimated
Price Range, or materially above the maximum of the Estimated Price Range,
resolicitation of purchasers may be required, provided that up to a 15% increase
above the maximum of the Estimated Price Range will not be deemed material so as
to require a resolicitation. Any such resolicitation shall be effected in such
manner and within such time as the INSTITUTION shall establish, with the
approval of the Superintendent and FDIC, if required. Up to a 15% increase in
the number of shares to be issued which is supported by an appropriate change in
the estimated pro forma market value of the Holding Company will not be deemed
to be material so as to require a solicitation of subscriptions.
Based upon the independent valuation as updated prior to the commencement of
the Subscription and Community Offerings, the Board of Directors of the Holding
Company, (if a holding company form of organization is utilized) and the Board
of Trustees of the INSTITUTION will fix the Maximum Subscription Price and the
Subscription Price Range. If upon completion of the Subscription and Community
Offerings all of the Conversion Stock is subscribed for, or if because of a
limited number of unsubscribed shares or otherwise a Syndicated Community
Offering
-15-
<PAGE>
or Public Offering cannot be effected, the Actual Purchase Price for each share
of Conversion Stock will be jointly determined by the INSTITUTION and Holding
Company (if a holding company form of organization is utilized) as follows: (a)
the estimated aggregate pro forma market value of the INSTITUTION or the Holding
Company, as the case may be, immediately after conversion as determined by the
Independent Appraiser, expressed in terms of a specific aggregate dollar amount
rather than as a range, upon completion of the Subscription and Community
Offerings or other sale of all of the Conversion Stock shall be divided by (b)
the total number of shares of Conversion Stock to be issued and sold.
If there is a Syndicated Community Offering or Public Offering of shares of
Conversion Stock not subscribed for in the Subscription and Community Offerings,
the price per share at which the Conversion Stock is sold in such Syndicated
Community Offering or Public Offering shall be not greater than the maximum nor
less than the minimum of the Subscription Price Range on a per share basis as
the INSTITUTION may determine subject to approval by the Superintendent and
FDIC, if required. Upon consummation of the sale in the Syndicated Community
Offering or Public Offering of the shares of Conversion Stock unsubscribed for
in the Subscription and Community Offerings, the Syndicated Community Offering
or Public Offering Price will become the Actual Purchase Price paid for all
shares of Conversion Stock in the Subscription, Community and Syndicated
Community or Public Offerings.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company, if utilized, and to the
Superintendent and FDIC, if required that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which, taking
into account
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all relevant factors, would cause the Independent Appraiser to conclude that the
aggregate value of the Conversion Stock at the Actual Purchase Price is
incompatible with its estimate of the aggregate consolidated pro forma market
value of the Holding Company or the INSTITUTION if no Holding Company is
utilized. If such confirmation is not received, the INSTITUTION may cancel the
Subscription and Community Offerings and/or the Syndicated Community Offering,
and/or the Public Offering, extend the Conversion, establish a new Subscription
Price Range and/or Estimated Price Range, extend, reopen or hold new
Subscription and Community Offerings and/or Syndicated Community Offering and/or
Public Offering or take such other action as the Superintendent may permit.
The per share difference, if any, between the Actual Purchase Price and the
Maximum Subscription Price or amount submitted in the Syndicated Community
Offering or Public Offering will be refunded to all Persons who shall have paid
the Maximum Subscription Price or amount submitted in the Syndicated Community
Offering or the Public Offering for such shares, unless such difference is
applied to the purchase of additional whole shares in accordance with the
instructions of such Persons.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, and in the
event that a holding company form of organization is utilized, the Holding
Company will purchase from the INSTITUTION all of the capital stock of the
INSTITUTION to be issued by the INSTITUTION in
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the conversion in exchange for the Conversion proceeds that are not to be
retained by the Holding Company.
The Holding Company will retain 50% of the proceeds of the Conversion.
Assuming the Holding Company is not eliminated, a lesser percentage may be
acceptable in the judgment of the Board of Trustees. The INSTITUTION believes
that the Conversion proceeds will provide economic strength to the Holding
Company and the INSTITUTION for the future in a highly competitive and regulated
environment and would facilitate the possible expansion through acquisitions of
financial service organizations, possible diversification into other related
businesses and for other business and investment purposes, including the
possible payment of dividends and possible future repurchases of the Conversion
Stock as permitted by the Superintendent. If during the conversion process the
Board of Trustees of the INSTITUTION determines not to complete the conversion
utilizing a holding company form of organization, capital stock of the
INSTITUTION will be issued and sold in accordance with the Plan. The above
activities may also be engaged in by the INSTITUTION if the Holding Company is
eliminated.
7A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the INSTITUTION intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code ( the "Foundation") and to
donate to the Foundation from authorized, but unissued, shares of Common Stock
of the Holding Company in an amount up to 8% of the number of shares of Common
Stock sold in the Conversion. The Foundation is being formed in connection with
the Conversion in order to complement the INSTITUTION's existing community
reinvestment activities and to share with the INSTITUTION's local community a
part of the INSTITUTION's
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financial success as a locally headquartered, community minded, financial
services institution. The funding of the Foundation with Common Stock of the
Holding Company accomplishes this goal as it enables the community to share in
the growth and profitability of the Holding Company and the INSTITUTION over the
long-term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year.
In order to serve the purposes for which it was formed and maintain its Section
501(c)(3) qualification, the Foundation may sell, on an annual basis, a limited
portion of the Common Stock contributed to it by the Holding Company.
The board of directors of the Foundation will be comprised of individuals
who are officers and/or trustees of the INSTITUTION. The board of directors of
the Foundation will be responsible for establishing the polices of the
Foundation with respect to grants or donations, consistent with the stated
purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion is
subject to the approval of the Superintendent and, if applicable, the FDIC.
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8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment, as a first
priority, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to the amount permitted to be subscribed for in the
Community Offering, which amount, pursuant to Section 11, currently is $250,000
of the Conversion Stock, but which may be increased to 5.0% of the Conversion
Stock offered or decreased to 0.10% of the Conversion Stock offered without the
further approval of Eligible Account Holders or resolicitation of subscribers,
subject to the maximum purchase limitation specified in Section 13A and the
minimum purchase limitation in Section 13C.
B. In the event that Eligible Account Holders exercise Subscription Rights
for a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each remaining Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all subscribing Eligible
Account Holders whose subscriptions remain unsatisfied, provided, however, that
no fractional shares shall be issued. If any shares remain after the above
allocations, such shares shall then be allocated among those remaining Eligible
Account Holders whose subscriptions remain unfilled, on the same principle until
all available shares have been allocated or all subscriptions satisfied.
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C. Subscription rights as Eligible Account Holders received by Trustees and
Officers and their Associates which are based on their increased deposits in the
INSTITUTION during the one (1) year period preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
Each Employee Plan purchasing stock shall receive, as second priority after
the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by any such plan, subject to the purchase
limitations set forth in Section 13. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares of Conversion Stock is
not available to fill the subscriptions by any such plan, the subscription by
such plan shall be filled to the maximum extent possible.
The Employee Plans shall not be deemed to be associates or affiliates of or
Persons Acting in Concert with any Director, Trustee or Officer of the Holding
Company or the INSTITUTION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority, after the filling of subscriptions of the Eligible Account Holders and
Employee Plans, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
11, currently is $250,000 of the Conversion Stock, but which may be increased
to 5.0% of the Conversion Stock offered or decreased to less than 0.10% of the
Conversion Stock offered
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without the further approval of Eligible Account Holders or resolicitation of
subscribers, subject to the maximum purchase limitation specified in Section 13A
and the minimum purchase limitation specified in Section 13C.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the Qualifying Deposits of all
remaining Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied provided, however, that no fractional shares shall be issued. If
any shares remain after the above allocations, such shares shall then be
allocated among those remaining Supplemental Eligible Account Holders whose
subscriptions remain unfilled on the same principle until all available shares
have been allocated or all subscriptions satisfied.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this
Section 10.
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11. COMMUNITY OFFERING (FOURTH PRIORITY)
If less than the total number of shares of Conversion Stock to be subscribed
for in the Conversion are sold in the Subscription Offering, it is expected that
shares remaining unsubscribed for will be made available for purchase in the
Community Offering as a fourth priority to certain members of the general
public, which may subscribe together with any Associate or group of persons
Acting in Concert for up to $250,000 of Conversion Stock subject to the maximum
purchase limitation specified in Section 13A and the minimum purchase limitation
specified in Section 13C; provided, however, that the amount permitted to be
purchased in the Community Offering may be increased to 5% or decreased to 0.10%
without the further approval of depositors. The shares may be made available in
the Community Offering through a direct community marketing program which may
provide for utilization of a broker, dealer, consultant or investment banking
firm, experienced and expert in the sale of savings institutions securities.
Such entities may be compensated on a fixed fee basis or on a commission basis,
or a combination thereof. In offering the unsubscribed for shares to the public
in the Community Offering, the Holding Company and the INSTITUTION may establish
the relative preferences, priorities, purchase limitations and allocation of
shares among persons, including institutional investors, subscribing for shares.
The INSTITUTION may establish all other terms and conditions of such offer. The
INSTITUTION shall make distribution of the Conversion Stock to be sold in the
Community Offering in such a manner as to promote a wide distribution of
Conversion Stock. The INSTITUTION reserves the right to reject any or all
orders, in whole or in part, which are received in the Community Offering.
It is expected that the Community Offering will commence concurrently with
the Subscription Offering. The Community Offering must be completed within 45
days after the completion of the
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Subscription Offering unless otherwise extended with the approval of the
Superintendent and FDIC, if necessary.
12. SYNDICATED COMMUNITY OFFERING OR PUBLIC OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings will be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the INSTITUTION, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the INSTITUTION to accept or reject in
whole or in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any person, together with any Associate or group
of persons acting in concert, may purchase up to $250,000 of Conversion Stock
subject to the maximum purchase limitation specified in Section 13A and the
minimum purchase limitation specified in Section C; provided, however, that this
amount may be increased to 5% or decreased to 0.10% without the further approval
of depositors. The shares purchased by any Person together with any Associate
or group of persons acting in concert pursuant to Section 11 shall be counted
toward meeting the maximum purchase limitation found in this Section. Provided
that the Subscription Offering has commenced, the INSTITUTION may commence the
Syndicated Community Offering at any time after the mailing to the Members of
the Proxy Statement to be used in connection with the Special Meeting, provided
that the completion of the offer and sale of the Conversion Stock shall be
conditioned upon the approval of this Plan by the Eligible Account Holders. If
the Syndicated Community Offering is not sooner commenced pursuant to the
provisions of the preceding sentence, the Syndicated Community Offering will be
commenced as soon as practicable following the date upon which the Subscription
and Community Offerings terminate.
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Alternatively, if a Syndicated Community Offering is not held, and the
INSTITUTION and the Holding Company determine to continue the Conversion, the
INSTITUTION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment Public Offering. The provisions of Section 13 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters and the INSTITUTION, which will in no event exceed an amount deemed
to be acceptable by the Superintendent and FDIC, if necessary.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any residue of shares of Conversion Stock not exceeding one percent of the
aggregate shares issued is not sold in the Subscription and Community Offerings
or in the Syndicated Community or underwritten firm commitment Public Offering,
other arrangements will be made for the disposition of unsubscribed shares by
the INSTITUTION, if possible. Such other purchase arrangements will be subject
to the approval of the Superintendent and FDIC, if necessary.
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13. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be subscribed
for in Sections 8, 9, 10, 11, and 12, the following limitations shall apply to
all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the conversion by any Person or
Participant, together with any Associate or group or persons Acting in Concert,
shall not exceed 1.0% of the Conversion Stock offered, except for the Employee
Plans which may subscribe for up to 10% of the Conversion Stock issued;
provided, however, that Trustees, Directors and Officers of the INSTITUTION and
the Holding Company shall not be deemed to be associates or acting together or
in concert solely as a result of their board membership or employment.
B. The maximum number of shares of Conversion Stock which may be purchased
in all categories in the conversion by Officers, Trustees and Directors of both
the INSTITUTION and the Holding Company in the aggregate shall not exceed 25% of
the total number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares which
when multiplied by the price per share shall not exceed $500, as determined by
the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8 through 12, inclusive, to any Person or that Person's Associates
would be in excess of the maximum
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number of shares permitted as set forth above, the number of shares of
Conversion Stock allocated to each such person shall be reduced to the lowest
limitation applicable to that Person, and then the number of shares allocated to
each group consisting of a Person and that Person's Associates shall be reduced
so that the aggregate allocation to that Person and his or her Associates
complies with the above maximums, and such maximum number of shares shall be
reallocated among that Person and his or her Associates as they may agree, or in
the absence of an agreement, in proportion to the shares subscribed by each
(after first applying the maximums applicable to each Person, separately).
Depending upon market or financial conditions, the Board of Trustees of the
INSTITUTION and the Board of Directors of the Holding Company, with the approval
of the Superintendent, if necessary, and without further approval of the
depositors, may decrease the maximum purchase limitation applicable to Persons
to 0.10% of the Conversion Stock offered, provided, however, the maximum
purchase limitation applicable to all Persons, together with Associates and
Persons acting in concert in the Subscription Offering may not be decreased
below 1.0% of the Conversion Stock offered. The Board of Trustees of the
INSTITUTION and Board of Directors of the Holding Company with the approval of
the Superintendent, if necessary, and without further approval of depositors,
may decrease the maximum purchase limitation applicable to Persons together with
Associates and Persons Acting in Concert in the Community or Syndicated
Community Offering or Public Offering to 0.10% of the Conversion Stock offered.
In addition, the Board of Trustees of the INSTITUTION and Board of Directors of
the Holding Company with the approval of the Superintendent and FDIC, if
necessary, and without further approval of depositors, may increase the purchase
limitations in this Plan, provided that the maximum purchase limitations may not
be increased in the Subscription Offering or Community Offering to a percentage
in excess of 5% of
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the Conversion Stock offered. If the INSTITUTION or the Holding Company, as the
case may be, increases the maximum purchase limitations, the INSTITUTION or the
Holding Company, as the case may be, is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the INSTITUTION or the Holding Company, as the case may be, resolicit certain
other large subscribers. Requests to purchase additional shares of the
Conversion Stock in the event that the purchase limitation is so increased will
be determined by the Board of Directors of the INSTITUTION and the Holding
Company in their sole discretion.
Prior to the Effective Date of the Conversion, no Person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any Subscription Rights or shares of Conversion Stock,
except pursuant to this Plan of Conversion. Each Person purchasing Conversion
Stock in the conversion shall be deemed to confirm that such purchase does not
conflict with the above purchase limitations contained in this Plan.
For a period of three years following the conversion, no Officer, Trustee or
Director (or any person who was an Officer, Trustee or Director at any time
after the date on which the Board of Trustees adopts this Plan) of the
INSTITUTION or the Holding Company or their Associates shall, without the prior
written approval of the Superintendent, purchase or acquire direct or indirect
beneficial ownership of any outstanding shares of common stock of the
INSTITUTION or the Holding Company, as the case may be, except from a broker-
dealer registered with the SEC. This provision shall not apply to the exercise
of any options pursuant to a stock option plan or purchases of common stock of
the INSTITUTION or the Holding Company, as the case may be, made by or held by
any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee
Stock
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Benefit Plan of the INSTITUTION or the Holding Company (including the Employee
Plans) which may be attributable to any Officer, Director or Trustee.
14. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date specified on the Order Form or purchase order, as the case
may be, unless such date is extended by the INSTITUTION; provided, however, that
if the Employee Plans subscribe for shares during the Subscription Offering,
such plans will not be required to pay for the shares at the time they subscribe
but rather may pay for such shares of Conversion Stock subscribed for by such
plans at the Actual Purchase Price upon consummation of the Conversion, provided
that, in the case of the ESOP there is in force from the time of its
subscription until the consummation of the Conversion, a loan commitment from
the Holding Company or from an unrelated financial institution to lend to the
ESOP, at such time, the aggregated Maximum Subscription Price of the shares for
which it subscribed. The Holding Company or the INSTITUTION may make scheduled
discretionary contributions to an Employee Plan provided such contributions from
the INSTITUTION, if any, do not cause the INSTITUTION to fail to meet its
regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before
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the completion of the Conversion, unless such 48 hour period is waived by the
INSTITUTION and the Holding Company in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash (if
delivered in person), check or money order. Alternatively, subscribers in the
Subscription and Community Offerings may pay for the shares subscribed for by
authorizing the INSTITUTION on the Order Form to make a withdrawal from the
subscriber's Deposit Account at the INSTITUTION in an amount equal to the
purchase price of such shares. Funds for which a withdrawal is authorized will
remain in the subscriber's Deposit Account but may not be used by the subscriber
until the Conversion Stock has been sold or the 45-day period (or such longer
period as may be approved by the Superintendent) following the Subscription and
Community Offering has expired, whichever occurs first. Thereafter, the
withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the purchase price per share.
Interest will continue to be earned on any amounts authorized for withdrawal
until such withdrawal is given effect. Such authorized withdrawal from a
certificate account shall be without penalty as to premature withdrawal. Any
remaining balance in a Deposit Account will earn interest after such withdrawal
at the rate and manner applicable to such Deposit Account, provided, that if the
authorized withdrawal is from a certificate account, and the remaining balance
does not meet the applicable minimum balance requirement, without penalty, the
remaining balance will earn interest at the same rate and manner as a comparable
balance in a passbook account. Interest will be paid by the INSTITUTION at not
less than the passbook annual rate on payments for Conversion Stock received in
cash or by check. Such interest will be paid from the date payment is received
by the INSTITUTION until consummation or termination of the conversion. If for
any reason the
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conversion is not consummated, all payments made by subscribers in the
Subscription, Community and Syndicated Community Offerings will be refunded to
them with interest. In case of amounts authorized for withdrawal from Deposit
Accounts, refunds will be made by cancelling the authorization for withdrawal.
The INSTITUTION is prohibited by regulation from knowingly making any loans or
granting any lines of credit for the purchase of stock in the conversion, and
therefore, will not do so.
15. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and INSTITUTION has been declared effective by the Superintendent, FDIC and the
SEC, if the holding company form of organization is utilized, Prospectus and
Order Forms will be distributed to the Employee Plans, all Eligible Account
Holders and Supplemental Eligible Account Holders at their last known addresses
appearing on the records of the INSTITUTION for the purpose of subscribing to
shares of Conversion Stock in the Subscription Offering and will be made
available for use by those Persons entitled to purchase in the Community
Offering.
Each Order Form will be preceded or accompanied by a Prospectus describing
the Holding Company, if utilized, the INSTITUTION, the Conversion Stock and the
Subscription and Community Offerings. Each Order Form will contain, among other
things, the following:
A. A specified date by which all Order Forms must be received by the
INSTITUTION, which date with respect to Eligible Account Holders and
Supplemental Eligible Account Holders shall be not less than five (5) days
following the Special Meeting, unless a shorter period of time is approved by
the Superintendent and FDIC, if necessary, and which date will constitute the
termination of the Subscription Offering.
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B. The purchase price per share for shares of Conversion Stock to be sold
in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Conversion
Stock which may be subscribed for pursuant to the exercise of Subscription
Rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus prior to execution of the Order Form;
F. Specifically designated blank spaces for dating and signing the Order
Form;
G. Indicate the consequences of failing to properly complete and return the
Order Form, including a statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Deposit Account
at the INSTITUTION) to the INSTITUTION; and
H. A statement to the effect that the executed Order Form, once received by
the INSTITUTION, may not be modified or amended by the subscriber without the
consent of the INSTITUTION.
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Notwithstanding the above, the INSTITUTION and the Holding Company reserve
the right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
16. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the purchase
price prior to 48 hours before the completion of the Conversion, unless waived
by the INSTITUTION, for the shares of Conversion Stock subscribed for (including
cases in which deposit accounts from which withdrawals are authorized are
insufficient to cover the amount of the required payment), or (e) are not mailed
pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights of the person to whom such rights have been granted will
lapse as though such person failed to return the contemplated Order Form within
the time period specified thereon; provided, however, that the INSTITUTION may,
but will not be required to, waive any immaterial irregularity on any Order Form
or require the submission of corrected Order Forms or the remittance of full
payment for subscribed shares by such date as the INSTITUTION may specify. The
interpretation of the INSTITUTION of terms and conditions of the Plan and of the
Order Forms will be final, subject to the authority of the Superintendent and
FDIC.
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17. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased or acquired (either directly or
indirectly) by Trustees, Directors or Officers (as such term is defined in Part
70 of the General Regulations of the New York Banking Board) of the INSTITUTION
or the Holding Company on original issue (or otherwise beneficially owned
immediately after such original issuance) in the conversion shall be subject to
the restriction that, except as provided in Section 17B, below, or as may be
approved by the Superintendent, such shares shall not be sold for a period of
one (l) year following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 17A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, as the
case may be, which has been approved by the Superintendent; and
(ii) Any disposition of such shares following the death or judicial
declaration of incompetency of such Trustee, Director or Executive
Officer.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the meaning
of Section 17A, above, shall bear a legend prominently stamped on
its face giving notice of the restriction;
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(ii) Appropriate instructions shall be issued to the stock transfer agent
for the INSTITUTION or the Holding Company, as the case may be, with
respect to applicable restrictions on transfer of such restricted
stock; and
(iii) Any shares of capital stock of the INSTITUTION or the Holding
Company, as the case may be, issued as a stock dividend, stock
split, or otherwise with respect to any such restricted stock may
not be sold until the restrictions respecting such originally
restricted stock are terminated, and any certificate for such shares
shall bear a legend advising of such restrictions.
18. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION shall
have the exclusive voting rights with respect to the INSTITUTION as specified in
its charter. The holders of the common stock of the Holding Company (if a
holding company form of organization is utilized) shall have the exclusive
voting rights with respect to the Holding Company.
19. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth (determined in accordance with
generally accepted accounting principles) as set forth in the latest statement
of financial condition contained in the proxy statement. The liquidation account
will be maintained by the INSTITUTION for the benefit of the Eligible Account
Holders who continue to maintain their Deposit Accounts at the INSTITUTION in
the event of a complete liquidation of the Bank following the Conversion. Each
Eligible Account Holder shall, with respect to each Deposit Account, hold a
related inchoate interest in a portion of the liquidation account balance, in
relation to each Deposit Account balance at the Eligibility Record
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Date or to such balance as it may be subsequently reduced, as hereinafter
provided. The initial liquidation account balance shall not be increased, and
shall be subject to downward adjustment to the extent of any downward adjustment
of any subaccount balance of any Eligible Account Holder in accordance with the
Conversion Regulations.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Accounts) each Eligible Account
Holder shall be entitled to receive a liquidating distribution from the
liquidation account, in the amount of the then adjusted subaccount balance for
his Deposit Account then held, before any liquidation distribution may be made
to any holders of the INSTITUTION's capital stock. No merger, consolidation,
purchase of bulk assets with assumption of Deposit Accounts and other
liabilities, or similar transactions with an FDIC-insured institution, in which
the INSTITUTION is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder shall be determined by multiplying the opening balance in the
liquidation account by a fraction, the numerator of which is the amount of such
Eligible Account Holder's Qualifying Deposit and the denominator of which is the
total amount of all Qualifying Deposits of all Eligible Account Holders in the
INSTITUTION. Such initial subaccount balance shall not be increased, but shall
be subject to downward adjustment as described below.
If, at the close of business on the last day of any period for which the
INSTITUTION or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the
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effective date of conversion, the deposit balance in the Deposit Account of an
Eligible Account Holder is less than the lesser of (i) the balance in the
Deposit Account at the close of business on the last day of any period for which
the INSTITUTION or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the Eligibility Record Date, or (ii) the
amount in such Deposit Account as of the Eligibility Record Date, the subaccount
balance for such Deposit Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account. If any such Deposit Account is closed,
the related subaccount shall be reduced to zero. For purposes of this Section
and the Conversion Regulations, a time account shall be deemed to be closed upon
its maturity date regardless of any renewal thereof. A distribution of each
subaccount balance may be made only in the event of a complete liquidation of
the Bank subsequent to the Conversion and only out of funds available for such
purpose after payment of all creditors.
The Bank shall not be required to set aside funds for the purpose of
establishing the liquidation account, and the creation and maintenance of the
liquidation account shall not operate to restrict the use or application of any
of the net worth accounts of the INSTITUTION, except that the INSTITUTION shall
not declare or pay a cash dividend on, or repurchase any of, its capital stock
if the effect thereof would cause its net worth to be reduced below the amount
required for the liquidation account.
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20. TRANSFER OF DEPOSIT ACCOUNTS AND CONTINUITY OF THE INSTITUTION
Upon conversion, each Deposit Account Holder having a Deposit Account at
the INSTITUTION at the time of conversion will continue to have a Deposit
Account, without payment therefor, in the same amount and subject to the same
terms and conditions (except for voting and liquidation rights) as in effect
prior to the conversion.
After conversion, the INSTITUTION will succeed to all the rights, powers,
franchises, debts, liabilities, interests, duties and obligations of the
INSTITUTION before conversion, including but not limited to all rights and
interests of the INSTITUTION in and to its assets and properties, whether real,
personal or mixed. All of the insured deposits of the INSTITUTION will continue
to be insured by the FDIC to the extent provided by applicable law.
21. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with Conversion Regulations, except with the prior
approval of the Superintendent, no Person or group of Persons acting in concert,
other than the Holding Company (if a holding company form of organization is
utilized), for a period of one year following the Effective Date of the
Conversion, shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
INSTITUTION.
B. 1. The restated organization certificate of the converted INSTITUTION
contains a provision stipulating that no Person or group of Persons acting in
concert, except the Holding Company (if a holding company form of organization
is utilized), for a period of three years following the date of conversion shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the INSTITUTION, without the
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prior written approval of the Superintendent. In addition, such Restated
Organization Certificate will also provide that for a period of three years
following conversion shares beneficially owned in violation of the above-
described charter provision shall not be entitled to vote and shall not be voted
by any person or counted as voting stock in connection with any matter submitted
to stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B. 2. The Certificate of Incorporation of the Holding Company, if a holding
company form of organization is utilized, will contain a provision stipulating
that in no event shall any record owner of any outstanding shares of the Holding
Company's common stock who beneficially owns in excess of 10% of such
outstanding shares be entitled or permitted to any vote in respect to any shares
held in excess of 10%. In addition, the Certificate of Incorporation and Bylaws
of the Holding Company contain provisions which provide for staggered terms of
the directors, noncumulative voting for directors, limitations on the calling of
special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 21.B.1:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities of an insured
institution;
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(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security
for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise;
and
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security"
as defined in 15 U.S.C. Section 78c(a)(10).
22. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below the amount required for the Liquidation Account.
Otherwise, the INSTITUTION may declare dividends or make capital distributions
in accordance with applicable law and regulations.
23. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Eligible Account Holders to vote
on the Plan by the INSTITUTION's Board of Trustees, and at any time thereafter
by such vote of such Board of Trustees with the concurrence of the
Superintendent and FDIC. Amendment of the Plan may be necessary as a result of
comments from the Superintendent and FDIC. Any amendment to the Plan made after
approval by the Eligible Account Holders with the approval of the Superintendent
and FDIC shall not necessitate further approval by the Eligible Account Holders
unless otherwise required by the Superintendent and FDIC. The Plan may be
terminated by majority vote of the INSTITUTION's
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Board of Trustees at any time prior to the Special Meeting to vote on this Plan,
and at any time thereafter with the concurrence of the Superintendent and FDIC.
By adoption of the Plan, the Eligible Account Holders of the INSTITUTION
authorize the Board of Trustees to amend or terminate the Plan under the
circumstances set forth in this Section.
24. ORGANIZATION CERTIFICATE AND BYLAWS
The INSTITUTION shall take all appropriate steps to amend and restate its
Organization Certificate to read in the form of an Organization Certificate for
a New York stock savings bank as specified in the Banking Law and the
regulations of the New York Banking Board and approved by the Board of Trustees
of the INSTITUTION. By their approval of the Plan, the Eligible Account Holders
of the INSTITUTION will thereby approve and adopt such Restated Organization
Certificate. The INSTITUTION shall also take all appropriate steps to adopt
Bylaws legally sufficient for a New York stock savings bank. The name of the
converted INSTITUTION shall be Richmond County Savings Bank.
25. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining an Organization Certificate for a New York stock savings bank for the
INSTITUTION and sale of all Conversion Stock.
26. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
INSTITUTION or the Holding Company, as the case may be, will register the
securities issued in connection with the conversion pursuant to the Securities
Exchange Act of 1934 and will not deregister such securities for a period of at
least three years thereafter, except that the maintenance of registration for
three
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years requirement may be fulfilled by any successor to the INSTITUTION or any
holding company of the INSTITUTION. In addition, the INSTITUTION/Holding Company
will use its best efforts to encourage and assist a market-maker to establish
and maintain a market for the Conversion Stock and to list those securities on a
national or regional securities exchange or the NASDAQ system.
27. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. No Person will be
issued subscription rights or be permitted to purchase shares of Conversion
Stock in the Subscription Offering if such Person resides in a foreign country.
28. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses incurred
by it in connection with the conversion shall be reasonable.
29. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of either rulings of the United
States Internal Revenue Service and the New York State taxing
authorities, or opinions of counsel or independent auditors,
substantially to the effect that the conversion will not result in any
adverse federal or state tax consequences to Eligible Account Holders
or to the INSTITUTION and the Holding Company before or after the
conversion;
(b) The sale of all of the Conversion Stock offered in the conversion; and
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(c) The completion of the conversion within the time period specified in
Section 3 of this Plan.
30. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the
INSTITUTION shall be final, subject to the authority of the Superintendent and
FDIC.
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EXHIBIT I
RESTATED ORGANIZATION CERTIFICATE
OF
RICHMOND COUNTY SAVINGS BANK
UNDER SECTION 8007 OF
THE BANKING LAW
We, Michael F. Manzulli, being the President and Chief Executive Officer,
and Rosemary Colca, being the Secretary, of RICHMOND COUNTY SAVINGS BANK, in
accordance with Section 8007 of the Banking Law of the State of New York, do
hereby certify as follows:
FIRST, the name of the Corporation is RICHMOND COUNTY SAVINGS BANK.
SECOND, the Corporation was created by an Organization Certificate filed
with the Superintendent of Banks of the State of New York in 1886.
THIRD, the text of the Organization Certificate of RICHMOND COUNTY SAVINGS
BANK is hereby amended and changed in its entirety to read as follows:
Section 1. Corporate Title.
The full corporate title of the institution is RICHMOND COUNTY SAVINGS BANK
("SAVINGS BANK").
Section 2. Office.
The principal office shall be located in Staten Island, New York.
Section 3. Duration.
The duration of the SAVINGS BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the SAVINGS BANK is to pursue any or all of the lawful
objectives of a New York chartered capital stock savings bank and to exercise
all the express, implied, and incidental powers conferred thereby and by all
acts amendatory thereof and supplemental thereto, subject to the Constitution
and laws of New York and the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Superintendent of Banks of the State of New York
(the "Superintendent"), New York State Banking Board ("NYBB") and the New York
State Banking Department ("NYBD").
<PAGE>
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which the
SAVINGS BANK has authority to issue is eighty million (80,000,000), of which
seventy-five million (75,000,000) shall be common stock, par value $.01 per
share and of which five million (5,000,000) shall be preferred stock, par value
$.01 per share. The shares may be issued from time to time as authorized by the
Board of Directors without further approval of shareholders except as otherwise
provided in this Section 5 or to the extent that such approval is required by
governing law, rule, or regulation. The consideration for the issuance of the
shares shall be paid in full before their issuance and shall not be less than
the par value. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the SAVINGS BANK. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted), labor or
services actually performed for the SAVINGS BANK, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the Board of Directors of the
SAVINGS BANK, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the SAVINGS BANK which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the SAVINGS
BANK from the mutual to the stock form of capitalization, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the SAVINGS BANK other than as part of a general public
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, provided,
---------
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the Board of
Directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the SAVINGS BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
SAVINGS BANK if the preferred stock is exchanged for securities of
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such other corporation; provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the NYBD or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving institution in a merger or consolidation
for the SAVINGS BANK, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the SAVINGS
BANK's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
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supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder. Shareholders shall not be entitled to cumulate their votes
for election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
SAVINGS BANK, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock
in the distribution of assets) shall be entitled to receive, in cash
or in kind, the assets of the SAVINGS BANK available for distribution
remaining after: (i) payment or provision for payment of the SAVINGS
BANK's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class
or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the SAVINGS BANK. Each
share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. Preferred Stock. The SAVINGS BANK may provide in supplementary
----------------
sections to this Restated Organization Certificate for one or more
classes of preferred stock, which shall be separately identified. The
shares of any class may be divided into and
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issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the Restated Organization Certificate. All
shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations
between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the SAVINGS BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the SAVINGS BANK and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the
other shares of the same series.
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The Board of Directors shall have authority to divide, by the adoption
of supplementary Restated Organization Certificate sections, any
authorized class of preferred stock into series, and, within the
limitations set forth in this section and the remainder of this
Restated Organization Certificate, fix and determine the relative
rights and preferences of the shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary Restated Organization Certificate section adopted
by the Board of Directors, the SAVINGS BANK shall file with the
Superintendent a dated copy of that supplementary section of this
Restated Organization Certificate establishing and designating the
series and fixing and determining the relative rights and preferences
thereof.
Section 6. Preemptive Rights.
Holders of the capital stock of the SAVINGS BANK shall not be entitled to
preemptive rights with respect to any shares of the SAVINGS BANK which may be
issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the NYBB's regulations, the SAVINGS BANK
shall establish and maintain a liquidation account for the benefit of its
deposit account holders as of June 30, 1996 ("eligible depositors"). In the
event of a complete liquidation of the SAVINGS BANK, it shall comply with such
regulations with respect to the amount and the priorities on liquidation of each
of the SAVINGS BANK's eligible depositor's inchoate interest in the liquidation
account, to the extent it is still in existence; provided, that an eligible
depositor's inchoate interest in the liquidation account shall not entitle such
eligible depositor to any voting rights at meetings of the SAVINGS BANK's
shareholders.
Section 8. Certain Provisions Applicable for Three Years.
Notwithstanding anything contained in the SAVINGS BANK's Restated
Organization Certificate or bylaws to the contrary, for a period of three years
from the date of consummation of the conversion of the SAVINGS BANK from mutual
to stock form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
--------------------------------
indirectly acquire the beneficial ownership of more than 10 percent of
any class of any equity security of the SAVINGS BANK. This limitation
shall not apply to a transaction in which the SAVINGS BANK forms a
holding company in conjunction with conversion, or thereafter, if such
formation is without change in the respective beneficial ownership
interests of the SAVINGS BANK's shareholders other than pursuant to
the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in
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connection with a public offering, or the purchase of shares by a tax-
qualified employee stock benefit plan.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting
shares in connection with any matters submitted to the shareholders
for a vote; provided, however a person shall not be deemed to be the
beneficial owner of shares represented by proxies held by such person
unless such shares are otherwise deemed beneficially owned by such
person.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a firm, a group acting
in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, any
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the SAVINGS BANK or any
other entity.
(ii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iii) The term "acting in concert" means (a) knowing participation in
a joint activity or conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
Section 9. Call for Special Meetings.
Special meetings of the shareholders for any purpose or purposes, unless
otherwise prescribed by the New York Banking Law or regulations of the NYBB or
NYBD, may be called at any time by the Chairman of the Board of Directors or the
majority of the Whole Board of Directors (the term "Whole Board of Directors"
shall mean the number of authorized directorships, whether or not there exists
any vacancies in any previously authorized directorships).
Section 10. Directors.
The SAVINGS BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the SAVINGS BANK's bylaws, shall
not be less than seven nor more than 30 except when a greater number is approved
by the Superintendent or his delegatees.
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Each of the following persons shall be a director of the SAVINGS BANK upon
the effectiveness of this Restated Organization Certificate, for the terms
indicated or until his successor is elected and qualified, and they shall
constitute the initial Board of Directors of the SAVINGS BANK:
Class I with terms to expire at the first annual meeting of stockholders:
James L. Kelley
T. Ronald Quinlan, Jr.
Class II with terms to expire at the annual meeting of stockholders one
year thereafter:
William C. Frederick
Maurice K. Shaw
Class III with terms to expire at the annual meeting two years thereafter:
Godfrey H. Carstens, Jr.
Robert S. Farrell
Michael F. Manzulli
Section 11. Amendment of Restated Organization Certificate.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this Restated Organization Certificate shall be made,
unless such is first proposed by a majority of the Whole Board of Directors of
the SAVINGS BANK, then preliminarily approved by the Superintendent, which
preliminary approval may be granted by the Superintendent pursuant to
regulations specifying preapproved organization certificate amendments, and
thereafter approved by the affirmative vote of the holders of at least 80
percent of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change or repeal so acted upon shall be
effective upon filing with the Superintendent in accordance with the regulatory
procedures.
Section 12. Amendment of Bylaws.
No amendment, addition, alteration, change or repeal of the Bylaws of the
SAVINGS BANK shall be made, unless made in a manner consistent with New York
Banking Law and the Regulations of the NYBB and NYBD and approved by a majority
of the Whole Board of Directors or by the affirmative vote of at least 80% of
the votes eligible to be cast by the shareholders of the SAVINGS BANK at any
legal meeting.
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Section 13. Indemnification
(a) Scope of Indemnification. Except to the extent expressly prohibited
------------------------------
by the New York Banking Law, the SAVINGS BANK shall indemnify each person made,
or threatened to be made, a party to any action or proceeding, whether criminal
or civil, by reason of the fact that such person or such person's testator or
intestate is or was a director or officer of the SAVINGS BANK, or is or was
serving, in any capacity, at the request of the SAVINGS BANK, any other
corporation, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, including attorneys' fees and expenses,
reasonably incurred in enforcing such person's right to indemnification,
incurred in connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment or other final
adjudication adverse to such persons establishes that such person's acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that such person
personally gained in fact a financial profit or other advantage to which such
person was not legally entitled, and provided that no such indemnification shall
be required with respect to any settlement or other nonadjudicated disposition
of any threatened or pending action or proceeding unless the SAVINGS BANK has
given its prior consent to such settlement or other disposition.
(b) Reimbursement of Expenses. The SAVINGS BANK shall advance or promptly
------------------------------
reimburse upon request any person entitled to indemnification hereunder for all
reasonable expenses, including attorneys' fees and expenses, reasonably
incurred in defending any action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
person to repay such amount if such person is ultimately found not to be
entitled to indemnification or, where indemnification is granted, to the extent
the expenses so advanced or reimbursed exceed the amount to which such person
is entitled; provided, however, that such person shall cooperate in good faith
with any request by the SAVINGS BANK that common counsel be used by the parties
to any action or proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interest between or among
parties.
(c) Additional Rights. Nothing herein shall limit or affect any right of
----------------------
any director, officer, or other corporate personnel otherwise than hereunder to
indemnification or expenses, including attorneys' fees and expenses, under any
statute, rule, regulation, certificate of incorporation, Bylaws, insurance
policy, contract, or otherwise; without affecting or limiting the rights of any
director, officer or other corporate personnel pursuant to this Section 13, the
SAVINGS BANK is authorized to enter into agreements with any of its directors,
officers or other corporate personnel extending rights to indemnification and
advancement of expenses to the fullest extent permitted by applicable law.
(d) Notice of Amendments or Elimination. Anything in this Restated
----------------------------------------
Organization Certificate to the contrary notwithstanding, no elimination or
amendment of this Section 13 adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no elimination
of or amendment to this Section 13 shall deprive any such person's rights
hereunder arising out of alleged or actual occurrences, act or failures to act
prior to such 60th day.
8
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Any amendments or eliminations made pursuant to this Section 13 are only
effective with regard to acts occurring after such date.
(e) Amendment or Elimination. The SAVINGS BANK shall not, except by
-----------------------------
elimination or amendment of this Section 13 in a manner consistent with the
preceding subsection (d), take any corporate action or enter into any agreement
which prohibits, or otherwise limits the rights of any person to,
indemnification in accordance with the provisions of this Section 13. The
indemnification of any person provided by this Section 13 shall continue after
such person has ceased to be a director or officer of the SAVINGS BANK and
shall inure to the benefit of such person's heirs, executors, administrators
and legal representatives.
(f) Severability of Provisions. In case any provision in this Section 13
-------------------------------
shall be determined at any time to be unenforceable in any respect, the other
provisions of this Section 13 shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest possible
enforcement in the circumstances, it being the intention of the SAVINGS BANK to
afford indemnification and advancement of expenses to its directors or
officers, acting in such capacities or in the other capacities mentioned
herein, to the fullest extent permitted by law.
As approved by a majority of the Board of Directors of the SAVINGS BANK on
July 31, 1997 and approved by 75% of the deposit liabilities of eligible
depositors of the SAVINGS BANK present in person or by proxy at a meeting of
eligible depositors held on _________ __ 1997, to be effective on the date
filed by the Superintendent of Banks of the State of New York in his office.
- - - -------------------------------------- --------------------------------
Michael F. Manzulli Rosemary Colca
President and Chief Executive Officer Secretary
9
<PAGE>
EXHIBIT II
BYLAWS OF
RICHMOND COUNTY SAVINGS BANK
ARTICLE I. PRINCIPAL OFFICE
The principal office of Richmond County Savings Bank ("SAVINGS BANK") is
1214 Castleton Avenue, Staten Island, Richmond County, New York.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
------------------------------
shareholders shall be held at the principal office of the SAVINGS BANK or at
such other place in the State in which the principal place of business of the
SAVINGS BANK is located as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the SAVINGS
--------------------------
BANK for the election of Directors and for the transaction of any other business
of the SAVINGS BANK shall be held annually within 120 days after the end of each
calendar year.
Section 3. Special Meetings. Special meetings of the shareholders for
----------------------------
any purpose or purposes, unless otherwise prescribed by the New York Banking Law
and the regulations of the New York Banking Board ("NYBB") or New York State
Banking Department ("NYBD"), may be called at any time by the Chairman of the
Board of Directors (as set forth in Article V, Section 7, hereinafter referred
to as the "Chairman of the Board") or by a majority of the Whole Board of
Directors. The term "Whole Board of Directors" shall mean the number of
authorized directorships, whether or not there exists any vacancies in any
previously authorized directorships.
Section 4. Conduct of Meetings. The Chairman of the Board shall preside
-------------------------------
at all meetings and in his absence, a person designated by a majority of the
Board shall preside at all meetings. The chairman of any meeting of stockholders
shall determine the order of business and the procedures at the meeting,
including such regulations of the manner of voting and the conduct of discussion
as seem to him in order.
Section 5. Notice of Meetings. Written notice stating the place, day and
------------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the secretary, or the Board of Directors calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the SAVINGS BANK as of the record date prescribed in Section
<PAGE>
6 of this Article II, with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
----------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any other proper
purpose, the Board of Directors shall fix in advance a date as the record date
for any such determination of shareholders. Such date in any case shall be not
more than 50 days and, in case of a meeting of shareholders, not fewer than 10
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
-------------------------
shareholders, the officer or agent having charge of the stock transfer books
for shares of the SAVINGS BANK shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the principal office of the SAVINGS BANK.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection by any shareholder during the
entire time of the meeting. The original stock transfer book shall constitute
prima facie evidence of the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the SAVINGS
-------------------
BANK entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than a
quorum. If less than a majority of the outstanding shares is represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
existence of a quorum at any meeting, or the existence of a duly organized
meeting at which enough shareholders have withdrawn from such meeting to
constitute less than a quorum, however, shall not serve to amend, alter or
modify any provisions in the SAVINGS BANK'S Restated Organization Certificate
or these Bylaws which require the vote of more than a majority of the
outstanding shares entitled to vote at a duly organized meeting.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
--------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such
2
<PAGE>
direction, as determined by a majority of the Whole Board of Directors. No proxy
shall be valid more than eleven months from the date of its execution except for
a proxy coupled with an interest.
Section l0. Voting of Shares in the Name of Two or More Persons. When
-----------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the SAVINGS BANK to the contrary, at any meeting of the
shareholders of the SAVINGS BANK any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section ll. Voting of Shares by Certain Holders. Shares standing in the
------------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name, if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the SAVINGS BANK, nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
SAVINGS BANK, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders shall not be entitled to
-------------------------------
cumulate their votes for election of directors.
Section l3. Inspectors of Election. In advance of any meeting of
------------------------------------
shareholders, the Board of Directors may appoint any persons other than
nominees for office as inspectors of election to act at such meeting or any
adjournment. The number of inspectors shall be either one or three. Any such
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the Chairman of the Board may, or on the request of a
shareholder present at the meeting shall, make such appointment at the meeting.
If appointed at the meeting, the Chairman of the Board shall determine whether
there shall be one or three inspectors of election. If appointed at the
meeting and
3
<PAGE>
the Chairman of the Board fails to determine whether there shall be one or three
inspectors of election, the majority of the votes present shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the Chairman of the Board.
Unless otherwise prescribed by regulations of the NYBB or NYBD, the
duties of such inspectors shall include: determining the number of shares
outstanding and the voting power of each share, the number of shares represented
at the meeting, the existence of a quorum, and the authenticity, validity and
effect of proxies; receiving votes, ballots, or consents; hearing and
determining all challenges and questions in any way arising in connection with
the rights to vote; counting and tabulating all votes or consents; determining
the result; and such acts as may be proper to conduct the election or vote with
fairness to all shareholders.
Section 14. Nominating Committee. The Chairman of the Board, at least 30
---------------------------------
days prior to the date of each annual meeting, shall appoint a nominating
committee of three persons. Such committee shall make nominations for directors
in writing, and deliver to the secretary such written nominations at least 15
days prior to the date of the annual meeting, which nominations shall forthwith
be posted in a prominent place in the home office for the 15 day period prior to
the date of the annual meeting. Provided such committee is appointed and makes
such nominations, no nominations for directors except those made by the
nominating committee shall be voted upon at the annual meeting unless other
nominations by shareholders are made in writing and delivered to the secretary
of the SAVINGS BANK at least 5 days prior to the date of the annual meeting,
which nominations shall forthwith be posted in a prominent place in the home
office of the SAVINGS BANK for the 5 days period prior to the date of the annual
meeting. Ballots bearing the names of all persons nominated by the nominating
committee and shareholders shall be provided for use at the annual meeting.
However, if at any time the Chairman of the Board shall fail to appoint such
nominating committee or the nominating committee shall fail or refuse to act at
least 15 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
-------------------------
meeting shall be stated in writing and filed with BANK at least 45 days before
the date of the annual meeting, and all business so stated, proposed, and filed
shall be considered at the annual meeting, but no other proposal shall be acted
upon at the annual meeting. Any shareholder may make any other proposal at the
annual meeting and the same may be discussed and considered, but unless stated
in writing and filed with the secretary at least 45 days before the meeting,
such proposal shall be laid over for action at an adjourned, special, or annual
meeting of the shareholders taking place 30 days or more thereafter. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors and committees; but in
connection with such reports no new business shall be acted upon at such annual
meeting unless stated and filed as herein provided.
4
<PAGE>
Section l6. Informal Action by Shareholders. Any action required to be
---------------------------------------------
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the SAVINGS BANK
--------------------------
shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman from among its members who shall preside at its
regular and special meetings. In the absence or inability of the foregoing
officer to act, at any fully constituted meeting of the Board members, a
temporary chairperson shall be appointed by those present to act as such during
the interim term.
Section 2. Number and Term. The Board of Directors shall consist of
---------------------------
seven (7) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
----------------------------
shall be held once each month without other notice than this bylaw. At least one
meeting shall be held immediately after and at the same place as, the annual
meeting of shareholders, which shall be the annual meeting of the Board. The
Board of Directors may provide, by resolution, the time and place, within the
SAVINGS BANK's normal lending territory, for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
--------------------------
beneficial owner of not less than 100 shares of capital stock of the SAVINGS
BANK unless the SAVINGS BANK is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. The Chairman of the Board, or in the
----------------------------
absence or disability of the Chairman of the Board, an Executive Vice President
may call special meetings of the Board, and the Secretary of the Board shall
call a meeting upon the written request of five (5) or more of the members of
the Board of Directors. A special meeting may be held at such time and place as
shall be stated in the notice of meeting.
Section 6. Participation in Meetings by Directors. Members of the Board
--------------------------------------------------
of Directors, or any committee thereof, may participate in a meeting of such
Board or Committee by means of conference telephone, or by means of similar
communications equipment by means of which all persons participating in the
meeting can speak and hear each other at the same time and such participation
shall constitute presence in person at such meeting.
5
<PAGE>
Section 7. Notice. Written notice of any special meeting shall be given
------------------
to each director at least three (3) days prior thereto when delivered personally
or by telephone or telegram, or at least five days prior thereto when delivered
by mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the mail so addressed,
with postage prepaid if mailed, or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. The business to be
transacted at, and the purpose of, any special meeting of the Board of Directors
must be specified in the notice of such meeting and no other business shall be
transacted at that time.
Section 8. Quorum. A majority of the number of directors fixed by
------------------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 7 of this Article III.
Section 9. Manner of Acting. The act of the majority of the directors
-----------------------------
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by the New York Banking Law
or regulations of the NYBB and NYBD, the Restated Organization Certificate or
by these Bylaws.
Section 10. Action Without a Meeting. Any action required or permitted
-------------------------------------
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 11. Resignation. Any director may resign at any time by sending
------------------------
a written notice of such resignation to the home office of the SAVINGS BANK
addressed to the Chairman of the Board. Unless otherwise specified, such
resignation shall take effect upon receipt by the Chairman of the Board. The
absence from regular meetings of the Board of Directors and the meetings of any
committee of the Board of which the director is a member, for six consecutive
months, unless excused by resolution of the Board of Directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the Board of Directors.
Section 12. Vacancies. All vacancies in the office of Director,
----------------------
including newly created Directorships resulting from an increase in the number
of Directors, shall be filled by election of stockholders, except that vacancies
not exceeding one-third of the entire Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, although less than a
quorum of the Board of Directors, provided that the nomination of a candidate
therefor shall have been made by the Nominating Committee, created as
hereinafter provided in these Bylaws. A director elected to fill a vacancy shall
be elected to serve for the balance of the unexpired term and a Director elected
6
<PAGE>
to fill a vacancy to be filled by reason of an increase in the number of
directors shall be elected to serve for the balance of the unexpired term of the
class to which such director is elected.
Section l3. Compensation. Directors, as such, may receive compensation
-------------------------
for their services, including a stated retainer. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
the Board of Directors. Members of either standing, special or temporary
committees, as such, may receive compensation for their services, including a
stated retainer, as the Board of Directors may determine. By resolution of the
Board of Directors, a reasonable fixed sum, and reasonable expenses of
attendance, if any, may be allowed for actual attendance at each regular or
special meeting of committees.
Section 14. Presumption of Assent. A director of the SAVINGS BANK who is
----------------------------------
present at a meeting of the Board of Directors at which action on any SAVINGS
BANK matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the SAVINGS BANK within five
days after the date a copy of the minutes of the meeting is received. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 15. Removal of Directors. At a meeting of shareholders called
----------------------------------
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the Restated Organization
Certificate or supplemental sections thereto, the provisions of this section
shall apply, in respect to the removal of a director or directors so elected,
to the vote of the holders of the outstanding shares of that class and not to
the vote of the outstanding shares as a whole.
Section 16. Emergency Authority. In the event there shall occur an acute
--------------------------------
emergency resulting from a hostile attack, as defined in Article 7 of the New
York State Defense Emergency Act, which shall be of such severity as to prevent
the conduct and management of the affairs and business of the SAVINGS BANK by
its Directors and officers as otherwise provided in these Bylaws, any three or
more available members of the then incumbent Executive Committee shall
constitute an emergency Board of Directors which shall have the power, subject
to limitations prescribed in Article 7 of the New York State Defense Emergency
Act, by a majority of such persons present, to take any and every action which
may be necessary to meet the exigencies of the acute emergency and to enable the
SAVINGS BANK to conduct its business during such period, including the
relocation elsewhere of any office of the SAVINGS BANK which shall be unable to
function because of the acute emergency. If during the period of acute emergency
there shall be no Executive Committee, or a minimum of three members of the then
incumbent Executive Committee shall not be available, then and in that event
such other available Directors as may be needed to obtain the minimum of three
members shall serve on the emergency Board of Directors.
7
<PAGE>
During a period of acute emergency resulting from a hostile attack, the
emergency management of the SAVINGS BANK shall be in accordance with the powers
and limitations contained in the existing provisions of Article 7 of the New
York State Defense Emergency Act, and such provisions shall suspend or modify
these Bylaws to the extent of any conflict.
ARTICLE IV. COMMITTEES
Section 1. Enumeration of Committees. The standing committees of the
-------------------------------------
Board of Directors shall be an Executive Committee, an Audit Committee, and a
Nominating Committee. The Board of Directors, by vote of a majority of the whole
Board of Directors, may from time to time designate additional committees of the
Board, either temporary or permanent, with such lawfully delegable powers and
duties as it thereby confers not inconsistent with these Bylaws, to serve at the
pleasure of a majority of the Whole Board and shall, for these committees and
any others provided for herein, elect a Director or Directors to serve as the
member or members, designating, if it desires, other Directors as alternate
members ("Alternate Directors") who may replace any absent or disqualified
member at any meeting of the committee; provided however, that the Chairman
shall be a member of, and shall serve as the chairman of the Executive Committee
and he shall be an ex-officio member of all other committees, except the Audit
Committee and any other committee on which he is prohibited from being a member,
by law, the Restated Organization Certificate or these Bylaws. The Board of
Directors, by a resolution adopted by a majority of the Whole Board may
terminate any committee previously established.
Section 2. The Executive Committee. The Executive Committee shall
-----------------------------------
consist of the Chairman of the Board and four additional Directors elected
annually by the vote of the majority of the Whole Board.
If any member of the Executive Committee shall be absent from any
meeting of the committee, the Chairman shall designate some other Director,
other than one serving as a salaried officer, to act as a member of the
committee at that meeting. In the event there shall be a vacancy in the office
of Chairman, then and in that event such other additional Director or Directors
as may be needed to obtain the full complement of five members shall be elected
by the Board to serve until the vacancy is filled, or until the next annual
meeting. Any member of the executive committee may be removed at any time with
or without cause by resolution adopted by a majority of the Whole Board of
Directors.
Regular meetings of the Executive Committee may be held without notice
at such times and places as the Executive Committee may fix from time to time by
resolution. Special meetings of the committee may be called by the Chairman or
at any time by any two members of the committee, upon twenty-four hours' notice
by mail, in person, or by telegraph or telephone. The notice of a special
meeting of the committee, however given, shall state the time when and the
place, which shall be within the State of New York, where the meeting is to be
held and the business which is to be presented and no business other than that
stated in the notice shall be transacted at said meeting.
8
<PAGE>
The Executive Committee may make rules for the regulation of its meetings and
proceedings not inconsistent with these Bylaws.
Four members of the committee, including designees designated to act for
an absent member or members of the committee, shall be necessary for a quorum at
any meeting of the committee. Attendance by Alternate Directors shall constitute
membership on the Committee for determining quorum requirements. Action of the
executive committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present. Any action
required or permitted to be taken by the executive committee at a meeting may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the members of the executive committee.
Except as otherwise provided herein, the Executive Committee, when the
Board of Directors is not in session, shall have and may exercise all of the
authority of the Board of Directors, except to the extent, if any, that such
authority may be limited by resolution adopted by a majority of the Whole Board
of Directors or by the laws of the State of New York. In addition, the Executive
Committee shall not have the authority of the Board of Directors with reference
to: the submission to stockholders of any action that requires stockholders'
authorization under New York law or regulations; the filling of vacancies in the
Board of Directors or in any committee of the Board of Directors; the fixing of
compensation of the Directors for serving on the Board or any committee thereof;
the amendment or repeal of any resolution of the Board of Directors which by its
terms shall not be so amendable or repealable; the taking of any action which is
expressly required by New York law or regulation to be taken at a meeting of the
Board of Directors or by a specified proportion of Directors; the amendment or
repeal of the Restated Organization Certificate or Bylaws of the SAVINGS BANK or
adoption of new Bylaws of the SAVINGS BANK, or recommending to the shareholders
a plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
SAVINGS BANK otherwise than in the usual and regular course of its business; a
voluntary dissolution of the SAVINGS BANK; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. The Nominating Committee. The Board of Directors, by
-------------------------------------
resolution adopted by a majority of the Whole Board, shall appoint a Nominating
Committee of the Board, consisting of not less than three Board of Directors,
one of whom shall be the Chairman of the Nominating Committee shall have
authority (a) to review any nominations for election to the Board of Directors
made by a stockholder of the SAVINGS BANK and (b) to recommend to the Whole
Board nominees for election to the Board of Directors (i) to replace those
Directors whose terms expire at the annual meeting of stockholders next ensuing
and (ii) to fill vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, or resulting from an
increase in the authorized number of Directors.
Section 4. The Audit Committee. The Audit Committee shall consist of
-------------------------------
four or more Directors, none of whom shall be a salaried officer of the SAVINGS
BANK, who shall be elected
9
<PAGE>
to said Committee at the annual meeting of the Board of Directors, or in the
case of the filling of a vacancy (such vacancy, in every case to be filled by an
existing non-salaried Director) at any regular or special meeting of the Board.
The Audit Committee shall assist the Board of Directors in fulfilling its
obligation to oversee the appropriateness of accounting policies, and SAVINGS
BANK procedures and controls and shall be charged with the duty of carrying out
the requirements of Section 254 of the New York Banking Law as the same now is
in force or as it may be amended or of any law substituted therefor. In
performing its functions, the Audit Committee shall utilize the expertise of the
SAVINGS BANK's internal Auditing Department under the direction of the SAVINGS
BANK's internal Auditor. The Audit Committee shall hold formal meetings with the
SAVINGS BANK's internal auditors on a quarterly basis.
ARTICLE V. OFFICERS
Section l. Positions. The Board shall elect a Chairman of the Board, who
---------------------
shall be the Chief Executive Officer and President, and who shall be a member of
the Board of Directors. The Board shall also elect one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, and
a Secretary, who need not be members of the Board. The offices of Secretary and,
if appointed, Treasurer, may be held by the same person and a Vice President may
also be either a Secretary or a Treasurer. Any offices may be held concurrently
by the same person, except that the Chairman shall hold no additional office
other than as provided in this Section 1. The Board of Directors shall also
appoint the Auditor, who may not hold another office.
The Chairman and the Executive Vice Presidents shall be the Executive
Officers of the SAVINGS BANK.
Section 2. Election and Term of Office. The officers of the SAVINGS BANK
---------------------------------------
shall be elected annually at the annual meeting of the Board of Directors or at
the first meeting of the Board of Directors held after each annual meeting of
the shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until a successor has been duly elected and qualified or until the
officer's death, resignation, retirement or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The Board of Directors may authorize the
SAVINGS BANK to enter into an employment contract with any officer; but no such
contract shall impair the right of the Board of Directors to remove any officer
at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board of Directors
-------------------
whenever in its judgment the best interests of the SAVINGS BANK will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
10
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Section 4. Vacancies. A vacancy in any executive officer position
---------------------
because of death, resignation, removal, disqualification or otherwise, may be
filled by the Board of Directors for the unexpired portion of the term. Any
vacancy in any officer position other than a executive officer position may be
filled by the Chief Executive Officer for the unexpired portion of the term,
provided such action by the Chief Executive Officer is ratified by the Board of
Directors.
Section 5. Delegation of Duties. In the absence or disability of an
--------------------------------
officer of the SAVINGS BANK, or for any other reason which may seem sufficient
to the Board, the Board of Directors may delegate his powers and duties to any
other officer or to any Director.
Section 6. Remuneration. The remuneration of the officers shall be fixed
------------------------
from time to time by the Board of Directors. The employees of the SAVINGS BANK
shall receive such compensation and allowances as the Board of Directors may
from time to time fix or approve or, within limits or schedules from time to
time fixed or established by the Board as may be determined by the Executive
Committee, the Chairman or a committee of the Board appointed for that purpose.
Section 7. Chairman of the Board of Directors, Chief Executive Officer
----------------------------------------------------------------------
and President. The Chairman of the Board shall be the Chief Executive Officer
- - - --------------
and President of the SAVINGS BANK and, subject to the provisions of these Bylaws
and the resolutions of the Board, shall have the active management, direction
and supervision of the SAVINGS BANK and its officers, its operations, securities
and obligations, and shall have all powers and perform all duties incidental of
his office. He shall preside at all meetings of the Board and the Executive
Committee, appoint all committees not otherwise provided for by law, by these
Bylaws or by action of the Board of Directors and shall be an ex-officio member
of all other committees, except the Audit Committee and committees on which he
is ineligible to serve by law, the Restated Organization Certificate or these
Bylaws. He may perform, or cause to be performed, at any time, any of the
functions or duties of any other officer. He may assign to all other officers,
employees and agents of the SAVINGS BANK, duties in addition to those
specifically described in these Bylaws.
He shall have custody of the common seal and direct the use of it. He
shall have power to sign and execute any and all contracts, papers and legal
documents. He may delegate to counsel and such other officers as are designated
by the Board of Directors, the authority, under the seal of the SAVINGS BANK, to
execute and acknowledge, in the name and on behalf of the SAVINGS BANK, all
contracts, papers and documents incident or related to the business of the
SAVINGS BANK, except where otherwise directed by law or by these Bylaws.
Unless otherwise provided by resolution of the Board of Directors or
these Bylaws, he may fill vacancies on committees and may appoint such other
committees as he may deem necessary or the Board may require. He shall perform
such other duties as the Board of Directors may direct.
The decisions of the Chairman of the Board on any matter, incident to
the business of the SAVINGS BANK, shall be conclusive unless modified by the
Board of Directors.
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Section 8. Executive Vice Presidents. The Executive Vice Presidents
-------------------------------------
shall perform such administrative and executive duties as are provided in these
Bylaws, and as may be properly required of them or delegated to them by the
Chairman, or as may from time to time be required by the Board of Directors, and
shall exercise such powers as may from time to time be conferred upon them by
the Board.
In the absence or disability of the Chairman, the Board of Directors may
designate an Executive Vice President to perform the duties and exercise the
powers of such officers.
Section 9. Secretary. The Secretary shall give due notice as in these
---------------------
Bylaws provided of all meetings of the Board of Directors and of the Executive
Committee. He shall attend all meetings of the Board and of said Committee and
shall keep the minutes thereof. If requested so to do he shall attend and keep
the minutes of the meetings of any and all other committees of the Board. He
shall have custody of the corporate records of the SAVINGS BANK and its common
seal; and when properly affixed to any document shall attest said seal. He shall
perform all of the usual duties of the Secretary of a corporation, together with
such duties as may from time to time be properly assigned to him by the Chairman
or the Board of Directors.
Section 10. Senior Vice Presidents and Vice Presidents. The Senior Vice
-------------------------------------------------------
Presidents and the Vice Presidents shall severally perform such duties and shall
exercise such powers as may from time to time be assigned to or conferred upon
them by the Board of Directors, and they shall perform such other duties as may
be assigned to them by the Chairman.
Section 11. Auditor. The Auditor shall, subject to the control and
--------------------
direction of the Board of Directors, have supervision and control of such
program of internal audit as may be approved by the Board or be required by a
body having supervisory or examining authority over the SAVINGS BANK; said
program shall in any case, require periodic review and verification of the
assets of the SAVINGS BANK, the control of items of income and the review of
expenditures. He shall also examine, or cause to be examined, and verify, or
cause to be verified, entries in financial records and shall review, or cause to
be reviewed all reports made to examining, supervisory and taxing authorities
before they are forwarded or filed. The Auditor shall report in writing upon the
foregoing matters to the Chairman at least as often as once in each quarter. The
Auditor also shall transmit directly to the Audit Committee of the Board of
Directors such reports, quarterly or otherwise, as may be necessary for that
Committee to perform its functions. The Auditor shall also prepare or have
prepared and shall submit any and all additional reports required of him at any
time by the Board of Directors or the Chairman.
Section 12. Other Officers. The Chairman of the Board or the Board of
---------------------------
Directors, upon recommendation of the Chairman of the Board, may in their
discretion, from time to time, establish such other offices as it may deem wise
and may elect incumbents thereof and fix their duties and powers not
inconsistent with the provisions of these Bylaws. Such officers, unless the
Board shall by resolution duly adopted otherwise provide, shall hold office
during the pleasure of the Board and the Chairman.
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<PAGE>
ARTICLE VI. SECURITIES AND INVESTMENTS
Section 1. Loans and Investments. The Board of Directors shall from time
---------------------------------
to time determine and direct to what extent the funds and property of the
SAVINGS BANK shall be invested, and, subject to all applicable provisions of
law, the kind and character of the investments which are to be made and how the
same shall be handled and dealt with. No loans shall be contracted on behalf of
the SAVINGS BANK and no evidence of indebtedness shall be issued in its name
unless authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
Section 2. Care and Custody of Securities. All stocks, bonds and other
-------------------------------------------
securities, including bonds and mortgages, not directed by the Board of
Directors to be held in bearer form, or in the name of a nominee, shall be in
the name of the SAVINGS BANK and, to the extent that the form of the several
securities may permit or as may be permitted or required by law, shall be
registered or recorded in the name of the Bank. All securities including bonds
and mortgages held by the SAVINGS BANK shall be kept in such manner and at such
places as the Board of Directors, having due regard for the safety and
protection thereof, may direct, and all or any part thereof may be lodged or
deposited for safekeeping with such other institutions as the Board may from
time to time approve.
Section 3. Transfers of Securities, Etc. Transfers and assignments of
----------------------------------------
stocks, bonds and other securities standing, issued or registered in the name of
the SAVINGS BANK may be signed by any two of the following officers acting by
virtue of their several offices, to wit: the Chairman, the President, an
Executive Vice President, the Secretary, or may be signed by any one of said
officers together with such other officer or officers, or person or persons, as
the Board of Directors may from time to time authorize or designate.
The Chairman or the President, or in their absence an Executive Vice
President (other than one serving as Mortgage Loan Officer) or the Secretary,
shall execute any and all instruments for the proper transaction of the
business of the SAVINGS BANK relating to its mortgage investments, including
extensions, modifications, alterations, and amendments, assignments and
satisfaction pieces. The Board of Directors may, nevertheless, at any time
authorize and empower other additional officers or employees to do any one or
more of these things.
ARTICLE VII. DEPOSITORIES, CHECKS AND DRAFTS
Section 1. Depositaries and Withdrawals. The Board of Directors may from
----------------------------------------
time to time designate banks, trust companies or similar institutions to be
depositaries of funds of the SAVINGS BANK and may by resolution designate the
officer or officers, or employee or employees, who shall be authorized to sign
the checks, drafts, vouchers or orders of the SAVINGS BANK upon which such
depositaries shall be authorized to pay out the moneys so deposited. Unless and
until the Board shall otherwise provide, such checks, drafts, vouchers or orders
for the payment of deposited funds
13
<PAGE>
shall be signed by any two of the following officers (other than one serving
concurrently as Mortgage Loan Officer or Auditor): the Chairman, the President,
an Executive Vice President, a Senior Vice President, a Vice President, the
Secretary, the Comptroller, an Assistant Vice President, an Assistant Secretary,
an Assistant Comptroller and the Assistant to the President, if the Board of
Directors shall have established the offices of Assistant Vice President,
Assistant Secretary, Assistant Comptroller or Assistant to the Chairman.
Section 2. Depositors' Withdrawals. The Chairman, the President, an
------------------------------------
Executive Vice President or the Secretary shall designate those officers and
employees who shall be authorized to sign or countersign checks drawn upon the
general deposit accounts of the SAVINGS BANK issued in payment of depositor
withdrawals.
The Board of Directors may also adopt such other means of payment of
depositor withdrawals as to it may seem proper and expedient.
ARTICLE VIII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the SAVINGS BANK shall be in such form as shall be determined
by the Board of Directors and approved by the NYBD. Such certificates shall be
signed by the Chairman of the Board or by any other officer of the SAVINGS BANK
authorized by the Board, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
SAVINGS BANK itself or one of its employees. Each certificate for shares of
capital stock shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
SAVINGS BANK. All certificates surrendered to the SAVINGS BANK for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and cancelled,
except that in case of a lost or destroyed certificate, a new certificate may be
issued upon such terms and indemnity to the SAVINGS BANK as the Board of
Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
------------------------------
the SAVINGS BANK shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
SAVINGS BANK. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the SAVINGS BANK shall be deemed by the SAVINGS BANK
to be the owner for all purposes.
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ARTICLE IX. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the SAVINGS BANK shall be as fixed by the Board of
Directors. The SAVINGS BANK shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the Board of Directors. The appointment of such accountants
shall be subject to annual ratification by the shareholders.
ARTICLE X. DIVIDENDS
Subject to the terms of the SAVINGS BANK's Restated Organization
Certificate and the regulations and orders of the NYBD, the Board of Directors
may, from time to time, declare, and the SAVINGS BANK may pay, dividends on its
outstanding shares of capital stock.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall provide a SAVINGS BANK seal, which shall be
two concentric circles between which shall be the name of the SAVINGS BANK. The
year of incorporation or an emblem may appear in the center.
ARTICLE XII. SURETY BONDS
Section 1. Surety Bonds and Premiums Thereon. The SAVINGS BANK shall
----------------------------------------------
procure from a responsible surety company approved by the Board of Directors
and shall keep continuously in force and effect a banker's blanket bond of
insurance or a fidelity bond of similar type and character covering all of the
officers and employees of the SAVINGS BANK in such amount as the Board may fix.
The Board may also require that individual officers or employees shall furnish
separate bonds conditioned for the faithful performance of their several
duties. It shall be obligatory upon the officers and employees to furnish to
the SAVINGS BANK and to the surety company involved any and all information
necessary or appropriate to the procurement of any bond or bonds herein
provided for. The SAVINGS BANK may dismiss any officer or employee who shall
fail when asked or who shall refuse to give any and all proper and relevant
information required by the designated surety company or as to whom such surety
company shall decline to give a bond or whom the surety company shall decline
to include in a general bond.
All expenses connected with such bond or bonds and all premiums thereon
shall be borne by the SAVINGS BANK.
ARTICLE XIII. RULES AND REGULATIONS
Management shall adopt rules and regulations not inconsistent with law
for the payment of deposits and interest and, generally, for the transaction and
management of the affairs of the SAVINGS BANK. Such rules and regulations shall
be posted in a conspicuous place in the offices of the SAVINGS BANK and shall be
available to depositors upon request. Such posting shall be taken and held as
actual notice to and be binding upon each depositor and to all persons claiming
any interest in any account. All notices to the SAVINGS BANK from depositors, or
other persons
15
<PAGE>
claiming any interest in any account, shall be not effective unless they are in
writing and signed by the persons giving such notice.
Rules and regulations adopted by management or any amendments thereto
shall be transmitted to the Board of Directors at its next regular monthly
meeting following the adoption of same.
ARTICLE XIV. AMENDMENTS
These Bylaws may be amended in a manner consistent with the New York
Banking Law and regulations of the NYBB and NYBD at any time by a majority vote
of the Whole Board of Directors, or by the affirmative vote of at least 80% of
the votes eligible to be cast by the shareholders of the SAVINGS BANK at any
legal meeting.
The above Bylaws of the SAVINGS BANK are effective as of _________ __,
1997, the date of consummation of the conversion of the SAVINGS BANK from
mutual to stock form.
--------------
Rosemary Colca
Secretary
16
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
RICHMOND COUNTY FINANCIAL CORP.
FIRST: The name of the Corporation is Richmond County Financial Corp.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eighty million (80,000,000)
consisting of:
1. Five million (5,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Seventy-five million (75,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly
or indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote
<PAGE>
on any matter, beneficially owns in excess of 10% of the then-
outstanding shares of Common Stock (the "Limit"), be entitled,
or permitted to any vote in respect of the shares held in excess
of the Limit. The number of votes which may be cast by any
record owner by virtue of the provisions hereof in respect of
Common Stock beneficially owned by such person beneficially
owning shares in excess of the Limit shall be a number equal to
the total number of votes which a single record owner of all
Common Stock beneficially owned by such person would be entitled
to cast, (subject to the provisions of this Article FOURTH)
multiplied by a fraction, the numerator of which is the number
of shares of such class or series which are both beneficially
owned by such person and owned of record by such record owner
and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in
excess of the Limit.
2. The following definitions shall apply to this Section C of this
Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect on
the date of filing of this Certificate of Incorporation.
b. "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule 13d-
3 shall be rescinded and there shall be no successor rule or
provision thereto, pursuant to said Rule 13d-3 as in effect
on the date of filing of this Certificate of Incorporation;
provided, however, that a person shall, in any event, also be
deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has: (i) the
right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding (but
shall not be deemed to be the beneficial owner of any
voting shares solely by reason of an agreement,
contract, or other arrangement with this Corporation to
effect any transaction which is described in any one or
more of clauses 1 through 5 of
2
<PAGE>
Section A of Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), or upon the exercise
of conversion rights, exchange rights, warrants, or
options or otherwise, or (ii) sole or shared voting or
investment power with respect thereto pursuant to any
agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial
owner of any voting shares solely by reason of a
revocable proxy granted for a particular meeting of
stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of
which neither such person nor any such Affiliate is
otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person
or any of its Affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares
of capital stock of this Corporation; and provided
further, however, that: (1) no Director or Officer of
this Corporation (or any Affiliate of any such Director
or Officer) shall, solely by reason of any or all of
such Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by
any other such Director or Officer (or any Affiliate
thereof); and (2) neither any employee stock ownership
or similar plan of this Corporation or any subsidiary of
this Corporation, nor any trustee with respect thereto
or any Affiliate of such trustee (solely by reason of
such capacity of such trustee), shall be deemed, for any
purposes hereof, to beneficially own any Common Stock
held under any such plan. For purposes only of computing
the percentage of beneficial ownership of Common Stock
of a person, the outstanding Common Stock shall include
shares deemed owned by such person through application
of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise.
For all other purposes, the outstanding Common Stock
shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable
by this Corporation pursuant
3
<PAGE>
to any agreement, or upon the exercise of conversion
rights, warrants or options, or otherwise.
c. The "Limit" shall mean 10% of the then-outstanding shares of
Common Stock.
d. A "person" shall include an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an incorporated
organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and apply
the provisions of this section and to make all determinations
necessary or desirable to implement such provisions, including but
not limited to matters with respect to: (i) the number of shares of
Common Stock beneficially owned by any person; (ii) whether a person
is an affiliate of another; (iii) whether a person has an agreement,
arrangement, or understanding with another as to the matters
referred to in the definition of beneficial ownership; (iv) the
application of any other definition or operative provision of the
section to the given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock
in excess of the Limit (or holds of record Common Stock beneficially
owned by any person in excess of the Limit) supply the Corporation
with complete information as to: (i) the record owner(s) of all
shares beneficially owned by such person who is reasonably believed
to own shares in excess of the Limit; and (ii) any other factual
matter relating to the applicability or effect of this section as
may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of
record of shares of capital stock of the Corporation entitling the
holders thereof to cast a majority of the votes (after giving
effect, if required, to the provisions of this Section C) entitled
to be cast by the holders of shares of capital stock of the
Corporation entitled to vote shall constitute a quorum at all
meetings of the stockholders, and every reference in this
Certificate of Incorporation to a majority or other proportion of
capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or
approval shall
4
<PAGE>
be deemed to refer to such majority or other proportion of the votes
(or the holders thereof) then entitled to be cast in respect of such
capital stock.
6. Any constructions, applications, or determinations made by the Board
of Directors pursuant to this section in good faith and on the basis
of such information and assistance as was then reasonably available
for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be
construed as if such invalid, prohibited or unenforceable provision
had been stricken herefrom or otherwise rendered inapplicable, it
being the intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this Section C
remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders owning an
amount of stock over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the Directors are hereby
empowered to exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The term
"Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
5
<PAGE>
SIXTH:
A. The number of Directors shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of
the Whole Board. The Directors shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of
the first class to expire at the first annual meeting of stockholders, the
term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class
to expire at the annual meeting of stockholders two years thereafter with
each Director to hold office until his or her successor shall have been duly
elected and qualified. At each annual meeting of stockholders following such
initial classification and election, Directors elected to succeed those
Directors whose terms expire shall be elected for a term of office to expire
at the third succeeding annual meeting of stockholders after their election
with each Director to hold office until his or her successor shall have been
duly elected and qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting the
Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner provided
in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect
to the provisions of Article FOURTH of this Certificate of Incorporation
("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
6
<PAGE>
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with: (i) any Interested Stockholder (as
hereinafter defined); or (ii) any other corporation (whether or
not itself an Interested Stockholder) which is, or after such
merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as hereinafter
defined) equaling or exceeding 25% or more of the combined assets
of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder
or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value of
the outstanding common stock of the Corporation and its
Subsidiaries, except for any issuance or transfer pursuant to an
employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing
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the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together as a
single class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation in any agreement with any
national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1
through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being
received by the stockholders of the Corporation solely in their capacity as
stockholders of the Corporation, the condition specified in the following
paragraph 1 is met or, in the case of any other Business Combination, all of
the conditions specified in either of the following paragraphs 1 or 2 are
met:
1. The Business Combination shall have been approved by a majority of the
Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at
least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes
and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of Common
Stock acquired by it: (i) within the two-year period
immediately prior to the first public
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<PAGE>
announcement of the proposal of the Business Combination (the
"Announcement Date"); or (ii) in the transaction in which it
became an Interested Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
b. The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination
of consideration other than cash to be received per share by
holders of shares of any class of outstanding Voting Stock
other than Common Stock shall be at least equal to the
highest of the following (it being intended that the
requirements of this subparagraph (b) shall be required to be
met with respect to every such class of outstanding Voting
Stock, whether or not the Interested Stockholder has
previously acquired any shares of a particular class of
Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers' fees,
paid by the Interested Stockholder for any shares of such
class of Voting Stock acquired by it: (i) within the two-
year period immediately prior to the Announcement Date;
or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary
or involuntary liquidation, dissolution
or winding up of the Corporation; or
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination
Date, whichever is higher.
c. The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per
share by holders of shares of such class of Voting Stock
shall be either cash or the
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<PAGE>
form used to acquire the largest number of shares of such class of
Voting Stock previously acquired by the Interested Stockholder. The
price determined in accordance with subparagraph B.2 of this Article
EIGHTH shall be subject to appropriate adjustment in the event of
any stock dividend, stock split, combination of shares or similar
event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there shall have
been no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been: (i) no
reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the Disinterested
Directors; and (ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure to so
increase such annual rate is approved by a majority of the
Disinterested Directors, and (3) neither such Interested Stockholder
or any of its Affiliates shall have become the beneficial owner of
any additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming an
Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received the
benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, and the
rules or regulations thereunder) shall be mailed to stockholders of
the Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
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<PAGE>
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of securities or
any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or
which:
a. is the beneficial owner, directly or indirectly, of more than 10%
of the voting power of the outstanding Voting Stock; or
b. is an Affiliate of the Corporation and at any time within the two-
year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding Voting Stock; or
c. is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by
any Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of
the Securities Act of 1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership" shall be
determined in the manner provided in Section C of Article FOURTH
hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
the date of filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of
Interested Stockholder set forth in Paragraph 2 of this Section C, the
term "Subsidiary" shall mean only a corporation of which a majority of
each
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<PAGE>
class of equity security is owned, directly or indirectly, by the
Corporation.
6. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member
of the Board of Directors prior to the time that the Interested
Stockholder became an Interested Stockholder, and any Director who is
thereafter chosen to fill any vacancy of the Board of Directors or who
is elected and who, in either event, is unaffiliated with the
Interested Stockholder and in connection with his or her initial
assumption of office is recommended for appointment or election by a
majority of Disinterested Directors then on the Board of Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System or any system then
in use, or, if such stock is admitted to trading on a principal
United States securities exchange registered under the Securities
Exchange Act of 1934, as amended, Fair Market Value shall be the
highest sale price reported during the 30-day period preceding
the date in question, or, if no such quotations are available,
the Fair Market Value on the date in question of a share of such
stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately
adjusted for any dividend or distribution in shares of such stock
or any stock split or reclassification of outstanding shares of
such stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock; and
b. in the case of property other than cash or stock, the Fair Market
Value of such property on the date in question as determined by
the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment
for any dividend or distribution in shares of such stock or any
stock split or reclassification of outstanding shares of such
stock into a greater number of shares of such stock or any
combination or reclassification of outstanding shares of such
stock into a smaller number of shares of such stock.
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<PAGE>
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be
received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Article EIGHTH shall include the shares of
Common Stock and/or the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article EIGHTH,
on the basis of information known to them after reasonable inquiry: (a)
whether a person is an Interested Stockholder; (b) the number of shares of
Voting Stock beneficially owned by any person; (c) whether a person is an
Affiliate or Associate of another; and (d) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has an aggregate Fair Market Value
equaling or exceeding 25% of the combined Fair Market Value of the Common
Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of the
terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the Voting Stock (after giving effect
to the provisions of Article FOURTH), voting together as a single class,
shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to: (A) make a tender or
exchange offer for any equity security of the Corporation; (B) merge or
consolidate the Corporation with another corporation or entity; or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a change or potential
change in the control of the subsidiary, and the social and economic effect of
acceptance of such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article EIGHTH hereof);
on the communities in which the Corporation and its Subsidiaries operate or are
located; on the ability of the Corporation to fulfill its corporate objective as
a savings and loan holding company under applicable laws and
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<PAGE>
regulations; and on the ability of its subsidiary savings bank to fulfill the
objectives of a stock form savings bank under applicable statutes and
regulations.
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to
be a Director, Officer, employee or agent and shall inure to the benefit of
the indemnitee's heirs, executors and administrators.
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C. If a claim under Section A or B of this Article TENTH is by the
Corporation within sixty days after a written claim has been received by
the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part
in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expenses of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or Disinterested Directors
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any
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<PAGE>
employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
- - - ------------------ --------------------------------
Siobain M. Perkins Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 25th day of
September, 1997.
/s/ Siobain M. Perkins
----------------------
Incorporator
17
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Exhibit 3.2
RICHMOND COUNTY FINANCIAL CORP.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
---------------------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which
date shall be within thirteen (13) months subsequent to the later of the date
of incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
-----------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of Directors which the Corporation would have
if there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
-------------------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time
by the Delaware General Corporation Law or the Certificate of Incorporation of
the Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30)
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
-------------------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions
<PAGE>
of Article FOURTH of the Corporation's Certificate of Incorporation), shall
constitute a quorum for all purposes, unless or except to the extent that the
presence of a larger number may be required by law. Where a separate vote by a
class or classes is required, a majority of the shares of such class or classes
present in person or represented by proxy (after giving effect to the provisions
of Article FOURTH of the Corporation's Certificate of Incorporation) shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
-------------------------
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board of the Corporation or, in
his or her absence, such person as may be chosen by the holders of a majority of
the shares entitled to vote who are present, in person or by proxy, shall call
to order any meeting of the stockholders and act as chairman of the meeting. In
the absence of the Secretary of the Corporation, the secretary of the meeting
shall be such person as the chairman appoints.
Section 6. Conduct of Business.
--------------------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each matter
upon which the stockholders will vote at the meeting shall be announced at the
meeting.
(b) At any annual meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting: (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one
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hundred (100) days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter such stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, he
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request of
the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth
3
<PAGE>
in a stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the provisions of this Section 6(c). The Officer of the
Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she shall so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
-------------------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the
original writing or transmission could be used, provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name
of the stockholder or proxy voting and such other information as may be
required under the procedures established for the meeting. The Corporation
shall, in advance of any meeting of stockholders, appoint one or more
inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the person presiding at the meeting shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
-----------------------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
-------------------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
-------------------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be eight.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of
stockholders, the term of office of the second class to expire at the annual
meeting of stockholders one year thereafter and the term of office of the third
class to expire at the annual meeting of stockholders two years thereafter,
with each Director to hold office until his or her successor shall have been
duly elected and qualified. At each annual meeting of stockholders, Directors
elected to succeed those Directors whose terms then expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each Director to hold office until his
or her successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
------------------------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to
which they have been elected expires and until such Director's successor shall
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<PAGE>
have been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
-----------------------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
-----------------------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by
the Chairman of the Board or the President or, in the event that the Chairman
of the Board or President are incapacitated or otherwise unable to call such
meeting, by the Secretary, and shall be held at such place, on such date, and
at such time as they, or he or she, shall fix. Notice of the place, date, and
time of each such special meeting shall be given each Director by whom it is
not waived by mailing written notice not less than five (5) days before the
meeting or by telegraphing or telexing or by facsimile transmission of the same
not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 5. Quorum.
-------------------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------------------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------------------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
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Section 8. Powers.
-------------------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
Section 9. Compensation of Directors.
--------------------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
-------------------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating,
if it desires, other Directors as alternate members who may replace any absent
or disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a
certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
--------------------------------
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings. The quorum requirements for each such
committee shall be a majority of the members of such committee unless otherwise
determined by the Board of Directors by a majority vote of the Board of
Directors which such quorum determined by a majority of the Board may be one-
third of such members and all matters considered by such committees shall be
determined by a majority vote of the members present. Action may be
taken by any committee without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
7
<PAGE>
Section 3. Nominating Committee.
---------------------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting
of stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
----------------------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors. Any
number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
(d) The Board of Directors may, except as otherwise required by law,
remove any Officer of the Corporation with or without cause, and from time to
time, devolve the powers and duties of any Officer upon any other person for the
time being, and to confer upon any Officer of the Corporation the power to
appoint, remove or suspend subordinate officers, employees and agents.
Section 2. Chairman of the Board of Directors.
-----------------------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in general executive
capacity and unless the Board has designated another person, when present,
shall preside at all meetings of the stockholders of the Corporation. The
Chairman of the Board shall perform all duties and have all powers which are
commonly incident to the office of Chairman of the Board or which are delegated
to him or her by the Board of Directors. He or she shall have power to sign
all stock certificates, contracts and other instruments of the Corporation
which are authorized.
8
<PAGE>
Section 3. Chief Executive Officer.
------------------------------------
The Chief Executive Officer shall have general responsibility for the
management and control of the business and affairs of the Corporation and shall
perform all duties and have all powers which are commonly incident to the
office of Chief Executive Officer or which are delegated to him or her by the
Board of Directors. Subject to the direction of the Board of Directors, the
Chief Executive Officer shall have power to sign all stock certificates,
contracts and other instruments of the Corporation which are authorized and
shall have general supervision of all of the other Officers (other than the
Chairman of the Board), employees and agents of the Corporation.
Section 4. President.
----------------------
The President shall perform the duties of the Chief Executive Officer in
his absence or during his inability to act. In addition, the President shall
have the general responsibilities for the management and control of the business
and affairs of the Corporation which are not the responsibility of the Chief
Executive Officer and shall perform the duties and exercise the powers as may be
properly assigned to him by the Board of Directors, the Chairman of the Board or
the Chief Executive Officer. Subject to the direction of the Board of Directors,
the President shall have power to sign all stock certificates, contracts and
other instruments of the Corporation which are authorized and shall have general
supervision of all of the other Officers (other than the Chairman of the Board
and Chief Executive Officer).
Section 5. Vice President.
---------------------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 6. Secretary.
----------------------
The Secretary or Assistant Secretary shall issue notices of meetings,
shall keep their minutes, shall have charge of the seal and the corporate books,
shall perform such other duties and exercise such other powers as are usually
incident to such office and/or such other duties and powers as are properly
assigned thereto by the Board of Directors, the Chairman of the Board or the
President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
9
<PAGE>
Section 7. Treasurer.
----------------------
The Treasurer shall be the Comptroller of the Corporation and shall have
the responsibility for maintaining the financial records of the Corporation. He
or she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 8. Assistant Secretaries and Other Officers.
-----------------------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 9. Action with Respect to Securities of Other Corporations.
--------------------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise
to exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
-----------------------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
-------------------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
10
<PAGE>
Section 3. Record Date.
------------------------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise
any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given
or, if notice is waived, at the close of business on the next day preceding the
day on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for
the adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
---------------------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
------------------------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------------------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or
other courier.
11
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Any such notice shall be addressed to such stockholder, Director, Officer,
employee or agent at his or her last known address as the same appears on the
books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------------------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
---------------------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
---------------------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates
of the seal may be kept and used by the Treasurer or by an Assistant Secretary
or an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
-----------------------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information,
opinions, reports or statements presented to the Corporation by any of its
Officers or employees, or committees of the Board of Directors so designated,
or by any other person as to matters which such Director or committee member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of
the Corporation.
Section 4. Fiscal Year.
------------------------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
12
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Section 5. Time Periods.
-------------------------
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
Section 6. Adoption of Regulations.
------------------------------------
The Board of Directors may, except as otherwise required by law, adopt from
time to time regulations, not inconsistent with these Bylaws, for the
management of the Corporation's business and affairs.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of September 25, 1997, the date of
incorporation of Richmond County Financial Corp.
13
<PAGE>
EXHIBIT 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP ______
RICHMOND COUNTY FINANCIAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
RICHMOND COUNTY FINANCIAL CORP.
The shares represented by this certificate are transferable only on the
stock transfer books of the Corporation by the holder of record hereof, or by
his duly authorized attorney or legal representative, upon the surrender of
this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions
of the Certificate of Incorporation of the Corporation and any amendments
thereto (copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar. The shares represented by this Certificate are not
insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, RICHMOND COUNTY FINANCIAL CORP. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. The Corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively voted
on any matter. Pursuant to the Certificate of Incorporation, the affirmative
vote of the holders of at least 80% of the voting stock of the Corporation,
voting together as a single class, shall be required to approve certain business
combinations and other transactions, or to amend certain provisions of the
Certificate of Incorporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFTS MIN ACT - _______ custodian _______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
________________
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, _______ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF ASSIGNEE
_______________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee
__________________________________ shares of Common Stock represented by the
within Certificate, and do hereby irrevocably constitute and appoint__________
_________Attorney to transfer the said shares on the books of the within-named
Corporation with full power of substitution in the premises.
DATED_______________________ _________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:_____________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15
<PAGE>
Exhibit 5.0
____________, 1997
Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Re: The Offering of up to ___________ Shares of Richmond County Financial
Corp. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Richmond County Savings Bank (the "Bank"),
a New York chartered savings bank, from the mutual form of ownership to the
stock form of ownership (the "Conversion"), and the related subscription
offering, community offering and syndicated community offering (the "Offerings")
by Richmond County Financial Corp., a Delaware corporation (the "Company"), of
up to ___________ shares of its common stock, par value $.01 per share, ("Common
Stock"), (___________ shares if the Estimated Valuation Range is increased up to
15% to reflect changes in market and financial conditions following commencement
of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on September 24, 1997 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
October 2, 1997 (the "Registration Statement"); a consent of the sole
incorporator of the Company; resolutions of the Board of Directors of the
Company (the "Board") concerning the organization of the Company, the Offerings
and designation of a Pricing Committee of the Board, and the form of stock
certificate approved by the Board to represent shares of Common Stock. We have
also been furnished a certificate of the Delaware Secretary of State certifying
the Company's good standing as a Delaware corporation. Capitalized terms used
but not defined herein shall have the meaning given them in the Certificate of
Incorporation.
<PAGE>
Board of Trustees
Richmond County Savings Bank
____________, 1997
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe you are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds which the ESOP Trust will
use to purchase shares of Common Stock for which the ESOP Trust subscribes
pursuant to the Offerings and for purposes of rendering the opinion set forth in
paragraph 2 below, we assume that: (a) the Board has duly authorized the loan
to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate purpose;
(c) the Loan will be made at an interest rate and on other terms that are fair
to the Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP Trust to the Company as a result of
the Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP Trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust and the shares to be granted to a charitable foundation to be
established by the Company in connection with the Conversion) will be duly
authorized and, when such shares are sold and paid for in accordance with the
terms set forth in the Prospectus and such resolution of the Pricing Committee,
and certificates representing such shares in the form provided to us are duly
and properly issued, will be validly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to
construe and apply the
<PAGE>
Board of Trustees
Richmond County Savings Bank
____________, 1997
Page 3
provisions of those Articles, subsection C.4 of Article FOURTH,
to the extent that subsection obligates any person to provide to
the Board the information such subsection authorizes the Board to
demand, and the provision of subsection C.7 of Article EIGHTH
empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested
Stockholder, in each case to the extent, if any, that a court
applying Delaware law were to impose equitable limitations upon
such authority; and
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
This opinion is furnished solely for your benefit and may not be relied
upon by any other person. We consent to the filing of this opinion as an
exhibit to the Registration Statement on Form S-1, Notice of the Application for
Conversion, and the Form 86-AC and to the use of the name of our firm where it
appears in the Registration Statement, Notice of the Application for Conversion,
Form 86-AC and in the Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 5.1
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with (i) the conversion of Richmond County Savings Bank, a New
York chartered mutual savings bank (the "Bank"), from the mutual form of
ownership to stock form of ownership (the "Conversion"), (ii) the subscription
and community offering (the "Offering"), in connection with the Conversion, by
Richmond County Financial Corp., a Delaware corporation (the "Company"), of up
to ________ shares of its common stock, par value $.01 per share (the "Common
Stock") and (iii) the sale of ____ shares of Common Stock (the "Foundation
Shares") to Richmond County Savings Foundation, a Delaware corporation (the
"Foundation"), pursuant to the Charitable Gift to ___________ dated as of
____________ ____, 1997 by the Company (the "Gift Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of incorporation (the
"Company Certificate of Incorporation"), its by-
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
laws, the Registration Statement filed with the Securities and Exchange
Commission in connection with the Offering (the "Registration Statement"),
including the prospectus constituting a part thereof (the "Prospectus"), a
consent of the sole incorporator of the Company, resolutions of the Board of
Directors of the Company (the "Board") concerning, inter alia, the organization
----- ----
of the Company, the Offering and the designation of a Pricing Committee of the
Board (the "Pricing Committee"), the form of stock certificate approved by the
Board to represent shares of Common Stock, the Foundation's certificate of
incorporation (the "Foundation Certificate of Incorporation"), its bylaws, a
consent of the sole incorporator of the Foundation and the Gift Instrument. We
have also obtained a certificate of the Delaware Secretary of State as to the
Company's and the Foundation's good standing as Delaware corporations.
Capitalized terms used but not defined herein shall have the meanings given them
in the Company Certificate of Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan to the ESOP
(the "Loan"); (b) the Loan serves a valid corporate
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
purpose; (c) the Loan will be made at an interest rate and on other terms that
are fair to the Company; (d) the terms of the Loan will be set forth in
customary and appropriate documents including, without limitation, a promissory
note representing the indebtedness of the ESOP to the Company as a result of the
Loan; and (e) the closing for the Loan and for the sale of Common Stock to the
ESOP will be held after the closing for the sale of the other shares of Common
Stock sold in the Offering and the receipt by the Company of the proceeds
thereof.
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the Foundation, the Offering,
or the Conversion, including, without limitation, those applicable to federally
insured or state chartered savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own, lease and operate its property and conduct
its business as now conducted as described in the Prospectus.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued to
the ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and sale
will not be in violation of or subject to any preemptive rights provided for by
Delaware law or by the Certificate of Incorporation.
3. The Foundation has been duly organized and is validly existing as
a non-stock corporation in good standing under the laws of the State of Delaware
with the corporate power and authority to own, lease, and operate its properties
and to conduct its business as described in the Prospectus.
4. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to establish the
Foundation and to issue and sell the Foundation Shares to the Foundation as
described in the Prospectus pursuant to the Gift Instrument; provided, however,
-------- -------
that we express no opinion
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 5
with respect to the Delaware Securities Act (6 Del. C. Section 7301 et seq.).
---- -- -- ----
5. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company as provided in
the Gift Instrument against payment therefor, and a certificate representing
such shares in the form provided to us is duly and properly issued, such shares
will be duly and validly issued, fully paid and nonassessable, with no personal
liability for the payment of the Company's debts arising solely by virtue of the
ownership thereof; such issuance and sale will not be in violation of or subject
to any preemptive rights provided for by Delaware law or the Company Certificate
of Incorporation.
6. Upon the consummation of the Conversion and the issuance of the
Foundation Shares to the Foundation immediately upon completion of the
Conversion, the issued and outstanding shares of Common Stock will be within the
sum of the ranges described in the cover page of the Prospectus and the section
of the Prospectus entitled "The Conversion - Establishment of the Charitable
Foundation".
7. The issuance of the shares of Common Stock in the Conversion and
the issuance of the Foundation Shares is not subject to preemptive or other
similar rights arising by operation of
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 6
Delaware law or, to the best of our knowledge, based solely on our review of the
Prospectus, otherwise.
The following provisions of the Company Certificate of Incorporation
may not be given effect by a court applying Delaware law, but in our opinion the
failure to give effect to such provisions will not affect the duly authorized,
validly issued, fully paid and nonassessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe and apply the
provisions of those Articles, subsection C.4 of Article FOURTH, to the extent
that provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any, that a court applying Delaware law were to impose
equitable limitations upon the authority of the directors of the Company under
such provisions.
(b) Article NINTH of the Company Certificate of Incorporation, which
purports to permit the Board to consider the effect of any offer to acquire the
Company on constituencies other than stockholders in evaluating any such offer.
Very truly yours,
<PAGE>
Exhibit 8.0
DRAFT: __________________, 1997
Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Board of Directors
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Re: Certain Federal Tax Consequences of the Conversion of Richmond County
Savings Bank from a New York State Chartered Mutual Savings Bank to a
New York State Chartered Stock Savings Bank and the Issuance of Common
Stock of Richmond County Savings Bank to Richmond County Financial
Corp. pursuant to a Plan of Conversion, and the Sale of Richmond
County Financial Corp. Stock (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of Richmond County Savings Bank (the "Bank") from a New
York State chartered mutual savings bank to a New York State chartered stock
savings bank and the issuance of the Bank's capital stock to Richmond County
Financial Corp., a Delaware corporation (the "Company" or the "Holding
Company"), pursuant to the plan of conversion adopted by the Board of Trustees
on July 31, 1997 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Company and
the Bank concerning the Company and the Bank as well as the transaction
("Representations"). These Representations are required to be furnished prior
to the execution of this letter and again prior to the closing of the
Conversion. We will rely upon the accuracy of the Representations of the
Company and the Bank and the statements of facts contained in the examined
documents, particularly the Plan of Conversion. We have also assumed the
authenticity of all signatures, the legal capacity of all natural persons and
the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Company and the Bank are incorporated in this letter as part of the
statement of the facts.
As a mutual savings bank, the Bank has never been authorized to issue
stock. Instead, the proprietary interest in the reserves and undivided profits
of the Bank belong to the deposit account holders of the Bank, hereinafter
sometimes referred to as "depositors." A depositor of the Bank has a right to
share, pro rata, with respect to the withdrawal value of his respective deposit
account in any liquidation proceeds distributed in the event the Bank is ever
liquidated. In addition, a depositor of the Bank is entitled to interest on his
account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Trustees has adopted the Plan of Conversion whereby the Bank will
convert itself into a New York State chartered stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. In the event that the Holding Company is utilized, upon Conversion the
Bank will issue its capital stock to the Holding Company and the Holding Company
will issue and sell the Conversion Stock in accordance with the Plan of
Conversion. The aggregate sales price of the Common Stock issued in the
Conversion will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Common Stock of the Converted Bank. The
Conversion and sale of the Common Stock will be subject to approval by the
Superintendent of Banks of the State of New York and the FDIC and the approval
of the Eligible Account Holders.
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Bank shall establish at the
time of Conversion a liquidation account in an amount equal to its net worth as
of the latest practicable date prior to Conversion. The liquidation account
will be maintained by the Bank for the benefit of the Eligible Account Holders
who continue to maintain their savings accounts at the Bank.
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 3
Each Eligible Account Holder shall, with respect to his savings account, hold a
related inchoate interest in a portion of the liquidation account balance, in
relation to his savings account balance on the Eligibility Record Date or to
such balance as it may be subsequently reduced.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
account holders to the extent of their savings accounts) each Eligible Account
Holder shall be entitled to receive a liquidating distribution from the
liquidation account, in the amount of the then adjusted subaccount balance for
his savings account then held, before any liquidation distribution may be made
to any holders of the Bank's capital stock. No merger, consolidation, purchase
of bulk assets with assumption of savings accounts and other liabilities, or
similar transaction with an FDIC institution, in which the Bank is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and the
Bank intend to establish a charitable foundation that will qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code (the
"Foundation") and to donate to the Foundation from authorized, but unissued,
shares of Common Stock of the Holding Company in an amount up to 8.0% of the
number of shares of Common Stock sold in the Conversion. The Foundation is
intended to further the Converted Bank's long term commitment to its community.
The Plan of Conversion provides that the Foundation is intended to complement
the Bank's existing community reinvestment activities so as to allow the local
community to share in the growth and profitability of the Holding Company and
the Converted Bank over the long term. In the event that the Foundation does not
receive the prerequisite approval, the Bank may determine to complete the
Conversion without the Foundation.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year.
In order to serve the purposes for which it was formed and to maintain its
Section 501(c)(3) qualification, under the Plan of Conversion, the Foundation
may sell, on an annual basis, a limited portion of the Common Stock contributed
to it by the Holding Company.
* * *
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 4
You have provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $100 as
of the Eligibility Record Date, then no amount of that individual's
total deposits will be excluded from participating in the liquidation
account. The fair market value of the deposit accounts of the Bank
which have a balance of less than $100 on the Eligibility Record Date
will be less than 1% of the total fair market value of all deposit
accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders of
the Bank will own all of the outstanding interests in the liquidation
account and will own such interest solely by reason of their ownership
of deposits in the Bank immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
Plans.
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 5
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Trustees and employees as compensation by means of the Employee Plans.
Compensation to be paid to such Trustees and depositor-employees will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes a reserve for bad debts in accordance with section
593 of the Code and, following the Conversion, for federal income tax
purposes, to the extent allowed under the Code, the Converted Bank
shall continue to utilize the experience method to calculate its
reserve for bad debts in accordance with section 593.
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 6
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender" tests
set out in sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the fair market value of the stock of
the Holding Company at the time of the completion of the Conversion as
determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 7
Code, or with respect to any aspect of the transaction, except if and to the
extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion (and
taking into consideration the limitations noted throughout this opinion), it is
our opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
(in the case of Eligible Account Holders) in exchange for their
deposit accounts in the Bank or to the other
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 8
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to
its stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders and Supplemental Eligible Account
Holders have a fair market value of zero. We understand that you have received
a letter from Keller & Company, Inc. that the subscription rights do not have
any value. We express no view regarding the valuation of the subscription
rights.
<PAGE>
Board of Trustees
DRAFT: _________________, 1997
Page 9
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form 86-AC
and Form S-1 Registration Statement of Holding Company and the Notice of
Application for Conversion filed with the Federal Deposit Insurance Corporation
(the "Notice") and the references to and summary of this opinion in such Form
86-AC, Form S-1 Registration Statement, and Notice.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
DRAFT
Exhibit 8.1
September 30, 1997
Boards of Directors
Richmond County Financial Corp.
Richmond County Savings Bank
Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, NY 10310
Ladies and Gentlemen:
You have asked for our opinion regarding certain New York State and City bank
tax consequences of the proposed conversion of Richmond County Savings Bank, a
New York State chartered mutual savings bank, ("the Bank") to a stock form of
organization (the Converted Bank), and the issuance of common stock of the
Converted Bank to Richmond County Financial Corp., a Delaware corporation, ("the
Company") pursuant to the Bank's Plan of Conversion, adopted by the Board of
Trustees on July 31, 1997 (the "Plan").
We have relied upon the facts presented in the Prospectus which was included as
part of the Registration Statement filed with the Securities and Exchange
Commission, the New York State Banking Department and the Federal Deposit
Insurance Corporation by the Company. We have also relied on the statement of
facts and management representations set forth in the opinion letter prepared by
Muldoon, Murphy & Faucette (hereafter, the "Opinion"). The Prospectus and
Opinion, as well as the representations to be provided by the Company and the
Bank are incorporated in this letter as part of the statement of the facts. We
have made no independent determinations regarding the above facts and
representations and have relied upon them for purposes of this opinion.
Therefore, any changes to the above facts or representations may effect the
conclusions stated herein.
The following paragraphs outline the relevant facts with respect to the proposed
conversion, which were obtained primarily from the Prospectus and the Opinion
which outlines the Federal tax implications of the proposed conversion. A copy
of the Opinion is attached hereto for reference.
<PAGE>
Description of the Transactions:
Pursuant to the Plan of Conversion, the Bank will be converted from a New York
State chartered mutual savings bank to a New York State chartered stock savings
bank. It is currently intended that all of the capital stock of the Converted
Bank will be held by the Company.
The Company expects to receive approval from the OTS to become a savings and
loan holding company and to acquire all of the common stock of the Converted
Bank to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Converted Bank to be issued in the
Conversion.
The Plan provides that non-transferable rights to subscription for the common
stock of the Company will be granted, in order of priority: (i) to Eligible
Account Holders; (ii) Tax-Qualified Employee Benefit Plans; and (iii)
Supplemental Eligible Account Holders. The Company will offer its shares of
common stock, remaining unsold after the subscription offering, for sale in a
community offering or, if necessary, in a syndicated community offering or
public offering at the discretion of the Company and the Bank. The subscription
offering, the community offering and the syndicated community offering will be
referred to herein as the "Offering".
The Bank will create a "liquidation account" for the benefit of eligible account
holders in an amount equal to its net worth as reported in the latest financial
statement reflected in the final prospectus used for the conversion. Pursuant to
the Prospectus, each eligible account holder, if they were to continue to
maintain their deposit accounts at the Bank, would be entitled to receive a
payment for their respective interest in the liquidation account after payment
of all creditors and prior to any payment made to a stockholder upon a complete
liquidation of the Bank. Each eligible account holder will have a claim to a pro
rata interest in the total liquidation account based on the proportion that each
of his deposit accounts bears to the balance of all deposit accounts in the Bank
on the Eligibility Record Date.
It is assumed that, based upon the conclusions presented in the Opinion:
The proposed conversion of the Bank from a mutual savings bank to a stock
savings bank qualifies as a tax-free transaction for federal income tax
purposes pursuant to Section 368(a)(1)(F) of the Internal Revenue Code
("IRC"). Neither the Bank nor the Converted Bank shall recognize gain or loss
as a result of the Conversion.
No gain or loss will be recognized by the Company on the receipt of cash from
the Offerings in exchange for shares of common stock of the Company pursuant
to Section 1032 of the Internal Revenue Code.
<PAGE>
No gain or loss will be recognized by the Company on the transfer of the
contributed offering proceeds to the Bank in exchange for common stock of the
Bank pursuant to Section 351(a) of the Internal Revenue Code.
No gain or loss will be recognized by the Converted Bank on the receipt of the
contributed money from the Company in exchange for common stock of the
Converted Bank pursuant to Section 1032 of the Internal Revenue Code.
New York State Bank Tax Consequences:
For purposes of Article 32 of the New York State Banking Law, Section 1451 of
the Tax Law imposes, annually, a franchise tax on every banking corporation for
the privilege of exercising its franchise or doing business in New York State
in a corporate or organized capacity.
Section 1451(a) of the Tax Law provides that the basic tax is nine percent of
the taxpayer's entire net income, or portion thereof allocated to New York
State, for the taxable year or part thereof.
Entire net income is defined in Section 1453(a) of the Tax Law as "total net
income from all sources which shall be the same as the entire taxable income
(but not alternative minimum taxable income)....which the taxpayer is required
to report to the United States Treasury Department....subject to the
modifications and adjustments hereinafter provided."
Section 1453(b) through (k) of the Tax Law and Sections 18-2.3, 18-2.4 and
18-2.5 of the Franchise Tax on Banking Corporations Regulations, promulgated
thereunder, provide for the modifications and adjustments required by Section
1453(a). However, there are no modifications or adjustments applicable to a
transaction where, for federal income tax purposes, steps to a conversion are
treated as exchanges pursuant to Sections 368(a)(1)(F), 351(a), and 1032 of the
Code and will result in no recognition of gain or loss for federal income tax
purposes. Therefore, for purposes of Section 1453 of the Tax Law, such steps or
exchanges would be treated the same as they are treated for federal income tax
purposes.
Accordingly, if the steps to the Conversion described herein are treated as
tax-free exchanges under Sections 368(a)(1)(F), 351(a) and 1032 of the Code,
such exchanges would be tax-free for purposes of computing entire net income
under Section 1453 of Article 32 of the Tax Law.
<PAGE>
New York City Bank Tax Consequences:
For purposes of Title 11, Chapter 6, of the New York City Banking Corporation
Tax Law, Section 11-639 imposes, annually, a tax on every banking corporation
for the privilege of doing business in New York City in a corporate or organized
capacity.
Section 11-643.5 of the Tax Law provides that the basic tax is nine percent of
the taxpayer's entire net income, or portion thereof allocated to New York City,
for the taxable year or part thereof.
Entire net income is defined in Section 11-641(a) of the Tax Law as "total net
income from all sources which shall be the same as the entire taxable income
(but not alternative minimum taxable income)...which the taxpayer is required to
report to the United States Treasury Department...subject to the modifications
and adjustments hereinafter provided."
Section 11-641(b) through (k) of the Tax Law and sections 3.03(b)(3), (4) and
(5) of the Tax on Banking Corporations Regulations, promulgated thereunder,
provide for the modifications and adjustments required by Section 11-641(a).
However, there are no modifications or adjustments applicable to a transaction
where, for federal income tax purposes, steps to a conversion are treated as
exchanges pursuant to Sections 368(a)(1)(F), 351(a) and 1032 of the Code and
will result in no recognition of gain or loss for federal income tax purposes.
Therefore, for purposes of Section 11-641 of the Tax Law, such steps or
exchanges would be treated the same as they are treated for federal income tax
purposes.
Accordingly, if the steps to the Conversion described herein are treated as tax-
free exchanges under Sections 368(a)(1)(F), 351(a) and 1032 of the Code, it is
our opinion that such exchanges would be tax-free for purposes of computing
entire net income under Section 11-641 of the New York City Banking Corporation
Tax Law.
Scope of Opinion:
The scope of this opinion is expressly limited to the New York State and City
bank tax consequences of the transactions in connection with the facts and based
upon the representations and assumptions stated above. Specifically, but without
limitations, our opinion has not been requested and none is provided, with
respect to the tax consequences of the transactions to any other party involved
in the transactions and with respect to any foreign, state, or local consequence
other than New York State and City bank taxes at this time. Our opinion with
regard to New York State and City sales and use taxes, stock transfer taxes,
real property transfer gains taxes and real estate transfer taxes associated
with the above conversion will be rendered at a later date.
<PAGE>
Our opinion, as stated above, is based upon our research and analysis of the New
York State and City tax laws and applicable regulations and the opinion of
counsel as to the federal tax consequences, all as of the date of issuance of
this opinion. The foregoing are subject to change, and such change may be
retroactively effective. If so, our views as set forth above may be affected
and may not be relied upon. We have assumed no responsibility to update this
opinion as a result of any such change in law or rulings. Further, any
variation or differences in the facts or representations recited herein, for any
reason, might affect our conclusions, perhaps in an adverse manner, and make
them inapplicable.
This letter represents our views as to the interpretation of existing law and,
accordingly, no assurance can be given that either the New York State Department
of Taxation and Finance or the New York City Department of Finance will agree
with the above analysis.
We hereby consent to the inclusion of this opinion as an exhibit to the
Form 86-AC and Form S-1 Registration Statement of the Company and the Notice of
Application for Conversion filed with the FDIC ("the Notice") and the references
to and summary of this opinion in such Form 86-AC, Form S-1 Registration
Statement, and Notice.
If you have any questions regarding this opinion, please call me at
(212) 773-2864 or Howard Rabinowitz at (212) 773-2223.
Very truly yours,
Victor J. Zammit
Copy to: Robert Schirling
Howard Rabinowitz
<PAGE>
Exhibit 10.1
FORM OF
RICHMOND COUNTY SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Effective___________, 199__
<PAGE>
FORM OF
RICHMOND COUNTY SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, Michael F. Manzulli, President and Chief Executive Officer of
Richmond County Savings Bank, a New York State chartered stock savings bank (the
"Bank"), hereby certify that the attached Richmond County Savings Bank Employee
Stock Ownership Plan, effective ________, 199__ was adopted at a duly held
meeting of the Board of Directors of the Bank on [Date].
ATTEST: RICHMOND COUNTY SAVINGS BANK
By:
- - - ------------------------ -------------------------------
Rosemary Colca Michael F. Manzulli
Secretary President and Chief Executive Officer
DATE:
-----------------------------
<PAGE>
C O N T E N T S
<TABLE>
<S> <C> <C> <C>
Section 1. Plan Identity ............................................................................................1
-------------
1.1 Name ......................................................................................1
----
1.2 Purpose ...................................................................................1
-------
1.3 Effective Date ............................................................................1
--------------
1.4 Fiscal Period .............................................................................1
-------------
1.5 Single Plan for All Employers .............................................................1
-----------------------------
1.6 Interpretation of Provisions ..............................................................1
----------------------------
Section 2. Definitions ..............................................................................................1
-----------
Section 3. Eligibility and Participation ............................................................................9
-----------------------------
3.1 Initial Eligibility .......................................................................9
-------------------
3.2 Terminated Employees ......................................................................9
--------------------
3.3 Certain Employees Ineligible ..............................................................9
----------------------------
3.4 Participation and Reparticipation .........................................................9
---------------------------------
Section 4. Employer Contributions and Credits ......................................................................10
----------------------------------
4.1 Discretionary Contributions ..............................................................10
---------------------------
4.2 Contributions for Stock Obligations ......................................................10
-----------------------------------
4.3 Definitions Related to Contributions .....................................................11
------------------------------------
4.4 Conditions as to Contributions ...........................................................11
------------------------------
4.5 Matching Employer Contributions ..........................................................12
-------------------------------
Section 5. Limitations on Contributions and Allocations ............................................................12
--------------------------------------------
5.1 Limitation on Annual Additions ...........................................................12
------------------------------
5.2 Coordinated Limitation With Other Plans ..................................................12
---------------------------------------
5.3 Effect of Limitations ....................................................................13
---------------------
5.4 Limitations as to Certain Section 1042 Transactions ......................................14
---------------------------------------------------
5.5 Limitations as to Certain Participants ...................................................14
--------------------------------------
5.6 Nondiscrimination Test for Matching Employer Contributions ...............................15
----------------------------------------------------------
Section 6. Trust Fund and Its Investment ...........................................................................16
-----------------------------
6.1 Creation of Trust Fund ...................................................................16
----------------------
6.2 Stock Fund and Investment Fund ...........................................................16
------------------------------
6.3 Acquisition of Stock .....................................................................17
--------------------
6.4 Participants' Option to Diversify ........................................................17
---------------------------------
Section 7. Voting Rights and Dividends on Stock ....................................................................18
------------------------------------
7.1 Voting and Tendering of Stock ............................................................18
-----------------------------
7.2 Dividends on Stock .......................................................................18
------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 8. Adjustments to Accounts .................................................................................19
-----------------------
8.1 Adjustments for Transactions .............................................................19
----------------------------
8.2 Valuation of Investment Fund .............................................................19
----------------------------
8.3 Adjustments for Investment Experience ....................................................19
-------------------------------------
8.4 Adjustments for Capital Changes ..........................................................19
-------------------------------
Section 9. Vesting of Participants Interests .......................................................................20
---------------------------------
9.1 Deferred Vesting in Accounts .............................................................20
----------------------------
9.2 Computation of Vesting Years .............................................................20
----------------------------
9.3 Full Vesting Upon Certain Events .........................................................21
--------------------------------
9.4 Full Vesting Upon Plan Termination .......................................................22
----------------------------------
9.5 Forfeiture, Repayment, and Restoral ......................................................22
-----------------------------------
9.6 Accounting for Forfeitures ...............................................................22
--------------------------
9.7 Vesting and Nonforfeitability ............................................................22
-----------------------------
Section 10. Payment of Benefits .....................................................................................23
-------------------
10.1 Benefits for Participants ................................................................23
-------------------------
10.2 Benefits on a Participant's Death ........................................................23
---------------------------------
10.3 Marital Status ...........................................................................24
--------------
10.4 Delay in Benefit Determination ...........................................................24
------------------------------
10.5 Accounting for Benefit Payments ..........................................................24
-------------------------------
10.6 Options to Receive and Sell Stock ........................................................24
---------------------------------
10.7 Restrictions on Disposition of Stock .....................................................25
------------------------------------
10.8 Direct Transfer of Eligible Plan Distributions ...........................................26
----------------------------------------------
Section 11. Rules Governing Benefit Claims and Review of Appeals ....................................................26
----------------------------------------------------
11.1 Claim for Benefits .......................................................................26
------------------
11.2 Notification by Committee ................................................................26
-------------------------
11.3 Claims Review Procedure ..................................................................27
-----------------------
Section 12. The Committee and Its Functions .........................................................................27
-------------------------------
12.1 Authority of Committee ...................................................................27
----------------------
12.2 Identity of Committee ....................................................................28
---------------------
12.3 Duties of Committee ......................................................................28
-------------------
12.4 Valuation of Stock .......................................................................28
------------------
12.5 Compliance with ERISA ....................................................................29
---------------------
12.6 Action by Committee ......................................................................29
-------------------
12.7 Execution of Documents ...................................................................29
----------------------
12.8 Adoption of Rules ........................................................................29
-----------------
12.9 Responsibilities to Participants .........................................................29
--------------------------------
12.10 Alternative Payees in Event of Incapacity ................................................29
-----------------------------------------
12.11 Indemnification by Employers .............................................................30
----------------------------
12.12 Nonparticipation by Interested Member ....................................................30
-------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 13. Adoption, Amendment, or Termination of the Plan .........................................................30
-----------------------------------------------
13.1 Adoption of Plan by Other Employers ......................................................30
-----------------------------------
13.2 Adoption of Plan by Successor ............................................................30
-----------------------------
13.3 Plan Adoption Subject to Qualification ...................................................30
--------------------------------------
13.4 Right to Amend or Terminate ..............................................................31
---------------------------
Section 14. Miscellaneous Provisions ................................................................................31
------------------------
14.1 Plan Creates No Employment Rights ........................................................31
---------------------------------
14.2 Nonassignability of Benefits .............................................................31
----------------------------
14.3 Limit of Employer Liability ..............................................................32
---------------------------
14.4 Treatment of Expenses ....................................................................32
---------------------
14.5 Number and Gender ........................................................................32
-----------------
14.6 Nondiversion of Assets ...................................................................32
----------------------
14.7 Separability of Provisions ...............................................................32
--------------------------
14.8 Service of Process .......................................................................32
------------------
14.9 Governing State Law ......................................................................32
-------------------
14.10 Special Rules for Persons Subject to Section 16(b) Requirements ..........................32
---------------------------------------------------------------
Section 15. Top-Heavy Provisions ....................................................................................33
--------------------
15.1 Determination of Top-Heavy Status ........................................................33
---------------------------------
15.2 Minimum Contributions ....................................................................34
---------------------
15.3 Minimum Vesting ..........................................................................35
---------------
</TABLE>
<PAGE>
FORM OF
RICHMOND COUNTY SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
-------------
1.1 Name. The name of this Plan is "Richmond County Savings Bank
----
Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
-------
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is ________,
--------------
199__.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
-------------
January 1-December 31 fiscal year for the purposes of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
-----------------------------
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and
----------------------------
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(5) of ERISA and Section 4975
(e)(8) of the Code, and to satisfy any requirement under ERISA or the Code
applicable to such a plan. Accordingly, the Plan and Trust Agreement shall be
interpreted and applied in a manner consistent with this intent and shall be
administered at all times and in all respects in a nondiscriminatory manner.
Section 2. Definitions. The following capitalized words and phrases shall
-----------
have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated
under this Plan, as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
<PAGE>
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
"Bank" means Richmond County Savings Bank, and any entity which
succeeds to the business of the Bank and adopts this Plan as its own pursuant to
Section 13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation, or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning January 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed for
his normal hours of paid employment during a Recognized Absence, unless he does
not resume his Service at the end of the Recognized Absence. Further, if an
Employee is absent for any period (i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child, (iii) by reason of the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service, in the first
12-month period which would otherwise be counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"Disability" means a condition which renders the Participant totally
and permanently disabled due to sickness or injury, such disability is likely to
be continuous and permanent, and such disability renders the Participant unable
to continue a like gainful occupation. In any event, the Committee's good faith
decision as to whether a Participant's Service has been terminated by Disability
shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's (i)
attainment of age 60 or the total of a Participant's age, when added to the
Participant's years of service recognized for purposes of vested service under
the Bank's defined benefit retirement plan, equals or exceeds 75 years, and (ii)
with regard to Participant's who were employed by the Employer on or after
September 11, 1972, the Participant's completion of ten consecutive years of
vesting service under the Bank's defined benefit retirement plan.
2
<PAGE>
"Effective Date" means _____________-, 199_.
"Employee" means any individual who is or has been employed by the
Bank. "Employee" also means an individual employed by a leasing organization
who, pursuant to an agreement between an Employer and the leasing organization,
has performed services for the Employer and any related persons (within the
meaning of Section 414(n)(6) of the Code) on a substantially full-time basis for
more than one year, if such services are of a type historically performed by
employees in the Employer's business field. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's Total Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of
Sections 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Bank's consent
pursuant to Section 13.1, and any entity which succeeds to the business of any
Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means January 1 and July 1.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"Highly Paid Employee" for any Plan Year beginning before December 31,
1996, means an Employee who, during either of that or the immediately preceding
Plan Year, (i) owned more than five percent of the outstanding equity interest
or the outstanding voting interest in any Employer, (ii) had Total Compensation
exceeding $75,000 (as adjusted pursuant to Section 415(d) of the Code), (iii)
had Total Compensation exceeding $50,000 (as adjusted pursuant to Section 415(d)
of the Code) and was among the most highly compensated one-fifth of all
Employees, or (iv) was at any time an officer of an Employer and had Total
Compensation exceeding $45,000 (or 50 percent of the currently applicable dollar
limit under Section 415(b)(1)(A) of the Code). For this purpose:
(a) "Total Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant to
Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account
all individuals working for all related employer entities described in
the definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per
3
<PAGE>
week or in fewer than six months per year, who has not reached age 21,
whose employment is covered by a collective bargaining agreement, or who
is a nonresident alien who receives no earned income from United States
sources.
(c) The number of individuals counted as "officers" shall
not be more than the lesser of (i) 50 individuals and (ii) the greater
of 3 individuals or 10 percent of the total number of Employees. If no
officer earns more than $45,000 (or the adjusted limit), then the
highest paid officer shall be a Highly Paid Employee.
(d) A former Employee shall be treated as a highly
compensated employee if such Employee was a Highly Paid Employee when
such Employee separated from service, or if such Employee was a Highly
Paid Employee at any time after attaining age 55.
(e) If an Employee is, during a determination year or look-
back year, a family member of either a 5 percent owner who is an active
or former Employee or a highly compensated employee who is one of the 10
most highly compensated Employees ranked on the basis of compensation
paid by the Employer during such year, then the family member and the 5
percent owner or top-ten highly compensated Employee shall be
aggregated. In such case, the family member and 5 percent owner or top-
ten highly compensated Employee shall be treated as a single Employee
receiving compensation and Plan contributions or benefits equal to the
sum of such compensation and contributions or benefits of the family
member and 5 percent owner or top-ten highly compensated Employee. For
purposes of this section, family member includes the Spouse, lineal
ascendants and descendants of the Employee or former Employee and the
Spouses of such lineal ascendants and descendants.
For this purpose, the determination year shall be the
Plan Year. The look-back year shall be the twelve-month period
immediately preceding the determination year.
(f) The determination of who is a highly compensated
Employee, including the determinations of the number and identity of
Employees in the top-paid group, the top 100 Employees, the number of
Employees treated as officers and the compensation that is considered,
will be made in accordance with Section 414(q) of the Code and the
regulations thereunder.
"Highly Paid Employee" for any Plan Year beginning after December 31,
1996, means an Employee who: (A) owned more than five percent of the outstanding
equity interest or the outstanding voting interest in any Employer during the
year or the preceding year, or (B) for the preceding year (i) had Total
Compensation exceeding $80,000 (as adjusted pursuant to Section 415(d) of the
Code), and, (ii) if the Employer elects with respect to a preceding year, was
among the most highly compensated one-fifth of all Employees for such preceding
year. For this purpose:
4
<PAGE>
(a) "Total Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant
to Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account
all individuals working for all related employer entities described in
the definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per week or in fewer than six months per year, who has not
reached age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
(c) A former Employee shall be treated as a highly
compensated employee if such Employee was a highly paid Employee when
such Employee separated from service, or if such Employee was a highly
paid Employee at any time after attaining age 55.
(d) The determination of who is a highly compensated
Employee, including the determinations of the number and identity of
Employees in the top-paid group and the compensation that is
considered, will be made in accordance with Section 414(q) of the Code
and the regulations thereunder.
"Holding Company" means Richmond County Financial Corp., the holding
company of Richmond County Savings Bank, and any entity which succeeds to the
business of the Holding Company.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled
to be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or
indirectly paid or is entitled to be paid for a period of vacation,
holidays, illness, disability, lay-off, jury duty, temporary military
duty, or leave of absence is an Hour of Service. However, except as
otherwise specifically provided, no more than 501 Hours of Service
shall be credited for any single continuous period in which an Employee
performs no duties. Further, no Hours of Service shall be credited on
account of payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability
insurance laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501
5
<PAGE>
Hours of Service shall be credited for any single continuous period
during which an Employee would not have performed any duties.
(d) Hours of Service shall be credited in any one period
only under one of the foregoing paragraphs (a), (b) and (c); an
Employee may not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment
to an Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the Hours of
Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of
assets other than Stock.
"Matching Employer Contributions" means contributions made by the
Employer pursuant to Section 4.5 to a Participant's Matching Employer
Contributions Account.
"Normal Retirement Age" means a the later of the Participant's 65th
birthday or the fifth anniversary of the Participant's participation in the
Plan.
"Normal Retirement Date" means the first day of the month coincident
with or next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"Plan" means The Richmond County Savings Bank Employee Stock Ownership
Plan, as set forth herein, and as amended from time to time.
6
<PAGE>
"Plan Year" means the 12 consecutive month period commencing January 1
and ending December 31 of each year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such
leaves on a nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer
because of a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the
Military Selective Service Act of 1967 (38 U.S.C. sec.
2021).
"Service" means an Employee's period(s) of employment or self-
employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which constitutes
service with a predecessor employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which the
other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Sections
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, or (ii) for a period after 1979 in which
the other entity is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and a member of the affiliated service group is
an Employer.
"Spouse" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the Participant's death, if earlier.
"Stock" means shares of the voting common stock or preferred stock
meeting the requirements of Section 409(e)(3) of the Code issued by an Employer
or an affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer
7
<PAGE>
or an affiliate (within the purview of Section 414(b), (c), and (m) of the
Code), plus his earned income from any such entity as defined in Section
401(c)(2) of the Code if he is self-employed. "Total Compensation" shall include
(i) severance payments and amounts paid as a result of termination, (ii) amounts
excludable from gross income under Section 911 of the Code, (iii) amounts
described in Sections 104(a)(3), 105(a), and 105(h) of the Code to the extent
includable in gross income, (iv) amounts received from an Employer for moving
expenses which are not deductible under Section 217 of the Code, (v) amounts
includable in gross income in the year of, and on account of, the grant of a
nonqualified stock option, (vi) amounts includable in gross income pursuant to
Section 83(b) of the Code, and (vii) amounts includable in gross income under an
unfunded nonqualified plan of deferred compensation, but shall exclude (viii)
Employer contributions to or amounts received from a funded or qualified plan of
deferred compensation, (ix) Employer contributions to a simplified employee
pension account to the extent deductible under Section 219 of the Code, (x)
Employer contributions to a Section 403(b) annuity contract, and (xi) amounts
includable in gross income pursuant to Section 83(a) of the Code, (xii) amounts
includable in gross income upon the exercise of nonqualified stock option or
upon the disposition of stock acquired under any stock option, and (xiii) any
other amounts expended by the Employer on the Participant's behalf which are
excludable from his income or which receive special tax benefits. A
Participant's Total Compensation shall exclude any compensation in any
limitation year in excess of the limit currently in effect under Section
401(a)(17) of the Code.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled Trust Fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled Trust Fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Section 2 of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected
from time to time by the Bank to serve as trustee or co-trustees of the Trust
Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of Stock which has been acquired in exchange
for one or more Stock Obligations and which has not yet been allocated to the
Participant's Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other
date as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and
ending with the next Valuation Date.
8
<PAGE>
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
Section 3: Eligibility and Participation
-----------------------------
3.1 Initial Eligibility. An Employee shall enter the Plan as of the
-------------------
Entry Date coinciding with or on the next date an Employee completes an
eligibility computation period with the Employer, during which the Employee
completes at least 1,000 Hours of Service for the Employer and attains age 21.
However, if an Employee is not in active Service with an Employer on
the date he would otherwise first enter the Plan, his entry shall be deferred
until the next day he is in Service.
For purposes of this Plan, a Participant's initial eligibility
computation period shall be the twelve consecutive month period beginning with
the day a Participant first completes an Hour of Service. A Participant's
subsequent eligibility computation periods shall be the Plan Year, commencing
with the Plan Year which includes the first anniversary of the day the
Participant first completed an Hour of Service.
3.2 Terminated Employees. No Employee shall have any interest or
--------------------
rights under this Plan if he is never in active Service with an Employer on or
after the Effective Date.
3.3 Certain Employees Ineligible. No Employee shall be eligible to
----------------------------
participate in the Plan while he is employed by a division or subsidiary of the
Holding Company, other than the Bank, unless such division or subsidiary has,
with the approval of the Bank, adopted the Plan for its Employees. Additionally,
no Employee shall participate in the Plan while his Service is an hourly-paid
Employee, or is covered by a collective bargaining agreement between an Employer
and the Employee's collective bargaining representative if (i) retirement
benefits have been the subject of good faith bargaining between the Employer and
the representative and (ii) the collective bargaining agreement does not provide
for the Employee's participation in the Plan. No Employee shall participate in
the Plan while he is actually employed by a leasing organization rather than an
Employer.
3.4 Participation and Reparticipation. Subject to the satisfaction of
---------------------------------
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee returning within five years
of his or her termination who previously satisfied the initial eligibility
requirements shall re-enter the Plan as of the date of his return to Service
with an Employer.
9
<PAGE>
Section 4. Employer Contributions and Credits.
----------------------------------
4.1 Discretionary Contributions. Each Employer shall from time to
---------------------------
time contribute, with respect to a Plan Year, such amounts as it may determine
from time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation while a Participant.
4.2 Contributions for Stock Obligations. If the Trustee, upon
-----------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer shall, subject to the provisions of the Bank's plan of
conversion and any regulatory prohibitions, contribute for each Plan Year an
amount sufficient to cover all payments of principal and interest as they come
due under the terms of the Stock Obligation. If there is more than one Stock
Obligation, the Employers shall designate the one to which any contribution is
to be applied. The Employer's obligation to make contributions under this
Section 4.2 shall be reduced to the extent of any investment earnings realized
on such contributions and any dividends paid by the Employers on Stock held in
the Unallocated Stock Account, which earnings and dividends shall be applied to
the Stock Obligation related to that Stock.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments
of interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it,
and any dividends on such Stock, shall be considered separately. The Stock
released from the Unallocated Stock Fund in any Plan Year shall be credited as
of the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation earned while a Participant as
follows:
10
<PAGE>
(i) first, subject to the limitations of Section 5.5
hereof, the number of shares of Stock with a fair
market value (valued as of the time the Matching
Employer Contributions are accrued under the Richmond
County Savings Bank 401(k) Plan in the RSI Retirement
Trust) equal to the Matching Employer Contribution
made on behalf of an Active Participant shall be
credited to the Participant's Matching Employer
Contributions Account; and then
(ii) subject to the limitations of Section 5.5. hereof,
the number of shares of Stock that bears the same
ratio as the Active Participant's Cash Compensation
bears to the aggregate Cash Compensation of all
Active Participants for the Plan Year shall be
credited to such Participant's Account.
4.3 Definitions Related to Contributions. For the purposes of
------------------------------------
this Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3. However, a Participant shall not
qualify as an Active Participant unless (i) he is in active Service with an
Employer as of the last day of the Plan Year, or (ii) he is on a Recognized
Absence as of that date, or (iii) his Service terminated during the Plan Year by
reason of Normal Retirement, Early Retirement, Disability or death.
"Cash Compensation" means the Participant's base compensation
reportable on Form W-2. A Participant's Cash Compensation shall exclude any
compensation in excess of the limit currently in effect under Section 401(a)(17)
of the Code. In addition to other applicable limitations set forth in the Plan,
and notwithstanding any provision of the Plan to the contrary, the annual
compensation of each employee taken in to account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA 1993") annual
compensation limit. The OBRA 1993 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost-of-living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (the
"Determination Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the OBRA 1993 annual compensation
limitation will be multiplied by a fraction, the numerator of which is the
number of months in the Determination Period, and the denominator of which is
12.
4.4 Conditions as to Contributions. Employers' contributions shall in
------------------------------
any event be subject to the limitation set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact,
11
<PAGE>
or based upon a good faith but erroneous determination of its deductibility
under Section 404 of the Code, shall be returned to the Employer within one year
after the date on which the contribution was originally made, or within one year
after its nondeductibility has been finally determined. However, the amount to
be returned shall be reduced to take account of any adverse investment
experience within the Trust Fund in order that the balance credited to each
Participant's Account is not less that it would have been if the contribution
had never been made.
4.5 Matching Employer Contributions. For each Plan Year commencing with
-------------------------------
the ______ Plan Year, the Employer, in its sole discretion, may make a
contribution equal to a percentage of the Employee Basic Contributions made for
the Plan Year on behalf of each Participant under the terms of the Richmond
County Savings Bank 401(k) Savings Plan in RSI Retirement Trust.
Section 5. Limitations on Contributions and Allocations.
--------------------------------------------
5.1 Limitation on Annual Additions. Notwithstanding the provisions of
------------------------------
Section 4, the annual addition to a Participant's Accounts under this and any
other defined contribution plans maintained by the Employers or an affiliate
(within the purview of Sections 414(b), (c), and (m) and Section 415(h) of the
Code, which affiliate shall be deemed an Employer for this purpose) shall not
exceed for any limitation year an amount equal to the lesser of --
5.1-1 $30,000, or the one-fourth of the dollar limitation currently
in effect under Section 415(b)(1)(A) of the Code; or
5.1-2 25 percent of the Participant's Total Compensation for such
limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the
"annual addition" to a Participant's Accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's Accounts with
respect to a limitation year, plus (ii) the Participant's total voluntary
contributions for that year. The $30,000 and Section 415(b)(1)(A) limitations
referred to shall, for each limitation year, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue for
the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in Section
415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 Coordinated Limitation With Other Plans. For Plan Years commencing
---------------------------------------
prior to December 31, 1999, aside from the limitation prescribed by Section 5.1
with respect to the annual addition to a Participant's Accounts for any single
limitation year, if a Participant has ever participated in one or more defined
benefit plans maintained by an Employer or an affiliate, then the benefits
provided under the defined benefit plan on his account shall be limited on a
cumulative basis so that the sum of his defined contribution plan fraction and
his defined benefit plan fraction does not exceed one. For this purpose:
12
<PAGE>
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his accounts under all defined
contribution plans (whether or not terminated) maintained by the
Employer for the current year and all prior limitation years (including
annual additions of the Participant's nondeductible employee
contributions to all defined benefit plans, whether or not terminated,
maintained by an Employer, and the annual additions attributable to all
welfare benefit plans, individual medical accounts, and simplified
employee pensions maintained by the Employer), and (ii) the denominator
of which is the sum of the lesser of the following amounts -A- and -B-
determined for the current limitation year and each prior limitation
year of Service with an Employer: -A- is 1.25 times the dollar
limitation determined under Section 415(c)(1)(A) of the Code, or 1.0
times such dollar limitation if the Plan is top-heavy, and -B- is 35
percent of the Participant's Total Compensation for such year. If the
Employee was a Participant as of the end of the first limitation year
beginning after December 31, 1986 in one or more defined contribution
plans maintained by an Employer which plan(s) were in existence on May
6, 1986, and if the sum of this fraction and the defined benefit
fraction (described below) would otherwise exceed 1.0 under the terms
of this Plan, the numerator of this fraction will be adjusted. To
affect this adjustment, an amount equal to the product of the excess of
the sum of the fractions over 1.0, multiplied by the denominator of
this fraction shall be permanently subtracted from the numerator of
this fraction. This adjustment shall be calculated using the fractions
as they would be computed as of the end of the last limitation year
beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 5, 1986, but using the
limitation applicable under Section 415 of the Code for the first
limitation year beginning on or after January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with respect to
a limitation year shall be a fraction, (i) the numerator of which is
his projected annual benefit payable at normal retirement under the
Employers' defined benefit plans, and (ii) the denominator of which is
the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is top-heavy, and (b) 1.4 times the
Participant's average Total Compensation during his highest-paid three
consecutive limitation years.
Notwithstanding the preceding, for Plan Years commencing after December
31, 1999, this Section 5.2 shall no longer be applicable.
5.3 Effect of Limitations. The Committee shall take whatever action may
---------------------
be necessary from time to time to assure compliance with the limitations set
forth in Sections 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account
13
<PAGE>
of a mistake as to one or more Participants' compensation, or there is an amount
of forfeitures which may not be credited in the Plan Year in which it becomes
available, the amount shall be held in a suspense account to be allocated in
lieu of any Employer contributions in future years until it is eliminated, and
to be returned to the Employer if it cannot be credited consistent with these
limitations before the termination of the Plan.
5.4 Limitations as to Certain Section 1042 Transactions. Aside from the
---------------------------------------------------
limitations set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in
a transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date on which the Plan purchases the Stock and ending 10
years after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
5.5 Limitations as to Certain Participants. Aside from the limitations
--------------------------------------
set forth in Section 5.1 and 5.2, in no event shall more than one third of the
Employer contributions to the Plan (including Matching Employer Contributions)
be allocated to the Accounts of highly compensated Participants (within the
meaning of Section 414(q) of the Code). The Committee shall take whatever action
may be necessary from time to time to assure compliance with the limitations set
forth in this Section 5.5. Specifically, the Committee shall, beginning with the
Participants whose Cash Compensation amounts are in excess of the limit under
Section 401(a)(17) of the Code, reduce the amount of Cash Compensation of such
highly compensated Participants on a pro-rata basis per individual that would
otherwise be taken into account for purposes of allocating benefits under
14
<PAGE>
Section 4.2 of this Plan. If, in order to satisfy this Section 5.5, such
Participants' Cash Compensation amount per individual must be reduced to an
amount that is lower than the Cash Compensation amount of the next most highly
compensated Participant (the "breakpoint amount"), then, for purposes of
allocating benefits under Section 4.2 of the Plan, the Cash Compensation amounts
of all Participants shall be reduced to an amount not to exceed such breakpoint
amount.
5.6 Nondiscrimination Test for Matching Employer Contributions.
----------------------------------------------------------
Notwithstanding anything herein to the contrary the Plan shall meet the
nondiscrimination test of Section 401(m) of the Code (described in Section 5.6-1
and applicable regulations) for each Plan Year. In order to meet the
nondiscrimination test, any or all of the following steps may be taken:
(a) At any time during the Plan Year, the Committee may
limit the amount of Matching Employer Contributions
that may be made on behalf of Highly Compensated
Employees;
(b) The Committee may reduce the Matching Employer
Contributions made for the Plan Year to the extent
necessary to meet the requirements of Section 401(m)
of Code, in the manner described in Section 5.7;
(c) The Committee may recommend to the Board that the
Employer make an additional Matching Employer
Contribution to the Plan for the benefit of
Participants who are not Highly Compensated
Employees. This additional allocation may be made
based on Participants' Total Compensation; and
(d) The Committee may take any other steps that the
Committee deems appropriate.
5.6-2 For Plan Years beginning after to December 31, 1996, the
nondiscrimination requirements of Section 401(m) of the Code require
that, in each Plan Year, the Contribution
15
<PAGE>
Percentage (defined below) of the eligible Highly Compensated Employees
for such Plan Year does not exceed the greater of:
(a) The Contribution Percentage of all other eligible
Employees for the preceding Plan Year multiplied by 1.25;
or
(b) The lesser of the Contribution Percentage of all other
eligible Employees for the preceding Plan Year multiplied
by 2, or the Contribution Percentage of all other eligible
Employees for the preceding Plan Year plus 2 percentage
points.
The Committee may elect to calculate the Contribution Percentages
using the Plan Year rather than the preceding Plan Year, provided
however that if the Committee so elects, the election may only be
changed as provided by the Secretary of the Treasury.
5.6-2 The Contribution Percentage for a group of Employees is
the average of the ratios, calculated separately for each Employee in
the group, of the amount of Matching Employer Contributions that are
credited under the Plan on behalf of each Employee for the Plan Year,
to the Employee's Compensation for the Plan Year. Use of the
alternative limitation shall be subject to the provisions of Treasury
Regulation (S) 1.401(m)-2 regarding the multiple use of the alternative
deferral tests set forth in Sections 401(k) and 401(m) of the Code.
5.6-3 Notwithstanding the foregoing, if the test described in
Section 56-1 is not satisfied for a Plan Year, the Committee may use
any other test permitted under Section 401(m) of the Code to determine
whether the Plan meets the nondiscrimination requirements of Section
401(m) of the Code.
Section 6. Trust Fund and Its Investment.
-----------------------------
6.1 Creation of Trust Fund. All amounts received under the Plan from an
----------------------
Employer and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
------------------------------
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall
16
<PAGE>
acquire, sell, exchange, distribute, and otherwise deal with and dispose of
Stock in accordance with the instructions of the Committee.
6.3 Acquisition of Stock. From time to time the Committee may, in its
--------------------
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". Any Stock Obligation shall be subject to the following
conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and shall bear
a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the
Stock Obligation, or the Stock previously pledged in connection with a
prior Stock Obligation which is being repaid with the proceeds of the
current Stock Obligation. No other assets of the Plan and Trust may be
used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and Trust
assets other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments on
the Stock Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation generally shall be made by the Trustee from cash
contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock held in the
Unallocated Stock Fund.
6.4 Participants' Option to Diversify. The Committee shall provide for
---------------------------------
a procedure under which each Participant may, during the first five years of a
certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The six-year
period shall begin with the Plan Year following the first Plan Year in which the
Participant has both reached aged 55 and completed 10 years of participation in
the Plan; a Participant's election to diversify his Account must be made within
the 90-day period immediately following the last day of each of the six Plan
Years. The Committee shall see that the Investment Fund includes a sufficient
number of investment options to comply with Section 401(a)(28)(B) of the Code.
The Trustee shall comply with any
17
<PAGE>
investment directions received from Participants in accordance with the
procedures adopted from time to time by the Committee under this Section 6.4.
Section 7. Voting Rights and Dividends on Stock.
------------------------------------
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
-----------------------------
shares of Stock held under the Plan. However, if any Employer has
registration-type class of securities within the meaning of Section 409(e)(4) of
the Code, or if a matter submitted to the holders of the Stock involves a
merger, consolidation, recapitalization, reclassification, liquidation,
dissolution, or sale of substantially all assets of an entity, then (i) the
shares of Stock which have been allocated to Participants' Accounts shall be
voted by the Trustee in accordance with the Participants' written instructions,
and (ii) the Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been received
and any unallocated Stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock. In
the event no shares of Stock have been allocated to Participants' Accounts at
the time Stock is to be voted, each Participant shall be deemed to have one
share of Stock allocated to his or her account for the sole purpose of providing
the Trustee with voting instructions. Notwithstanding any provision hereunder to
the contrary, all shares of Stock which have been allocated to Participants'
Accounts and for which the Trustee has received no written instructions and all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be solely in the interest of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers,
the Committee, and the Trustee shall see that all Participants and Beneficiaries
are provided with the same notices and other materials as are provided to other
holders of the Stock, and are provided with adequate opportunity to deliver
their instructions to the Trustee regarding the voting of Stock allocated to
their Accounts. The instructions of the Participants with respect to the voting
of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with respect to
the voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be solely in the interest of the Participants and
Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Company paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance; (iii) be distributed to the Participants within 90 days of the
close of the Plan Year in which paid in proportion with the Participants'
Account balance; or (iv) be used
18
<PAGE>
to repay principal and interest on the Stock Obligation used to acquire Stock on
which the dividends were paid. Dividends on Stock held in the Unallocated Stock
Fund which are received by the Trustee in the form of cash shall be applied as
soon as practicable to payments of principal and interest under the Stock
Obligation incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
-----------------------
8.1 Adjustments for Transactions. An Employer contribution pursuant to
----------------------------
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of, or the use of the proceeds of, a sale of Stock from
the Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of
the last day of the Plan Year in which the repayment occurred among the
Participants' Accounts as earnings, in proportion to the opening balance in each
Account and shall not be deemed annual additions within the meaning of Section
415(c)(2) of the Code. Any benefit which is paid to a Participant or Beneficiary
pursuant to Section 10 shall be charged to the Participant's Account as of the
first day of the Valuation Period in which it is paid. Any forfeiture or
restoral shall be charged or credited to the Participant's Account as of the
first day of the Valuation Period in which the forfeiture or restoral occurs
pursuant to Section 9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
----------------------------
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
-------------------------------------
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
8.4 Adjustments for Capital Changes. In the event of any change in the
-------------------------------
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation,
19
<PAGE>
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares effected without
receipt or payment of consideration by the bank issuing the Stock, the Committee
shall adjust the number of shares of Stock allocated to the Participants'
Accounts to prevent dilution or enlargement of such Accounts.
Section 9. Vesting of Participants' Interests.
----------------------------------
9.1 Deferred Vesting in Accounts. A Participant's vested interest in
----------------------------
his Account shall be based on his Vesting Years in accordance with the following
table, subject to the balance of this Section 9:
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------- ---------------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
----------------------------
Year" means each 12-month period beginning with his initial Service with the
Employer. However, a Participant's Vesting Years shall be computed subject to
the following conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated
before a Break in Service shall be determined without
regard to any Service after the Break. Notwithstanding the
foregoing, in the event a Participant has an eligibility
computation period (as defined in Section 3.1 of the Plan)
during which he performs 500 or fewer Hours of Service (a
"one year Break in Service"), and then returns to Service
prior to having a Break in Service, his Service performed
both before and after his break in employment shall be
taken into account in determining his Vesting Years.
Generally, if a Participant has a Break in Service before
his interest in his Account has become vested to some
extent, he shall lose credit for any Vesting Year before
the Break in Service. However, if a Participant separates
from Service before his interest in his Account has become
vested to some extent, and returns to Service after a
Break in Service, the Participant's Vesting Years both
prior to and after the Break in Service will count as
Vesting Years for his Account accumulated after the Break
if the number of the Participant's consecutive one year
breaks in Service is less than the number of years of
Service prior to the Break in Service.
20
<PAGE>
(b) Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military
duty to the extent required by the Military Selective
Service Act of 1967 (38 U.S.C. Section 2021).
9.3 Full Vesting Upon Certain Events. Notwithstanding Section 9.1, a
--------------------------------
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also fully vest in the event that his
Service is terminated by Early Retirement, Disability or by death or upon the
occurrence of a Change in Control of the Bank or the Holding Company.
For purposes of this Section 9.3, a Change in Control of the Bank or
the Holding Company shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal Deposit
Insurance Corporation ("FDIC") at 12 C.F.R. Section 303.4(a) with respect to the
Bank and the Board of Governors of the Federal Reserve System ("FRB") at 12
C.F.R. Section 225.41(b) with respect to the Holding Company, as in effect on
the date hereof; or (iii) results in a transaction requiring prior FRB approval
under the Bank Holding Company Act of 1956 and the regulations promulgated
thereunder by the FRB at 12 C.F.R. Section 225.11, as in effect on the date
hereof except for the Holding Company's acquisition of the Bank; or (iv) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Bank or
the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Bank or similar transaction with one or more corporations as
a result of which the outstanding shares of the class of securities then subject
to the plan or transaction are exchanged for or converted into cash or
21
<PAGE>
property or securities not issued by the Bank or the Holding Company shall be
distributed; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Holding Company.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
----------------------------------
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
-----------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested benefit, or (ii) has a Break in Service. If a Participant
who has received his entire vested interest returns to Service before he has a
Break in Service, he may repay to the Trustee an amount equal to the
distribution. The Participant may repay such amount at any time within five
years after he has returned to Service. The amount shall be credited to his
Account as of the last day of the Plan Year in which it is repaid; an additional
amount equal to the portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. In the case of a terminated Participant who does not
receive a distribution of his entire vested interest and whose Service resumes
after a Break in Service, any undistributed balance from his prior participation
which was not forfeited shall be maintained as a fully vested subaccount with
his Account. If a portion of a Participant's Account is forfeited, assets other
that Stock must be forfeited before any Stock may be forfeited. In the case of a
Participant who has incurred a Break in Service and then returns to Service, all
years of Service after the Break in Service will be disregarded for the purpose
of vesting his Account accrued before the Break in Service, but both pre-Break
and post-Break Service will count for the purpose of vesting the Participant's
Account that accrues after the Break in Service. If a Participant's Service
terminates prior to his Account having become vested, such Participant shall be
deemed to have received a distribution of his entire vested interest as of the
Valuation Date next following his termination of Service.
9.6 Accounting for Forfeitures. A forfeiture shall be charged to the
--------------------------
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
-----------------------------
Account which has become vested shall be nonforfeitable for any reason.
22
<PAGE>
Section 10. Payment of Benefits.
-------------------
10.1 Benefits for Participants. A Participant whose Service ends for
-------------------------
any reason shall receive the vested portion of his Account in a single payment
on a date selected by the Committee. That date shall be on or before the 60th
day after the end of the Plan Year in which his Service ends. Notwithstanding
the foregoing, if the balance credited to his Account exceeds $3,500, his
benefits shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan, unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. Such an election is not valid unless it is made after the Participant
has received the required notice under Section 1.411(a)-11(c) of the Income Tax
Regulations that provides a general description of the material features of a
lump sum distribution and the Participant's right to defer receipt of his
benefit. The Notice shall be provided no less than 30 days and no more than 90
days before the first day on which all events have occurred which entitle the
Participant to such benefit. Written consent of the Participant to the
distribution generally may not be made within 30 days of the date the
Participant receives the notice and shall not be made more than 90 days from the
date the Participant receives the notice. However, a distribution may be made
less than 30 days after the notice provided under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, if:
(a) the Committee clearly informs the Participant that he has
a right to period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect
a distribution (and if applicable, a particular
distribution option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution.
In all events, a Participant's benefits shall be paid by April 1st of the
calendar year in which he reaches age 71-1/2. A Participant's benefits from that
portion of his Account committed to the Investment Fund shall be calculated on
the basis of the most recent Valuation Date before the day of payment.
For Plan Years beginning after December 31, 1996, with respect to all
Participants other than those who are 5% owners within the meaning of Section
416 of the Code, such Participant's benefits shall be paid by April 1st of the
later of (i) the calendar year in which he reaches age 71-1/2, or (ii) the
calendar year in which he retires. With respect to all Participants who are 5%
owners within the meaning of Section 416 of the Code, such Participants benefits
shall be paid by April 1st of the calendar year in which he reaches age 71-1/2.
10.2 Benefits on a Participant's Death. If a Participant dies before
---------------------------------
his benefits are paid pursuant to Section 10.1, the balance credited to his
Account shall be paid to his Beneficiary in a single distribution on or before
the 60th day after the end of the Plan Year in which he died. The benefits from
that portion of the Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
23
<PAGE>
If a married Participant dies before his benefit payments begin, then
unless he has specifically elected otherwise the Committee shall cause the
balance in his Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless the election is
accompanied by the Spouse's written consent, which (i) must acknowledge the
effect of the election, (ii) must explicitly provide either that the designated
Beneficiary may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a notary
public. This requirement shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.
10.3 Marital Status. The Committee shall from time to time take
--------------
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be
-------------------------------
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
---------------------------------
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(c) of the Code, shall have the right to require the Employer which
issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred
24
<PAGE>
to as the "put right"). The put right shall be exercisable by written notice to
the Committee during the first 60 days after the Stock is distributed by the
Plan, and, if not exercised in that period, during the first 60 days in the
following Plan Year after the Committee has communicated to the Participant its
determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. If the put
right is exercised, the Trustee may, if so directed by the Committee in its sole
discretion, assume the Employer's rights and obligations with respect to
purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for
the Stock in equal periodic installments, not less frequently than annually,
over a period not longer than five years from the 30th day after the put right
is exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right be nonterminable. The put right for Stock acquired
through a Stock Obligation shall continue with respect to such Stock after the
Stock Obligation is repaid or the Plan ceases to be an employee stock ownership
plan. Except as provided above, in accordance with the provisions of Sections
54.4975-7(b)(4) of the Treasury Regulations, no Stock acquired with the proceeds
of a Stock Obligation may be subject to any put, call or other option or
buy-sell or similar arrangement while held by and when distributed from the
Plan, whether the Plan is then an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
------------------------------------
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall, prior to any sale
or other transfer of the Stock to any other person, first offer the Stock to the
issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Stock distributed by the Plan shall bear a conspicuous legend
describing the right of first refusal under this Section 10.7, as well as any
other restrictions upon the transfer of the Stock imposed by federal and state
securities laws and regulations.
25
<PAGE>
10.8 Direct Transfer of Eligible Plan Distributions. A Participant or
----------------------------------------------
Beneficiary may direct that an "eligible rollover distribution" (as defined
below) included in such payment be paid directly to an "eligible retirement
plan" (as defined below).
To effect such a direct transfer, the Participant or Beneficiary must
notify the Committee that a direct transfer is desired and provide to the
Committee the eligible retirement plan to which the payment is to be made. Such
notice shall be made in such form and at such time as the Committee may
prescribe. Upon receipt of such notice, the Committee shall direct the Trustee
to make a trustee-to-trustee transfer of the eligible rollover distribution to
the eligible retirement plan so specified.
For purposes of this Section 10.8, an "eligible rollover distribution"
shall have the meaning set forth in Section 402(c)(4) of the Code and any
regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible rollover distribution shall
mean any distribution of all or any portion of the Participant's Account, except
that such term shall not include any distribution which is one of a series of
substantially equal periodic payments (not less frequently than annually) made
(i) for the life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and a designated Beneficiary, or
(ii) for a period of ten years or more. Further, the term "eligible rollover
distribution shall not include any distribution required to be made under
Section 401(a)(9) of the Code.
For purposes of this Section 10.8, an "eligible retirement plan" shall
have the meaning set forth in Section 402(c)(8) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible retirement plan shall mean: (i) an individual
retirement account described in Section 408(a) of the Code; (ii) an individual
retirement annuity described in Section 408(b) of the Code (other than an
endowment contract), (iii) a qualified trust described in Section 401(a) of the
Code and exempt under Section 501(a) of the Code, and (iv) an annuity plan
described in Section 403(a) of the Code.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
----------------------------------------------------
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the 30th day before the date on which benefits become payable,
he shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2.
11.2 Notification by Committee. Within 90 days after receiving a claim
-------------------------
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for
26
<PAGE>
benefits), the Committee shall notify the Participant or Beneficiary whether the
claim has been approved or denied. If the Committee denies a claim in any
respect, the Committee shall set forth in a written notice to the Participant or
Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions
on which the denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or
Beneficiary to support his claim, with an explanation of
the relevance of such information; and
(iv) an explanation of the claims review procedures set
forth in Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
-------------------------------
12.1 Authority of Committee. The Committee shall be the "plan
----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have full investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in the Trust
Agreement. In the discharge of its duties, the Committee may employ accountants,
actuaries, legal counsel, and other agents (who also may be
27
<PAGE>
employed by an Employer or the Trustee in the same or some other capacity) and
may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consist of three or
---------------------
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may
-------------------
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and
authority with respect to the Plan's holdings of Stock and shall direct the
Trustee in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations. The
Committee shall at all times act consistently with the Bank's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Stock. Subject to the direction of the Committee with respect to
Stock Obligations pursuant to the provision of Section 4.2, and subject to the
provisions of Sections 6.4 and 10.6 as to Participants' rights under certain
circumstances to have their Accounts invested in Stock or in assets other than
Stock, the Committee shall determine in its sole discretion the extent to which
assets of the Trust shall be used to repay Stock Obligations, to purchase Stock,
or to invest in other assets to be selected by the Committee or an investment
manager. No provision of the Plan relating to the allocation or vesting of any
interests in the Stock Fund or the Investment Fund shall restrict the Committee
from changing any holdings of the Trust, whether the changes involve an increase
or a decrease in the Stock or other assets credited to Participants' Accounts.
In determining the proper extent of the Trust's investment in Stock, the
Committee shall be authorized to employ investment counsel, legal counsel,
appraisers, and other agents to pay their reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
------------------
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of each
Valuation Date, and on any other date as of which the Plan purchases or sells
such Stock. The Committee shall use generally accepted methods of valuing stock
of similar corporations for purposes of arm's length business and investment
transactions, and in this connection the Committee shall obtain, and shall be
protected in relying upon, the valuation of such
28
<PAGE>
Stock as determined by an independent appraiser experienced in preparing
valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts
---------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
-------------------
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
----------------------
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
-----------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
--------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds
-----------------------------------------
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Transfers to Minors Act, or the person having actual custody
of him, or, in the case of an incompetent, to his Spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
29
<PAGE>
12.11 Indemnification by Employers. Except as separately agreed in
----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
-------------------------------------
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
-----------------------------------------------
13.1 Adoption of Plan by Other Employers. With the consent of the
-----------------------------------
Bank, any entity may become a participating Employer under the Plan by (i)
taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer
-----------------------------
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
--------------------------------------
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan,
30
<PAGE>
may be amended retroactively to the earliest date permitted by U.S. Treasury
Regulations in order to secure qualification under Section 401(a). If this Plan
is held by the Internal Revenue Service not to qualify initially under Section
401(a) either as originally adopted or as amended, each Employer's contributions
to the Trust under this Plan (including any earnings thereon) shall be returned
to it and this Plan shall be terminated. In the event that this Plan is amended
after its initial qualification and the Plan as amended is held by the Internal
Revenue Service not to qualify under Section 401(a), the amendment may be
modified retroactively to the earliest date permitted by U.S. Treasury
Regulations in order to secure approval of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Bank intends to continue this
---------------------------
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of compliance
with the Code or ERISA, each as amended from time to time, neither the
provisions of Section 4.1 and 4.2 relating to the crediting of contributions,
forfeitures and shares of Stock released from the Unallocated Stock Fund, nor
any other provision of the Plan relating to the allocation of benefits to
Participants, may be amended more frequently than once every six months.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately following
such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been
entitled to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Bank, the Trustee shall continue to
administer the Trust and pay benefits in accordance with the Plan as amended
from time to time and the Committee's instructions.
Section 14. Miscellaneous Provisions.
------------------------
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
---------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal
31
<PAGE>
process for debts or liabilities of any Participant or Beneficiary, to the
extent permitted by law. This prohibition on assignment or alienation shall
apply to any judgment, decree, or order (including approval of a property
settlement agreement) which relates to the provision of child support, alimony,
or property rights to a present or former Spouse, child or other dependent of a
Participant pursuant to a State domestic relations or community property law,
unless the judgment, decree, or order is determined by the Committee to be a
qualified domestic relations order within the meaning of Section 414(p) of the
Code.
14.3 Limit of Employer Liability. The liability of the Employers with
---------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and
---------------------
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employers or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted
-----------------
to include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held
--------------------------
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the
------------------
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance
-------------------
with the laws of the State of New York to the extent those laws are applicable
under the provisions of ERISA.
14.10 Special Rules for Persons Subject to Section 16(b) Requirements.
---------------------------------------------------------------
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
32
<PAGE>
In addition, any person subject to the provisions of Section 16(b) of
the 1934 Act receiving a distribution of Stock from the Plan must hold such
Stock for a period of six months commencing with the date of distribution.
However, this restriction will not apply to Stock distributions made in
connection with death, retirement, disability or termination of employment, or
made pursuant to the terms of a qualified domestic relations order.
Section 15. Top-Heavy Provisions.
--------------------
15.1 Determination of Top-Heavy Status. The Committee shall determine
---------------------------------
on a regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, and 15.3, which apply
only to the extent the Plan is top-heavy or super top-heavy within the meaning
of Section 416 and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of
Sections 414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee
is a Participant during the Plan Year, (ii) which enables any plan
described in clause (i) to satisfy the requirements of Section
401(a)(4) or 410 of the Code, or (iii) which provides contributions or
benefits comparable to those of the plans described in clauses (i) and
(ii) and which is designated by the Committee as part of the plan
aggregation group.
15.1-3 The "determination date," with respect to the first
Plan Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the
preceding Plan Year. If any other plan has a determination date which
differs from this Plan's determination date, the top-heaviness of this
Plan shall be determined on the basis of the other plan's determination
date falling within the same calendar years as this Plan's
determination date.
15.1-4 A "Key Employee," with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having Total Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an
owner of more than five percent of the outstanding equity interest or
the outstanding voting interest in any Employer, or (iv) an owner of
more than one percent of the outstanding equity interest or the
outstanding voting interest in an Employer whose Total Compensation
exceeds $150,000. In determining which individuals are Key
33
<PAGE>
Employees, the rules of Section 416(i) of the Code and Treasury
Regulations promulgated thereunder shall apply. The Beneficiary of a
Key Employee shall also be considered a Key Employee.
15.1-5 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy determination date for
the Plan Year has received compensation from an Employer and who has
never been a Key Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i)
the adjusted account balances in defined contribution plans on the
determination date, plus (ii) the adjusted value of accrued benefits in
defined benefit plans, calculated as of the annual valuation date
coinciding with or next preceding the determination date, with respect
to Key Employees and Non-key Employees under all plans within the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" for and the "adjusted value of accrued
benefit" for any Employee shall be increased by all plan distributions
made with respect to the Employee during the five years ending on the
determination date. Further, the adjusted account balance under a plan
shall not include any amount attributable to a rollover contribution or
similar transfer to the plan initiated by an Employee and made after
1983, unless both plans involved are maintained by the Employer, in
which event the transferred amount shall be counted in the transferee
plan and ignored for all purposes in the transferor plan. Finally, the
adjusted value of accrued benefits under any defined benefit plan shall
be determined by assuming whichever actuarial assumptions were applied
by the Pension Benefit Guaranty Corporation to determine the
sufficiency of plan assets for plans terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 60 percent of
the total aggregated benefits for both Key Employees and Non-key
Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year
in which the aggregated benefits of the Key Employees exceed 90 percent
of the total aggregated benefits for both Key Employees and Non-key
Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan
is top-heavy.
15.2 Minimum Contributions. For any Top-Heavy Year, each Employer
---------------------
shall make a special contribution on behalf of each Participant to the extent
that the total allocations to his Account pursuant to Section 4 is less than the
lesser of (i) four percent of his Total Compensation for that year, or (ii) the
highest ratio of such allocation to Total Compensation received by any Key
Employee for that year. For purposes of the special contribution of this Section
15.2, a Key Employee's Total Compensation shall include amounts the Key Employee
elected to defer under a
34
<PAGE>
qualified 401(k) arrangement. Such a special contribution shall be made on
behalf of each Participant who is employed by an Employer on the last day of the
Plan Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
Total Compensation for that year.
15.3 Minimum Vesting. If a Participant's vested interest in his
---------------
Account is to be determined in a Top-Heavy Year, it shall be based on the
following "top-heavy table":
Vesting Percentage of
Years Interest Vested
----- ---------------
fewer than 3 0
3 or more 100%
35
<PAGE>
Exhibit 10.2
[RICHMOND COUNTY FINANCIAL CORP. LETTERHEAD]
__________________, 1997
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Dear ___________:
This letter confirms Richmond County Financial Corp.'s commitment to fund a
leveraged ESOP in an amount up to $ ________. The commitment is subject to the
following terms and conditions:
1. Lender: Richmond County Financial Corp. (the "Company").
------
2. Borrower: Richmond County Savings Bank Employee Stock Ownership Plan.
--------
3. Trustee: _________________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
Richmond County Savings Bank Employee Stock Ownership Plan.
5. Maturity: Up to 20 years from takedown.
--------
6. Amortization: Equal annual principal and interest payments
------------
7. Pricing:
-------
a. [___%] or [the Prime Rate as published in the Wall Street Journal
on the date of the loan transaction].
8. Interest Payments:
-----------------
a. Annual on a 360 day basis.
<PAGE>
9. Funding: In full by ______________, unless such date is waived by the
-------
Company.
10. Prepayment: Voluntary prepayment are permitted at any time.
----------
11. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of Richmond County Savings Bank or the
Company.
12. Closing Date: Not later than __________, unless such date is waived by
------------
the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Lending Officer
Accepted on Behalf of
Richmond County Savings Bank
By: Date:
------------------------------------- ---------------------------
President and Chief Executive Officer
<PAGE>
RICHMOND COUNTY SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
___________________, 1997
Gentlemen:
The undersigned, ____________________ ("Trustee"), not individually but
solely as Trustee under the Richmond County Savings Bank Employee Stock
Ownership Trust (the "Trust") effective ________ (the "Borrower"), applies to
you for your commitment, subject to all of the terms and conditions hereof and
on the basis of the representations hereinafter set forth, to make a loan
available to the Borrower as hereinafter set forth. Richmond County Financial
Corp. is hereinafter referred to as the "Lender". The term "Bank" as used
herein refers to the sponsoring employer of the Richmond County Savings Bank
Employee Stock Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 Amount and Terms. Subject to and upon the terms and conditions
----------------
herein set forth, the Lender agrees to lend amounts to the Borrower from time to
time during the period of this agreement up to but not including ___________
(the "Maturity Date") in an aggregate principal amount sufficient to permit the
Borrower to acquire a number of shares ("Shares") of common stock, par value
$0.01 ("Common Stock") of Richmond County Financial Corp., a Delaware
corporation, and the Holding Company of the Bank, equal to 8% of the Shares
issued in connection with the conversion of the Bank from the mutual to stock
form ("Loan Amount").
The Loan is intended to be an "exempt loan" as described in
Section 4975(d) of the Internal Revenue Code of 1986, as amended (the "Code"),
as defined in Section 54.4975-7(b) of the Treasury Regulations (the
"Regulations"), as described in Section 408(b)(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and as described in Department
of Labor Regulations Section 2550.408b-3 (collectively, the "Exempt Loan
Rules").
1.2 The Note. The disbursement of the Loan pursuant to Section 1.1
--------
hereof shall be made against and evidenced by a promissory note of the Borrower
in the form annexed hereto as Exhibit A (the "Note"), such Note to bear interest
as hereinafter provided, and to mature in
<PAGE>
twenty (20) equal annual installments consisting of both principal and interest
amortized over a twenty (20) period in an amount sufficient to repay all
borrowed amounts plus interest, commencing on ________________ and on the last
day of each and every ______________ each year thereafter, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on ______________, the final maturity thereof.
Without regard to the principal amount of the Note stated on its face,
the actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 Exempt Loan Rules. Notwithstanding anything to the contrary
-----------------
contained in this Loan and Security Agreement (the "Agreement") or in the Note,
the Borrower shall be obligated to make repayments of the Loan only to the
extent that such repayments when added to the repayments theretofore made during
the applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 Interest Rate. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 hereof.
2.2 Basis and Payment Dates. All interest accruing on the Note prior
-----------------------
to maturity shall be due and payable on an annual basis on the last day of each
year (commencing ______________) and at maturity (unless prepaid in whole prior
to such date, then on the date of
2
<PAGE>
such prepayment in whole) and interest accruing after maturity shall be due and
payable upon demand. All interest on the Note shall be computed on the basis of
a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 Grant of Security Interest-Pledge Shares. The Borrower hereby grants,
----------------------------------------
pledges and assigns to the Lender all Shares of the issues and outstanding
common stock, par value $.01 per share all of which were either (i) purchased by
the Borrower from the proceeds of the disbursement of the Loan; (ii) acquired by
the Borrower with the proceeds of a prior exempt loan within the meaning of
Section 54.4975-7(b) of the Regulations, and pledged as collateral for such
prior exempt loan, where the balance of such prior exempt loan has been repaid
with the proceeds of the disbursement of the Loan (the "Pledged Shares" being
hereinafter referred to as the "Collateral"). The Pledged Shares shall be
evidenced by a stock certificate. The assignment and pledge herein granted and
provided for is made and given to secure and shall secure the prompt payment of
principal of and interest on the Note as and when the same becomes due and
payable and the payment, observance and performance of any and all obligations
and liabilities arising under or provided for in this Agreement or the Note or
any of them in each instance as the same may be amended or modified and whether
now existing or hereafter arising.
3.2 Further Assurances. The Borrower covenants and agrees that it will at
------------------
any time and from time to time as requested by the Lender execute and deliver
such further instruments and do and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 Voting. Upon the occurrence of a Default or an Event of Default
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 Partial Releases. The Lender agrees, provided always that no Default
----------------
or Event of Default shall have occurred and continuing, as promptly as is
practicable after ______________ in each year (the period commencing ___________
and ending __________ and each subsequent 12-month period ending on ___________
being hereinafter referred to as a "Plan Year"), to release that number of
Pledged Shares then being held to secure the Loan which is equal to the number
of such Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the numerator of which is the aggregate amount of all principal and
interest payments made on the Note during the Plan Year and the denominator of
which is the sum of the numerator plus the unpaid principal and interest of the
Note as of the last day of such Plan Year.
3
<PAGE>
SECTION FOUR. PAYMENTS.
4.1 Place and Application. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender
at______________________________for the account of the Lender(or at such other
place for the account of the Lender as the Lender may from time to time in
writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 Prepayments. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days' prior
notice to the Lender, each such prepayment to be made by the payment of the
principal amount to be prepaid and accrued interest thereon to the date fixed
for prepayment. All such prepayments shall be made without premium or penalty.
Prepayments shall first be applied to the several installments of the Note in
the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in
their entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower or any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As or the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
4
<PAGE>
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting credits' rights generally
and the general principles of equity (regardless of whether considered in a
proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Lender, except in any such case (i), (ii) , (iii) above, for any such conflicts,
violations, defaults which either individually or in the aggregate do not have a
material adverse effect on the business properties of the Lender and its
subsidiaries, taken as a whole.
6.5 The Bank has taken such actions as are required by applicable law to
be taken by it to establish the ESOP and the Trust.
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Bank, threatened against or affecting the ESOP before
any court or governmental department, agency or instrumentality.
5
<PAGE>
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are not "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 6 days of the date the
Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 Compliance. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
6
<PAGE>
8.2 Reports.
-------
(a) The Borrower will maintain a system of accounting for the ESOP
and the Trust in accordance with sound accounting practice and will, from
time to time, furnish to the Lender and its duly authorized
representatives, such information and data with respect to the financial
condition of the ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default or Event of
Default hereunder or of any threatened or pending litigation or
governmental proceeding against the Plan or the Trust.
8.3 Determination Letter. The Bank shall apply for a determination letter
--------------------
from the Internal Revenue Service that the Plan and the Trust, taken together,
qualify as an employee stock ownership plan for purposes of Section 4975(e)(7)
of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 Event of Default. Any one or more of the following shall constitute an
----------------
Event of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the Borrower
herein or in connection with the making of the Loan proves to be incorrect
in any material respect as of the date of the issuance or making thereof;
(c) The Borrower shall default in the due performance or observance
by it of any term, covenant or agreement (other than those referred to in
subparts (a) and (b), inclusive, of this Section 9.1) contained in this
Agreement and such default shall continue unremedied for a period of 30
days after notice to the Borrower by the Lender or any other holder of the
Note;
(d) The ESOP shall be terminated prior to the expiration of the term
of this Agreement.
9.2 Limitations on Use of Trust Assets. When any Event of Default
----------------------------------
described in subsections (a) to (c), of Section 9.1 has occurred and is
continuing, the Lender or the holder of the Note shall have no rights to assets
of the Trust other than (i) contributions (other than contributions of employer
securities) that are made by the Lender to enable the Borrower to meet
7
<PAGE>
its obligations pursuant to the Loan, cash dividends received by the Borrower on
the Shares and earnings attributable to the investment of such contributions and
dividends and (ii) the Pledged Stock; provided further, however, that the value
of Trust assets transferred to the Lender as a result of an Event of Default
shall not exceed the amount of the repayment then in default, and, provided
further, that so long as the Lender is a "party in interest" within the meaning
of ERISA Section 3(14) or a "disqualified person" within the meaning of Section
4975(e)(2) of the Code, a transfer of Trust assets upon default shall be made
only if, and to the extent of, the Borrower's failure to meet the loan's payment
schedule.
9.3 Rights Upon an Event of Default. When any Event of Default has
-------------------------------
occurred and is continuing the Lender may, in addition to such other rights or
remedies as it may have, then or at any time or times thereafter exercise with
respect to the Collateral any and all of the rights, options and remedies of a
secured party under the Uniform Commercial Code of New York (the "UCC")
including without limitation the sale of all or any part of the Collateral at
any brokers' board or any public or private sale, provided, however that the
Lender shall only be able to exercise such rights and remedies to the extent of
all interest and principal payments which are due and payable as of the date of
the Event of Default and provided further that prior to such exercise the Lender
shall release from the Collateral so much thereof as it would have been required
to release under Section 3.4 hereof if the period from the previous ____________
to the date of such release constituted a Plan Year and no Event of Default had
occurred. The net proceeds of any such sale, after deducting all costs and
expenses incurred in the collection, protection, sale and delivery of the
Collateral (which expenses Borrower promises to pay) shall be applied first to
the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC as to reasonable notice shall be met by the
Lender personally delivering or mailing notice (by certified mail - return
receipt requested) to the Borrower at its address as provided in Section 11.6
hereof at least ten (10) days prior to the event giving rise to the requirement
of such notice. In connection with any offer, solicitation or sale of the
Collateral, the Lender may restrict bidders and otherwise proceed in whatever
manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA Restrictions. The number of shares of Pledged Stock as to which
------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies set
forth in this Section 9 may only be exercised to the extent consistent with the
restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
8
<PAGE>
SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which savings
------------
institutions are generally open for business in New York other than a Saturday
or Sunday.
10.2 The term "Event of Default" shall mean any event condition
----------------
specified as such in Section 9.1 hereof and the term "Default" shall mean any
-------
event or condition which, with the lapse of time, the giving of notice, or both
would constitute an Event of Default.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof.
10.3 The term "Interest Rate" shall mean prime rate as published in the
-------------
Wall Street Journal on _______________________.
SECTION ELEVEN. MISCELLANEOUS.
11.1 Holidays. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the State of New York interest at the rate the Note bears for the period prior
to maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
11.2 No Waiver, Cumulative Remedies. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 Amendments, Etc. No amendment, modification, termination or waiver
---------------
of any provision of this Agreement or of the Noter nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice or demand on the Borrower in any case shall
entitle the Borrower to any other further notice or demand in similar or other
circumstances.
11.4 Survival of Representations. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
9
<PAGE>
11.5 Payments. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6. Addresses for Notices. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at _________________________________ Trust Officer, if to the Lender
at _____________________________________, or at such other address as shall be
designated by any party hereto in written notice to each other party pursuant to
this Section 11.6.
11.7 Headings. Article and Section headings used in this Agreement are for
--------
convenience or reference only and are not a part of this Agreement for any other
purpose.
11.8 Severability of Provisions. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 Binding Nature, Governing Law, Etc. This Agreement shall be binding
----------------------------------
upon the Borrower and its successors and assigns and shall inure to benefit of
the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal Law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the State of New York without regard
to principles of conflicts of laws. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and prior
agreements, whether written or oral, with respect thereto are superseded hereby.
11.11 Concerning the Borrower. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely at Trustee under that certain Richmond county
Savings Bank Employee Stock Ownership Trust effective __________________, by and
between the undersigned and Richmond County Savings Bank and this Agreement
shall be binding upon the understanding and its successors and assigns and upon
the trust estate. The undersigned assumes no personal or individual liability or
responsibility for payment of the indebtedness evidenced by the Note or for
observance or performance of the covenants and agreements herein contained or
for the truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
10
<PAGE>
11.12 Limited Liability. Anything contained herein or in the Note to the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
11.13 Lender's Duty of Care. It is agreed and understood that the Lender's
---------------------
duty with respect to the Collateral shall be solely to use reasonable care in
the custody and preservation of the Collateral in the Lender's possession, which
shall not include any steps necessary to preserve rights against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) of the Code and 4975(e)(7) of the Code, (ii) the Trust as exempt from
taxation under Section 501(a) of the Code, and (iii) the Loan as an "exempt
loan" under the Exempt Loan Rules.
[Remainder of this page intentionally left blank]
11
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this ______ day of _________________
_________________, and its successors in
trust, as Trustee under that certain
Richmond County Savings Bank Employee Stock
Ownership Trust effective _____________ by
and between the undersigned and Richmond
County Savings Bank.
By
---------------------------------------
Accepted and agreed to at Staten Island, New York as of the
date last above written.
By
---------------------------------------
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount ________, 199_
Staten Island, New York
For VALUE RECEIVED, the undersigned, _____________, not individually but
solely as Trustee under that certain Richmond County Savings Bank Employee Stock
Ownership Trust effective ____________ by and between the undersigned
("Borrower") and Richmond County Savings Bank promises to pay to the order of
Richmond County Financial Corp. (the "Lender") at its office at
___________________________, the aggregate unpaid principal amount of all loan
amounts or advances under the loan made to the Borrower under Section 1.1 of the
Loan and Security Agreement hereinafter referred to in twenty (20) consecutive
annual equal installments, consisting of both principal and interest, amortized
over a twenty (20) year period in an amount sufficient to repay all borrowed
amounts plus interest, payable annually on ____________________, and on the last
business day of each and every ______ in each year thereafter, except that the
final installment in the amount of all principal and interest not sooner paid
shall be due on ___________________, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 of the Loan and Security Agreement (as
defined below) on the last business day of each and every January, commencing
_____________________, and in each year thereafter and on the final maturity
date of this Note. On demand, the Borrower promises to pay interest and any
overdue principal hereof (whether by lapse of time, acceleration, or otherwise)
until paid at the stated rate.
This Note is issued under the terms and provisions of that certain Richmond
County Savings Bank Employee Stock Ownership Trust Loan and Security Agreement
bearing even date herewith by and between the Borrower and the Lender (the "Loan
and Security Agreement") and this Note and the holder hereof are entitled to all
the benefits and security provided for by or referred to in such Loan and
Security Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited to the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of New York without regard to
<PAGE>
principles of conflicts of laws. The Borrower hereby waives presentment for
payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the
Loan and Security Agreement at the option of the Lender, all amounts payable by
the Borrower to the Lender under the terms of this Note may immediately become
due and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.2 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
________________ and its successors in
trust, as Trustee under that certain
Richmond County Savings Bank Employee
Stock Ownership Trust effective
___________ by and between the
undersigned and Richmond County
Savings Bank
By:
----------------------------
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Richmond County Financial Corp.,
("Lender") to the undersigned ("Borrower"), the receipt whereof is hereby
acknowledged, the Borrower does hereby grant a security interest to said Lender
in the instruments or negotiable documents hereafter described ("Collateral"),
in all of which Collateral the Borrower warrants that the Borrower has good,
valid and effective rights to the ownership possession thereof and to the grant
of the security interest hereby made:
All Shares of the common stock, par value $.01 per share, of Richmond
County Financial Corp., a Delaware corporation, acquired with the proceeds
of the Loan Amount.
Borrower agrees to deliver said collateral to said Lender not later than
the close of business on _________________, said date being within _____
days from the date hereof.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement OF which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of New York,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Staten Island, New York the ___ day of _____________.
_____________________, and its successors in
trust, as Trustee under that certain
Richmond County Savings Bank Employee Stock
Ownership Trust effective ____________ by
and between the undersigned and Richmond
County Savings Bank.
By:
-----------------------------------------
<PAGE>
Exhibit 10.3
FORM OF
RICHMOND COUNTY SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _______________,
1997 by and among Richmond County Savings Bank (the "Institution"), a state
chartered savings institution, with its principal administrative office at 1214
Castleton Avenue, Staten Island, New York, 10310, Richmond County Financial
Corp., a corporation organized under the laws of the State of Delaware, the
holding company for the Institution (the "Holding Company"), and ______________
("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to
serve as [TITLE] of the Institution. Executive shall render administrative and
management services to the Institution such as are customarily performed by
persons situated in a similar executive capacity. During said period, Executive
also agrees to serve, if elected, as an officer and director of the Holding
Company or any subsidiary of the Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the effective date of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the disinterested members of
the board of directors of the Institution ("Board") or Executive elects not to
extend the term of this Agreement by giving written notice in accordance with
Section 8 of this Agreement. The Board will review the Agreement and Executive's
performance annually for purposes of determining whether to extend the Agreement
and the rationale and results thereof shall be included in the minutes of the
Board's meeting. The Board shall give notice to the Executive as soon as
possible after such review as to whether the Agreement is to be extended.
<PAGE>
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Institution and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Institution, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's
employment with the Institution may be terminated by the Institution or the
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a salary of
$___________ per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or unqualified plan
maintained by the Institution. Such Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; the first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by the Board or
by a Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Institution shall
also provide Executive, at no premium cost to Executive, with all such other
benefits as are provided uniformly to full-time employees of the Institution.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Institution will
not, without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Institution employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Institution in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive compensation and
bonuses as provided in any plan or arrangement of the Institution in which
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Executive is eligible to participate. Nothing paid to the Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Institution shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Institution or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Institution's employ upon any of the following:
(A) unless consented to by the Executive, failure to elect or reelect or to
appoint or reappoint Executive as [TITLE] or failure to nominate or re-nominate
Executive as a Director of the Institution or Holding Company to the extent
Executive was serving as a Director as of the effective date of this Agreement,
(B) a material change in Executive's function, duties, or responsibilities,
which change would cause Executive's position to become one of lesser
responsibility, importance, or scope from the position and attributes thereof
described in Section 1, above, unless consented to by Executive, (C) a reduction
in the benefits and perquisites to the Executive from those being provided as of
the effective date of this Agreement, unless consented to by the Executive, or
(D) a liquidation or dissolution of the Institution or Holding Company, or (E)
breach of this Agreement by the Institution. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), or (E), above, Executive shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within six full
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of: (i)
the amount of the remaining payments that the Executive would have earned if he
had continued his employment with the Institution during the remaining term of
this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions or payments that would have
been made on Executive's behalf to any employee benefit plans of the Institution
or the Holding Company or for any benefit or perquisite which would have been
provided to Executive during the remaining term of this Agreement based on
contributions or payments made (on an annualized basis) at the Date of
Termination;
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provided, however, that any payments pursuant to this subsection and subsection
- - - -------- -------
4(c) below shall not, in the aggregate, exceed three times Executive's average
annual compensation for the five most recent taxable years that Executive has
been employed by the Institution or such lesser number of years in the event
that Executive shall have been employed by the Institution for less than five
years. In the event the Institution is not in compliance with its minimum
capital requirements or if such payments pursuant to this subsection (b) would
cause the Institution's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Institution or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to an Event of Termination,
such payments shall be made (a) in a lump sum as of the Executive's Date of
Termination, (b) on a bi-weekly basis in approximately equal installments during
the remaining term of the Agreement or (c) on an annual basis in approximately
equal installments during the remaining term of the Agreement. Such payments
shall not be reduced in the event the Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Institution
will cause to be continued life, medical, dental and long-term or other
disability coverage substantially identical to the coverage maintained by the
Institution or the Holding Company for Executive prior to his termination at no
premium cost to the Executive, except to the extent such coverage may be changed
in its application to all Institution or Holding Company employees. Such
coverage shall cease upon the expiration of the remaining term of this
Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors
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comprising the Incumbent Board, or whose nomination for election by the Holding
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or the Holding Company or similar transaction occurs
in which the Institution or Holding Company is not the resulting entity, or (D)
a proxy statement has been distributed soliciting proxies from stockholders of
the Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Institution
or the Holding Company, or (E) a tender offer is made for 20% or more of the
voting securities of the Stock Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b),
the Institution shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to the greater of: (i) the payments due for the remaining term of the Agreement;
or (ii) three (3) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five (5) years. Such average annual
compensation shall include Base Salary, commissions, bonuses, contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees and fringe benefits
paid or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Institution;
provided, however, that any payment under this provision and subsection 5(d)
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below shall not exceed three (3) times the Executive's average annual
compensation. In the event the Institution is not in compliance with its minimum
capital requirements or if such payments would cause the Institution's capital
to be reduced below its minimum regulatory capital requirements, such payments
shall be deferred until such time as the Institution or successor thereto is in
capital compliance. At the election of the Executive, which election is to be
made prior to a Change in Control, such payment shall be made: (a) in a lump sum
as of the Executive's Date of Termination, (b) on a bi-weekly basis in
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approximately equal installments over a period of thirty-six (36) months
following the Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Institution will cause to be continued life, medical, dental and
long-term or other disability coverage substantially identical to the coverage
maintained by the Institution for Executive prior to his severance at no premium
cost to the Executive, except to the extent that such coverage may be changed in
its application for all Institution employees on a non-discriminatory basis.
Such coverage and payments shall cease upon the expiration of thirty-six (36)
months following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section 7, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty
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of conduct justifying Termination for Cause and specifying the particulars
thereof in detail. Executive shall not have the right to receive compensation or
other benefits for any period after the Date of Termination for Cause. During
the period beginning on the date of the Notice of Termination for Cause pursuant
to Section 8 hereof through the Date of Termination for Cause, stock options and
related limited rights granted to Executive under any stock option plan shall
not be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any subsidiary or
affiliate thereof, vest. At the Date of Termination for Cause, such stock
options and related limited rights and any unvested awards shall become null and
void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall
be communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
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9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Institution from
pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Superintendent of Banks of the State of New York, the New York Banking
Department, OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant
to a formal regulatory request. In the event of a breach or threatened breach by
Executive of the provisions of this Section, the Institution will be entitled to
an injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Institution or affiliates thereof, or
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from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Institution
from pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Institution. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Institution are not timely paid or provided by the Institution, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement effective as of
______________, 1997, between Executive and the Holding Company, such
compensation payments and benefits paid by the Holding Company will be
subtracted from any amounts due simultaneously to Executive under similar
provisions of this Agreement. Payments pursuant to this Agreement and the
Holding Company Agreement shall be allocated in proportion to the services
rendered and time expended on such activities by Executive as determined by the
Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Institution or
any predecessor of the Institution and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of New York.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Institution then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of
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Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
(a) The Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under New York law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Institution (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Richmond County Savings Bank and Richmond County
Financial Corp. have caused this Agreement to be executed and their seals to be
affixed hereunto by their duly authorized officers and directors, and Executive
has signed this Agreement, on the ______ day of ___________, 1997.
ATTEST: RICHMOND COUNTY SAVINGS BANK
By:
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Rosemary Colca [Name]
Secretary For The Board of Directors
[SEAL]
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
By:
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Rosemary Colca [Name]
Secretary For The Board of Directors
[SEAL]
WITNESS:
- - - ----------------------------- ----------------------------------
[Name]
Executive
<PAGE>
Exhibit 10.4
FORM OF
RICHMOND COUNTY FINANCIAL CORP.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ________________,
by and between Richmond County Financial Corp. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
1214 Castleton Avenue, Staten Island, New York 10310, and _________________
("Executive"). Any reference to "Institution" herein shall mean Richmond County
Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees
to serve as the [TITLE] of the Holding Company. The Executive shall render
administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence,
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Executive shall devote substantially all his business time, attention, skill,
and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Holding Company and its direct or indirect subsidiaries ("Subsidiaries") and
participation in community and civic organizations; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which, in such Board's judgment, will not present any conflict of
interest with the Holding Company or its Subsidiaries, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary,
Executive's employment with the Holding Company may be terminated by the Holding
Company or Executive during the term of this Agreement, subject to the terms and
conditions of this Agreement. However, Executive shall not perform, in any
respect, directly or indirectly, during the pendency of his temporary or
permanent suspension or termination from the Institution, duties and
responsibilities formerly performed at the Institution as part of his duties and
responsibilities as [TITLE] of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding
Company or its Subsidiaries of $________ per year ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
qualified or unqualified plan maintained by the Holding Company and its
Subsidiaries. Such Base Salary shall be payable bi-weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or by a Committee of the
Board delegated such responsibility by the Board. The Committee or the Board may
increase Executive's Base Salary. Any increase in Base Salary shall become the
"Base Salary" for purposes of this Agreement. In addition to the Base Salary
provided in this Section 3(a), the Holding Company shall also provide Executive,
at no premium cost to Executive, with all such other benefits as provided
uniformly to permanent full-time employees of the Holding Company and its
Subsidiaries.
(b) The Executive shall be entitled to participate in any employee
benefit plans, arrangements and perquisites substantially equivalent to those in
which Executive was participating or otherwise deriving benefit from immediately
prior to the beginning of the term of this Agreement, and the Holding Company
and its Subsidiaries will not, without Executive's prior written consent, make
any changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans, including, but not
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limited to, retirement plans, supplemental retirement plans, pension plans,
profit-sharing plans, stock or option plans, health-and-accident plans, medical
coverage or any other employee benefit plan or arrangement made available by the
Holding Company and its Subsidiaries in the future to its senior executives and
key management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Executive
shall be entitled to incentive compensation and bonuses as provided in any plan
or arrangement of the Holding Company and its Subsidiaries in which Executive is
eligible to participate. Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of
this Section 3 and other compensation provided for by paragraph (b) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel and other reasonable expenses incurred in the performance of
Executive's obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other than termination governed by Section 5(a) hereof, or for Cause, as defined
in Section 7 hereof; (ii) Executive's resignation from the Holding Company's
employ, upon, any (A) unless consented to by the Executive, failure to elect or
reelect or to appoint or reappoint Executive as [TITLE] or failure to nominate
or renominate Executive as a Director of the Institution or Holding Company to
the extent Executive was serving as a Director as of the date of this
Agreement, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this Agreement, unless consented to by the Executive, (D) a
liquidation or dissolution of the Holding Company or the Institution, or (E)
breach of this Agreement by the Holding Company. Upon the occurrence of any
event described in clauses (A), (B), (C), (D), or (E), above, Executive shall
have the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
six full calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event
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of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, a sum equal to the sum of: (i) the amount of the remaining payments
that the Executive would have earned if he had continued his employment with the
Institution during the remaining term of this Agreement at the Executive's Base
Salary at the Date of Termination; and (ii) the amount equal to the annual
contributions or payments that would have been made on Executive's behalf to any
employee benefit plans of the Institution or the Holding Company during the
remaining term of this Agreement based on contributions or payments made (on an
annualized basis) at the Date of Termination. At the election of the Executive,
which election is to be made prior to a Change in Control, such payment shall be
made: (a) in a lump sum as of the Executive's Date of Termination, (b) on a
bi-weekly basis in approximately equal installments during the remaining term of
the Agreement, or (c) on an annual basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event the Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical, dental and disability coverage
substantially equivalent to the coverage maintained by the Holding Company or
its Subsidiaries for Executive prior to his termination at no premium cost to
the Executive. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Holding Company or the Institution shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with
respect to the Institution, and the Rules and Regulations promulgated by the
Office of Thrift Supervision ("OTS") (or its predecessor agency), with respect
to the Holding Company, as in effect on the date of this Agreement; or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of voting securities of
the Institution or the Holding Company representing 20% or more of the
Institution's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Institution
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by a Nominating
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Committee solely composed of members which are Incumbent Board members, shall
be, for purposes of this clause (B), considered as though he were a member of
the Incumbent Board, or (C) a plan of reorganization, merger, consolidation,
sale of all or substantially all the assets of the Institution or the Holding
Company or similar transaction occurs or is effectuated in which the Institution
or Holding Company is not the resulting entity, or (D) a proxy statement has
been distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility,reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Holding Company shall pay Executive, or in the event of his subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's annual compensation for the most recently completed year. Such
annual compensation shall include Base Salary, commissions, bonuses,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, any benefits to be paid or received under any stock-based benefit
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made: (a) in a lump sum, (b) on a bi-weekly basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section
5(b), the Company will cause to be continued life, medical, dental and long-term
or other disability coverage substantially equivalent to the coverage maintained
by the Institution for Executive at
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no premium cost to Executive prior to his severance. Such coverage and payments
shall cease upon the expiration of thirty-six (36) months following the Change
in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment". As soon as practicable after a Change in Control, the
Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Holding Company shall pay
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment
(or such other amount equal to the tax imposed under Section
4999 of the Code); and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and
federal income and excise taxes on the payment provided under
clause (1) and on any payments under this Clause (2). In
computing such tax allowance, the payment to be made under
Clause (1) shall be multiplied by the "gross up percentage"
("GUP"). The GUP shall be determined as follows:
Tax Rate
GUP = __________
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the
sum of the highest marginal federal and state income and
employment-related tax rates, including any applicable excise
tax rates, applicable to the Executive in the year in which
the payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be
determined in a final judicial determination or a final administrative
settlement to which Executive is a party that the excess parachute payment as
defined in Section 4999 of the Code, reduced as described above, is more than
the Initial Excess Parachute Payment (such different amount being hereafter
referred to as the "Determinative Excess Parachute Payment") then the Holding
Company's independent accountants shall determine the amount (the "Adjustment
Amount") the Holding
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Company must pay to the Executive in order to put the Executive in the same
position as the Executive would have been if the Initial Excess Parachute
Payment had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, independent accountants of the Holding
Company shall take into account any and all taxes (including any penalties and
interest) paid by or for Executive or refunded to Executive or for Executive's
benefit. As soon as practicable after the Adjustment Amount has been so
determined, the Holding Company shall pay the Adjustment Amount to Executive. In
no event however, shall Executive make any payment under this paragraph to the
Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such stock
options and related limited rights and any such unvested awards shall become
null and void and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination for Cause.
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8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive
shall be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the occurrence of
a Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding Company
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
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10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant
to Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. Further, Executive may
disclose information regarding the business activities of the Bank or Holding
Company to the Superintendent of Banks of the State of New York, the New York
Banking Department, OTS and the Federal Deposit Insurance Corporation ("FDIC")
pursuant to a formal regulatory request. In the event of a breach or threatened
breach by the Executive of the provisions of this Section, the Holding Company
will be entitled to an injunction restraining Executive from disclosing, in
whole or in part, the knowledge of the past, present, planned or considered
business activities of the Holding Company or its Subsidiaries or from rendering
any
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services to any person, firm, corporation, other entity to whom such knowledge,
in whole or in part, has been disclosed or is threatened to be disclosed.
Nothing herein will be construed as prohibiting the Holding Company from
pursuing any other remedies available to the Holding Company for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in
cash or check from the general funds of the Holding Company subject to Section
11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated as of
_________________, between Executive and the Institution, such compensation
payments and benefits paid by the Institution will be subtracted from any amount
due simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Institution Agreement shall be
allocated in proportion to the level of activity and the time expended on such
activities by the Executive as determined by the Holding Company and the
Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any predecessor of the Holding Company and Executive, except that this
Agreement shall not affect or operate to reduce any benefit or compensation
inuring to the Executive of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that Executive is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
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19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Richmond County Financial Corp. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the ______ day of __________, 1997.
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
By:
- - - ------------------------ ---------------------------------
Rosemary Colca [Name]
Secretary For the Board of Directors
[SEAL]
WITNESS:
By:
- - - ------------------------ ---------------------------------
[Name]
Executive
<PAGE>
Exhibit 10.5
FORM OF
RICHMOND COUNTY SAVINGS BANK
TWO YEAR CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of ________________ by and among
Richmond County Savings Bank (the "Institution"), a state chartered savings
institution, with its principal administrative office at 1214 Castleton Avenue,
Staten Island, New York, 10310, _________________ ("Executive"), and Richmond
County Financial Corp. (the "Holding Company"), a corporation organized under
the laws of the State of Delaware which is the holding company of the
Institution.
WHEREAS, the Institution recognizes the substantial contribution
Executive has made to the Institution and wishes to protect Executive's position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the
Institution.
NOW, THEREFORE, in consideration of the contribution and
responsibilities of Executive, and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period of this Agreement shall be deemed to have commenced as of
the date first above written and shall continue for a period of twenty-four (24)
full calendar months thereafter. Commencing on the date of the execution of this
Agreement, the term of this Agreement shall be extended for one day each day
until such time as the board of directors of the Institution (the "Board") or
Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 4 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the third
anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Institution or
the Holding Company (as herein defined) followed at any time during the term of
this Agreement by the termination of Executive's employment, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment at any time during the
term of this Agreement following any demotion, loss of title, office or
significant authority, material reduction in his annual compensation or
benefits, or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control; provided,
however, the Executive may consent in writing to any such demotion, loss,
reduction
<PAGE>
or relocation. The effect of any written consent of the Executive under this
Section 2 (a) shall be strictly limited to the terms specified in such written
consent.
(b) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
Section 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Institution or the Holding Company or similar transaction
occurs in which the Institution or Holding Company is not the resulting entity,
or (D) a proxy statement has been distributed soliciting proxies from
stockholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Holding Company or Institution or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to such plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Institution or the Holding Company, or (E) a tender offer is
made for 20% or more of the voting securities of the Stock Institution or
Holding Company then outstanding.
(c) Executive shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of: 1) Executive's personal
dishonesty, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses), final
cease
2
<PAGE>
and desist order or material breach of any provision of this Agreement which
results in a material loss to the Institution or the Holding Company, or 2)
Executive's conviction of a crime or act involving moral turpitude or a final
judgement rendered against Executive based upon actions of Executive which
involve moral turpitude. For the purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than a majority of the members of the Board at
a meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have the right to receive
compensation or other benefits for any period after Termination for Cause.
During the period beginning on the date of the Notice of Termination for Cause
pursuant to Section 4 hereof through the Date of Termination, stock options and
related limited rights granted to Executive under any stock option plan shall
not be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any subsidiary or
affiliate thereof vest. At the Date of Termination, such stock options and
related limited rights and such unvested awards shall become null and void and
shall not be exercisable by or delivered to Executive at any time subsequent to
such Date of Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time
during the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Institution
shall be obligated to pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to two (2) times Executive's average annual compensation for the five most
recent taxable years that Executive has been employed by the Institution or such
lesser number of years in the event that Executive shall have been employed by
the Institution for less than five years. Such annual compensation shall include
base salary, commissions, bonuses, any other cash compensation, contributions or
accruals on behalf of Executive to any pension and profit sharing plan, benefits
received or to be received under any stock-based benefit plan, severance
payments, director or committee fees and fringe benefits paid or to be paid to
the Executive during such years. At the election of Executive which election is
to be made prior to a Change in Control, such payment shall be made: (a) in a
lump sum, (b) on a bi-weekly basis in approximately equal installments over a
period of twenty-four (24) months, or (c) on an annual basis in approximately
equal installments over a period of twenty-four (24) months.
(b) Upon the occurrence of a Change in Control of the Institution or
the Holding Company followed at any time during the term of this Agreement by
Executive's voluntary or
3
<PAGE>
involuntary termination of employment, other than for Termination for Cause, the
Institution shall cause to be continued life, medical and disability coverage
substantially identical to the coverage maintained by the Institution or Holding
Company for Executive prior to his severance, except to the extent such coverage
may be changed in its application to all Institution or Holding Company
employees on a nondiscriminatory basis. Such coverage and payments shall cease
upon the expiration of twenty-four (24) full calendar months from the Date of
Termination.
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as
defined in Section 280G of the Internal Revenue Code of 1986,
as amended (the "Code") or any successor thereof, (the
"Termination Benefits") would be deemed to include an "excess
parachute payment" under Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to three (3) times
Executive's "base amount," as determined in accordance with
said Section 280G and the Non-Triggering Amount less the
product of the marginal rate of any applicable state and
federal income tax and the Non Triggering Amount would be
greater than the aggregate value of the Termination Benefits
(without such reduction) minus (i) the amount of tax required
to be paid by the Executive thereon by Section 4999 of the
Code and further minus (ii) the product of the Termination
Benefits and the marginal rate of any applicable state and
federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount. The
allocation of the reduction required hereby among the Termination Benefits shall
be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Institution or by Executive in
connection with a Change in Control shall be communicated by Notice of
Termination to the other party hereto. For purposes of this Agreement, a "Notice
of Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice
of Termination (which, in the instance of Termination for Cause, shall not be
less than thirty (30) days from the
4
<PAGE>
date such Notice of Termination is given); provided, however, that if a dispute
regarding the Executive's termination exists, the "Date of Termination" shall be
determined in accordance with Section 4(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, the Date of Termination shall
be the date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Institution will continue to pay Executive the
payments and benefits due under this Agreement in effect when the notice giving
rise to the dispute was given (including, but not limited to his annual salary)
until the earlier of: (1) the resolution of the dispute in accordance with this
Agreement; or (2) the expiration of the remaining term of this Agreement as
determined as of the Date of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Institution. Further, the Holding Company guarantees such payment and provision
of all amounts and benefits due hereunder to Executive and, if such amounts and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid or provided by the Holding
Company.
6. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS.
-----------------------------------------------------
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior agreement between the Institution and Executive,
except that this Agreement shall not affect or operate to reduce any benefit or
compensation inuring to Executive of a kind elsewhere provided. No provision of
this Agreement shall be interpreted to mean that Executive is subject to
receiving fewer benefits than those available to him without reference to this
Agreement.
Nothing in this Agreement shall confer upon Executive the right to
continue in the employ of Institution or shall impose on the Institution any
obligation to employ or retain Executive in its employ for any period.
5
<PAGE>
7. NO ATTACHMENT.
-------------
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive, the Institution and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C. Section
1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
10. SEVERABILITY.
------------
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
11. HEADINGS FOR REFERENCE ONLY.
---------------------------
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement. In addition, references to the
masculine shall apply equally to the feminine.
6
<PAGE>
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of New York.
13. ARBITRATION.
-----------
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution's main office, in accordance
with the rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator's award in any court having jurisdiction;
provided, however, that Executive shall be entitled to seek specific performance
of his right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
14. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and legal fees paid or incurred by Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Institution (which payments are guaranteed by
the Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
---------------
The Institution shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under New
York law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
16. SUCCESSOR TO THE INSTITUTION.
----------------------------
The Institution shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution, expressly and
unconditionally to assume and agree to perform the Institution's obligations
under this Agreement, in the same manner and to the same extent that the
Institution would be required to perform if no such succession or assignment had
taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Richmond County Savings Bank and Richmond County
Financial Corp. have caused this Agreement to be executed by their duly
authorized officers, and Executive has signed this Agreement, on the ______ day
of ____________, 1997.
ATTEST: RICHMOND COUNTY SAVINGS BANK
By:
- - - ------------------------------- ---------------------------
Rosemary Colca Michael F. Manzulli
Secretary President and
Chief Executive Officer
SEAL
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
By:
- - - ------------------------------- ---------------------------
Rosemary Colca Michael F. Manzulli
Secretary Chairman of the Board and
Chief Executive Officer
SEAL
WITNESS:
- - - ---------------------------------- ---------------------------
[Name]
Executive
8
<PAGE>
Exhibit 10.6
FORM OF
RICHMOND COUNTY SAVINGS BANK
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the Richmond County Savings Bank Employee Severance
Compensation Plan is to assure for Richmond County Savings Bank (the "Bank") the
services of Employees of the Bank in the event of a Change in Control
(capitalized terms are defined in section 2.1) of the Richmond County Financial
Corp. (the "Holding Company") or the Bank. The benefits contemplated by the Plan
recognize the value to the Bank of the services and contributions of the
Employees of the Bank and the effect upon the Bank resulting from the
uncertainties of continued employment, reduced Employee benefits, management
changes and relocations that may arise in the event of a Change in Control of
the Bank or the Holding Company. The Bank's and the Holding Company's Boards of
Directors believe that it is in the best interests of the Bank and the Holding
Company to provide Employees of the Bank who have been with the Bank for a
minimum of five years with such benefits in order to defray the costs and
changes in Employee status that could follow a Change in Control. The Board of
Directors believes that the Plan will also aid the Bank in attracting and
retaining highly qualified individuals who are essential to its success and the
Plan's assurance of fair treatment of the Bank's Employees will reduce the
distractions and other adverse effects on Employees' performance in the event of
a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Bank hereby
establishes an employee severance compensation plan to be known as the "Richmond
County Savings Bank Employee Severance Compensation Plan." The purposes of the
Plan are as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees
of the Bank, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to an
employment or change in control agreement with the Employer.
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right
to the benefits to which each Participant is entitled hereunder, enforceable by
the Participant against the Employer, Bank, or both.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
(a) "Annual Compensation" of a Participant means and includes all
wages, salary, bonus, and cash compensation, if any, paid (including accrued
amounts) by an Employer as consideration for the Participant's service during
the 12 months ended the date as of which Annual Compensation is to be
determined, which are or would be includable in the gross income of the
Participant receiving the same for federal income tax purposes.
(b) "Bank" means Richmond County Savings Bank or any successor as
provided for in Article VII hereof.
(c) "Change in Control" shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a) with
respect to the Bank and the Board of Governors of the Federal Reserve System
("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Holding Company, as in
effect on the date hereof; or (iii) results in a transaction requiring prior FRB
approval under the Bank Holding Company Act of 1956 and the regulations
promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in effect on the
date hereof except for the Holding Company's acquisition of the Bank; or (iv)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the Bank
or the Holding Company representing 20% or more of the Bank's or the Holding
Company's outstanding securities except for any securities of the Bank purchased
by the Holding Company in connection with the conversion of the Bank to the
stock form and any securities purchased by any tax qualified employee benefit
plan of the Bank; or (B) individuals who constitute the Board of Directors on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Holding Company's stockholders was approved by
the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board; or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Holding Company or
similar transaction occurs in which the Bank or Holding Company is not the
resulting entity; or (D) solicitations of shareholders of the Holding Company,
by someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or
2
<PAGE>
consolidation of the Holding Company or Bank or similar transaction with one or
more corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed; or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or the Holding Company.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him . Additionally, a medical doctor selected or
approved by the Board of Directors must advise the Board that it is either not
possible to determine if or when such Disability will terminate or that it
appears probable that such Disability will be permanent during the remainder of
said employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board
of Directors of the Bank, or such other date as the Board shall designate in its
resolution approving the Plan.
(f) "Employee" means any Employee of the Bank or any subsidiary thereof
who has completed at least one year of service with the Bank, or any subsidiary
thereof, provided, however, that any Employee who is covered or hereinafter
becomes covered by an employment contract or change in control agreement with
the Employer shall not be considered to be an Employee for purposes of this
Plan.
(g) "Expiration Date" means a date ten (10) years from the Effective
Date unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(h) "Employer" means the Bank or a subsidiary of the Bank or a parent
of the Bank which has adopted the Plan pursuant to Article VI hereof.
(i) "Just Cause" shall mean termination because of Participant's
personal dishonesty, incompetence, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure or unjustified neglect to
perform stated duties, conviction of or pleading guilty or nolo contendere to
any crime or offense punishable as a felony or to any crime or offense involving
moral turpitude, or violation of any final cease-and desist order. In
determining incompetence, the acts or omissions shall be measured against
standards generally prevailing in the savings institutions industry.
(j) "Leave of Absence" and "LOA" mean (i) the taking of an authorized
or approved leave of absence under the provisions of the federal Family and
Medical Leave Act ("FMLA"), (ii) any state law providing qualitatively similar
benefits as the FMLA, or (iii) a leave of absence authorized under the policies
of the Bank. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(k) "Payment" means the payment of severance compensation as provided
in Article IV hereof.
3
<PAGE>
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(m) "Plan" means Richmond County Savings Bank Employee Severance
Compensation Plan.
(n) "Year of Service" means each consecutive 12 month period,
beginning with an Employee's date of hire and running without a termination of
employment in which an Employee is credited with at least one hour of service in
each of the 12 calendar months in such period. The taking of a LOA shall not
eliminate a period of time from being a Year of Service if such period of time
otherwise qualifies as such. Further if a particular 12 month period of time
would not otherwise qualify under the Plan as a Year of Service because one hour
of service is not credited during each month of such period due to the taking of
a LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the State of New York shall be the controlling law in all
matters relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Bank who have
completed at least one (1) Year of Service with the Bank at the time of any
termination pursuant to Section 4.2 herein. Notwithstanding the foregoing,
persons who have entered into and continue to be covered by an employment
contract or change in control agreement with the Employer shall not be entitled
to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to receipt
of a Payment shall remain a Participant in this Plan until the full amount of
such Payment has been paid to the Participant.
4
<PAGE>
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from its respective Employer
a Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a
Payment if employment by an Employer is terminated, voluntarily or
involuntarily, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate
of compensation as in effect immediately prior to the Change in Control.
(b) The Employer materially changes Participant's function,
duties or responsibilities which would cause Participant's position to be one of
lesser responsibility, importance or scope with the Employer than immediately
prior to the change in control.
(c) The Employer requires the Participant to change the
location of the Participant's job or office, so that such Participant will be
based at a location more than thirty (30) miles from the location of the
Participant's job or office immediately prior to the Change in Control provided
that such new location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and
perquisites available to the Participant immediately prior to the Change in
Control, provided, however, that a material reduction in benefits and
perquisites generally provided to all Employees of the Bank on a
nondiscriminatory basis would not trigger a payment pursuant to this Plan.
(e) A successor to the Bank fails or refuses to assume the
Bank's obligations under this Plan, as required by Article VII.
(f) The Bank or any successor to the Bank breaches any other
provisions of this Plan.
(g) The Employer terminates the employment of a Participant at
or after a Change in Control other than for Just Cause.
5
<PAGE>
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan
shall receive from the Bank, a lump sum cash payment equal to one-twelfth of
Annual Compensation for each year of service up to a maximum of 199% of Annual
Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment
to a Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section thereof.
The Participant shall not be required to mitigate damages on the amount
of the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of the
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
6
<PAGE>
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan
may be adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent. The term "Subsidiary" means any corporation in which the Bank, directly
or indirectly, holds a majority of the voting power of its outstanding shares of
capital stock. The term "Parent" means any corporation which holds a majority of
the voting power of the Bank's outstanding shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of
the Expiration Date, unless sooner terminated as provided in Section 8.2, or
unless extended for an additional period or periods by resolution adopted by the
Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Bank, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
7
<PAGE>
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the Bank,
certifying that the amendment or termination has been approved by the Board of
Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to each Participant's rights hereunder. A proper
termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments
under this Plan shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit
of, Employee and the Bank and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred
by a party hereto pursuant to any dispute or question of interpretation relating
to this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the Employee's employment at any time,
but any termination by the Bank, other than Termination for Cause, shall not
prejudice Employee's right to compensation or other benefits under this
Agreement. Employee shall not have the right to receive compensation or other
benefits for any period after termination for Just Cause as defined in Section
2.1 hereinabove.
10.2 If the Employee is suspended and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(3) or (g)(1), the Bank's obligations under this contract shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank may in its discretion (i)
pay the Employee all or part of the compensation withheld while their contract
obligations were suspended and (ii) reinstate (in whole or in part) any of the
obligations which were suspended.
8
<PAGE>
10.3 If the Employee 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 Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this contract shall
terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
10.4 If the Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the
Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be
------------------
under the supervision of the Board of Directors of the Bank or a Committee
appointed by the Board (the "Board"). It shall be a principal duty of the Board
to see that the Plan is carried out in accordance with its terms, for the
exclusive benefit of persons entitled to participate in the Plan without
discrimination among them. The Board will have full power to administer the Plan
in all of its details subject, however, to the requirements of ERISA. For this
purpose, the Board's powers will include, but will not be limited to, the
following authority, in addition to all other powers provided by this Plan: (a)
to make and enforce such rules and regulations as it deems necessary or proper
for the efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize Payments;
(f) to appoint such agents, counsel, accountants, consultants and actuaries as
may be required to assist in administering the Plan; and (g) to allocate and
delegate its responsibilities under the Plan and to designate other persons to
carry out any of its responsibilities under the Plan, any such allocation,
delegation or designation to be by written instrument and in accordance with
Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for
---------------
purposes of Section 402(a)(1) of ERISA with authority to control and manage the
operation and administration of the Plan, and will be responsible for complying
with all of the reporting and disclosure requirements of Part 1 of Subtitle B of
Title I of ERISA.
11.3 Claims and review procedures.
----------------------------
(a) Claims procedure. If any person believes he is being
----------------
denied any rights or benefits under the Plan, such person may file a
claim in writing with the Board. If any such claim is wholly or
partially denied, the Board will notify such person of its decision in
writing. Such notification will be written in a manner calculated to be
understood by such person and will contain (i) specific reasons for the
denial, (ii) specific reference to
9
<PAGE>
pertinent Plan provisions, (iii) a description of any additional
material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary and
(iv) information as to the steps to be taken if the person wishes to
submit a request for review. Such notification will be given within 90
days after the claim is received by the Board (or within 180 days, if
special circumstances require an extension of time for processing the
claim, and if written notice of such extension and circumstances is
given to such person within the initial 90 day period). If such
notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may
request a review of his claim.
(b) Review procedure. Within 60 days after the date on which a
----------------
person receives a written notice of a denied claim (or, if applicable,
within 60 days after the date on which such denial is considered to
have occurred) such person (or his duly authorized representative) may
(i) file a written request with the Board for a review of his denied
claim and of pertinent documents and (ii) submit written issues and
comments to the Board. The Board will notify such person of its
decision in writing. Such notification will be written in a manner
calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent
Plan provisions. The decision on review will be made within 60 days
after the request for review is received by the Board (or within 120
days, if special circumstances require an extension of time for
processing the requests such as an election by the Board to hold a
hearing, and if written notice of such extension and circumstances is
given to such person within the initial 60 day period). If the decision
on review is not made within such period, the claim will be considered
denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
---------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Bank will indemnify and defend to
------------------------
the fullest extent permitted by law any person serving on the Board or as a
member of a committee designated as Board (including any person who formerly
served as a Board member or as a member of such committee) against all
liabilities, damages, costs and expenses (including attorneys fees and amounts
paid in settlement of any claims approved by the Bank) occasioned by any act or
omission to act in connection with the Plan, if such act or omission is in good
faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
-----------
ending on _____________ and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided
-----------------------------------
hereunder will be paid solely from the general assets of the Bank. Nothing
herein will be construed to require the Bank or the Board to maintain any fund
or segregate any amount for the benefit of any Participant, and no Participant
or other person shall have any claim against, right to, or security or other
interest in, any fund, account or asset of the Bank from which any payment under
the Plan may be made.
10
<PAGE>
Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __th day of __________, 199__.
Attest RICHMOND COUNTY SAVINGS BANK
By:
- - - ------------------------------ ---------------------------
Secretary
11
<PAGE>
Exhibit 10.7
FORM OF
RICHMOND COUNTY SAVINGS BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
ARTICLE I................................................................... 1
Purpose of the Plan .............................................. 1
ARTICLE II.................................................................. 2
Definitions........................................................ 2
2.1 Bank............................................... 2
----
2.2 Board of Directors ................................ 2
------------------
2.3 Change in Control.................................. 2
-----------------
2.4 Code............................................... 3
----
2.5 Committee.......................................... 3
---------
2.6 Company............................................ 3
-------
2.7 Company Stock...................................... 3
-------------
2.8 Eligible Employee.................................. 3
-----------------
2.9 Employee........................................... 3
--------
2.10 ERISA.............................................. 3
-----
2.11 ESOP............................................... 3
----
2.12 Nonqualified Plan.................................. 3
-----------------
2.13 Participant........................................ 3
-----------
2.14 SERP Benefit....................................... 3
------------
2.15 SERP............................................... 3
----
2.16 Termination for Cause.............................. 3
---------------------
2.17 Termination of Service............................. 4
----------------------
ARTICLE III................................................................. 4
Participation...................................................... 4
3.1 Eligibility for Participation...................... 4
------------------------------
3.2 Commencement of Participation...................... 4
-----------------------------
3.3 Vesting............................................ 4
-------
3.4 Termination of Participation....................... 5
----------------------------
ARTICLE IV.................................................................. 5
Benefits to Participants........................................... 5
4.1 SERP Benefits...................................... 5
-------------
4.2 Form of Benefits................................... 6
----------------
ARTICLE V................................................................... 6
Administration..................................................... 6
5.1 The Committee...................................... 6
-------------
5.2 Duties of the Committee............................ 6
-----------------------
5.3 Liability of the Committee......................... 7
--------------------------
5.4 Expenses........................................... 7
--------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI.................................................................. 8
Amendment and Termination.......................................... 8
6.1 Amendment and Termination.......................... 8
--------------------------
ARTICLE VII................................................................. 8
Miscellaneous Provisions........................................... 8
7.1 No Right to Continual Employment.....................8
--------------------------------
7.2 Non-Alienation of Benefits......................... 8
--------------------------
7.3 Payment if Participant is Incompetent................9
-------------------------------------
7.4 Termination for Cause................................9
---------------------
7.5 The Bank Sole Source of Benefits.....................9
--------------------------------
7.6 Lost Participants....................................9
-----------------
7.7 Withholding..........................................9
-----------
7.8 Governing Law.......................................10
-------------
7.9 Operation as Unfunded Nonqualified Plan.............10
---------------------------------------
</TABLE>
ii
<PAGE>
FORM OF
RICHMOND COUNTY SAVINGS BANK
MANAGEMENT SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective _________, ____
WHEREAS, effective ____________, ____, the Richmond County Savings Bank
(the "Bank") adopted the Richmond County Savings Bank Employee Stock Ownership
Plan (the "ESOP"), a tax-qualified employee stock ownership plan; and
WHEREAS, the ESOP is leveraged with a ________-year exempt loan used to
acquire shares of Company Stock; and
WHEREAS, the final payment with respect to the ESOP loan is scheduled
to be made by the ESOP trustee on _______________; and
WHEREAS, the Bank expects that certain key management employees will
retire from the employ of the Bank prior to final payment of the ESOP loan and
the final allocation of Company Stock acquired with the proceeds of the ESOP
loan; and
WHEREAS, the Board of Directors of the Bank (the "Board of Directors")
desires to implement a plan to provide certain key management employees with
benefits to replace the benefits to which they would have otherwise been
entitled under the ESOP had they remained in the employ of the Bank until the
complete repayment of the ESOP loan and the final allocation of Company Stock
acquired with the proceeds of the ESOP loan;
NOW, THEREFORE, by resolution of the Board of Directors of the Bank,
the Richmond County Savings Bank Management Supplemental Executive Retirement
Plan (the "SERP") has been established.
ARTICLE I
---------
Purpose of the Plan
The purpose of the SERP is to provide certain key management employees
of the Bank who retire prior to complete repayment of the ESOP loan and the
final allocation of Company Stock acquired with the proceeds of the ESOP loan
with benefits to make up lost benefits to which they would otherwise have been
entitled under the terms of the ESOP had they continued their employment with
the Bank until complete repayment of the ESOP loan.
<PAGE>
ARTICLE II
----------
Definitions
The following definitions shall apply for the purposes of this SERP
unless a different meaning is clearly indicated by the context.
2.1 Bank means Richmond County Savings Bank, having its principal
----
office at 1214 Castleton Avenue, Staten Island, New York 10310, and its
successors or assigns.
2.2 Board of Directors means the Board of Directors of the Bank, as
------------------
duly constituted from time to time.
2.3 Change in Control of the Company or the Bank means an event of a
-----------------
nature that: (i) would be required to be reported in response to Item 1(a) of
the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act");
or (ii) results in a Change in Control of the Bank or the Company within the
meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a) with respect to the Bank and the Board of Governors of the Federal
Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with respect to the Company,
as in effect on the date hereof; or (iii) results in a transaction requiring
prior FRB approval under the Bank Holding Company Act of 1956 and the
regulations promulgated thereunder by the FRB at 12 C.F.R. (S) 225.11, as in
effect on the date hereof except for the Company's acquisition of the Bank; or
(iv) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Bank or the Company representing 20% or more of the Bank's or the Company's
outstanding securities except for any securities of the Bank purchased by the
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any tax-qualified employee benefit plan of the Bank; or
(B) individuals who constitute the Board of Directors of the Company on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction occurs in which the
Bank or Company is not the resulting entity; or (D) solicitations of
shareholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Bank or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or
2
<PAGE>
property or securities not issued by the Bank or the Company shall be
distributed; or (E) a tender offer is made for 20% or more of the voting
securities of the Bank or the Company.
2.4 Code means the Internal Revenue Code of 1986, as amended from
----
time to time (including the corresponding provisions of any succeeding law).
2.5 Committee means the administrative committee appointed by the
---------
Board to administer the SERP pursuant to the terms of Article V hereof.
2.6 Company means Richmond County Financial Corp., the holding
-------
company of the Bank.
2.7 Company Stock means the common stock of Richmond County Financial
-------------
Corp.
2.8 Eligible Employee means an Employee who is eligible for
-----------------
participation in the SERP pursuant to the provisions of Article III hereof.
2.9 Employee means any person, including an officer, who is employed
--------
by the Bank.
2.10 ERISA means the Employee Retirement Income Security Act of 1974,
-----
as amended from time to time (including the corresponding provisions of any
succeeding law).
2.11 ESOP means Richmond County Savings Bank Employee Stock Ownership
----
Plan.
2.12 Nonqualified Plan means a plan of deferred compensation which
-----------------
does not meet the requirements of Section 401(a) of the Code.
2.13 Participant means any person who participates in the SERP in
-----------
accordance with its terms.
2.14 SERP Benefit means the benefit payable to a Participant pursuant
----
to the terms of the SERP.
2.15 SERP means Richmond County Savings Bank Management Supplemental
----
Executive Retirement Plan, as set forth herein, and as amended from time to
time.
2.16 Termination for Cause means termination of employment because of
---------------------
the Employee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses). The basis for any Employee's Termination for
Cause shall be determined by the Board of Directors in its sole discretion.
3
<PAGE>
2.17 Termination of Service means an Employee's separation from the
----------------------
service of the Bank, whether by resignation, discharge, death, disability,
retirement or otherwise.
ARTICLE III
-----------
Participation
3.1 Eligibility for Participation.
-----------------------------
Only Eligible Employees may be or become Participants. An Employee
shall become an Eligible Employee for SERP Benefits if:
(a) He is a participant in the ESOP, and
(b) The Board of Directors, in its sole discretion, designates
him as an Eligible Employee.
3.2 Commencement of Participation.
-----------------------------
An Eligible Employee shall become a Participant in the SERP on the date
determined by the Board. However, in no event will an Employee become a
Participant prior to January 1, 1997.
3.3 Vesting.
-------
A Participant shall vest in his SERP Benefit according to the following
schedule:
<TABLE>
<CAPTION>
Anniversary of SERP Participation Vested Percentage
--------------------------------- -----------------
<S> <C>
1st 20%
2nd 40%
3rd 60%
4th 80%
5th 100%
</TABLE>
Notwithstanding the preceding, a Participant shall vest immediately in his SERP
Benefit upon the occurrence of a Change in Control of the Bank or the Company.
4
<PAGE>
3.4 Termination of Participation.
----------------------------
A Participant's participation in the SERP shall cease on the earlier of
(a) the date of the Participant's Termination of Service, or
(b) the date on which the Participant ceases to be an Eligible
Employee.
ARTICLE IV
----------
Benefits to Participants
4.1 SERP Benefits.
-------------
(a) An individual who satisfies the eligibility requirements of
Section 3.1 and becomes a Participant pursuant to Section 3.2 shall be entitled
to an unfunded, unsecured promise from the Bank to receive a SERP Benefit upon
Termination of Service as a result of his attainment of "Normal Retirement Age"
or satisfaction of the requirements for an "Early Retirement Benefit" (as those
terms are defined in the ESOP) under the terms of ESOP.
(b) The SERP Benefit shall be determined by:
(i) projecting the total number of shares of Company Stock that
would have been allocated to the Participant's account under the
ESOP had the Participant continued in the employ of the Bank,
measured from the date the Participant was first eligible to
participate in the ESOP until the ESOP loan would have been
repaid in full and the final allocation of shares of Company
Stock acquired with the ESOP loan would have been made; and then
(ii) reducing the number of shares projected in (i), above, by
the actual number of shares of Company Stock allocated to the
Participant's account under the terms of the ESOP as of the last
day of the final Plan Year in which the Participant was an
"Active Participant" (as defined in the ESOP) in the ESOP; and
then
(iii) multiplying the number of shares of Company Stock
determined after application of (ii), above, by the average fair
market value of the Company Stock for the five-year period
immediately preceding the Participant's Termination of Service
(or the number of years the Participant has participated in the
SERP if such number is fewer than five).
The projection of shares required by (i), above, shall be performed by a public
accountant based on assumptions which the Board of Directors has approved as
reasonable at the time the calculation for the SERP Benefit is performed.
5
<PAGE>
4.2 Form of Benefits.
----------------
(a) SERP Benefits shall be payable in a lump sum payment as soon as
practicable after the Participant's Termination of Service. However, the
Committee reserves the right to make payments in a series of periodic payments.
(b) SERP Benefits, at the discretion of the Committee, shall be paid
in cash, Company Stock or some combination thereof.
ARTICLE V
---------
Administration
5.1 The Committee.
-------------
Except for the functions reserved to the Bank or the Board of
Directors, the administration of the SERP shall be the responsibility of the
Committee. The Committee shall consist of three (3) or more persons designated
by the Board of Directors. Members of the Committee shall serve for such terms
as the Board of Directors shall determine and until their successors are
designated and qualified. Any member of the Committee may resign upon at least
sixty (60) days written notice to the Board, or may be removed from office by
the Board of Directors for failure or inability to carry out his
responsibilities in an effective manner.
5.2 Duties of the Committee.
-----------------------
The Committee shall have the power and the duty to take all actions and
to make all decisions necessary or proper to carry out the purpose of the SERP.
The determination of the Committee as to any question involving the general
administration and interpretation of the SERP shall be final, conclusive and
binding. Any discretionary actions to be taken under the SERP by the Committee
shall be uniform in their nature and applicable to all persons similarly
situated. Without limiting the generality of the foregoing, the Committee shall
have the following powers and duties:
(a) the duty to furnish to all Participants, upon request,
copies of the SERP and to require any person to furnish such information as it
may request for the purpose of the proper administration of the SERP as a
condition to receiving any benefits under the SERP;
(b) the duty to make and enforce such rules and regulations and
prescribe the use of such forms as it shall deem necessary for the efficient
administration of the SERP;
(c) the duty to interpret the SERP, and to resolve ambiguities,
inconsistencies and omissions, which findings shall be binding, final and
conclusive;
6
<PAGE>
(d) the duty to decide on questions concerning the SERP in
accordance with the provisions of the SERP;
(e) the duty to determine the amount of benefits which shall be
payable to any person in accordance with the provisions of the SERP and to
provide a full and fair review to any Participant whose claim for benefits has
been denied in whole or in part;
(f) the power to designate a person who may or may not be a
member of the Committee as SERP "Administrator." If the Committee does not so
designate an Administrator, the Bank shall be the SERP Administrator;
(g) the power to allocate any such powers and duties to or
among individual members of the Committee; and
(h) the power to designate persons other than Committee members
to carry out any duty or power which would otherwise be a responsibility of the
Committee or Administrator, under the terms of the SERP.
5.3 Liability of the Committee.
--------------------------
To the extent permitted by law, the Committee and any person to whom it
may delegate any duty or power in connection with administering the SERP, the
Bank, any Employer, and the officers and directors thereof, shall be entitled to
rely conclusively upon, and shall be fully protected in any action taken or
suffered by them in good faith in the reliance upon, any actuary, counsel,
accountant, other specialist, or other person selected by the Committee, or in
reliance upon any tables, valuations, certificates, opinions or reports which
shall be furnished by any of them. Further, to the extent permitted by law, no
member of the Committee, nor the Bank, any Employer, nor the officers or
directors thereof, shall be liable for any neglect, omission or wrongdoing of
any other members of the Committee, agent, officer or employee of the Bank or
any Employer. Any person claiming benefits under the SERP shall look solely to
the Bank for redress.
5.4 Expenses.
--------
All expenses incurred prior to the termination of the SERP that shall
arise in connection with the administration of the SERP (including, but not
limited to administrative expenses, proper charges and disbursements,
compensation and other expenses and charges of any actuary, counsel, accountant,
specialist, or other person who shall be retained or employed by the Committee
in connection with the administration of the SERP), shall be paid by the Bank.
7
<PAGE>
ARTICLE VI
----------
Amendment and Termination
6.1 Amendment and Termination.
-------------------------
The Board of Directors shall have the power to suspend or terminate the
SERP in whole or in part at any time, and from time to time to extend, modify,
amend or revise the SERP in such respects as the Board of Directors, by
resolution, may deem advisable; provided, however, that no such extension,
modification, amendment, revision, or termination shall deprive a Participant or
any beneficiary of any benefit payable under the SERP at the time of such
extension, modification, amendment, revision, or termination.
ARTICLE VII
-----------
Miscellaneous Provisions
7.1 No Right to Continual Employment.
--------------------------------
The SERP shall not be deemed to constitute a contract of employment
between the Bank and any Employee or other person, whether or not in the employ
of the Bank, nor shall anything herein contained be deemed to give any Employee
or other person, whether or not in the employ of the Bank, any right to be
retained in the employ of the Bank, or to interfere with the right of the Bank
to discharge any Employee at any time and to treat such Employee without any
regard to the effect which such treatment might have upon such Employee as a
Participant of the SERP.
7.2 Non-Alienation of Benefits.
--------------------------
Except as may otherwise be required by law, no distribution or payment
under the SERP to any Participant or beneficiary shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, whether voluntary or involuntary, and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; nor shall any such distribution or payment be in any way liable for or
subject to the debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment. If any Participant or beneficiary is
adjudicated bankrupt or purports to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge any such distribution or payment, voluntarily
or involuntarily, the Committee, in its sole discretion, may cancel such
distribution or payment or may hold or cause to be held or applied such
distribution or payment, or any part thereof, to or for the benefit of such
Participant or beneficiary, in such manner as the Committee shall direct.
8
<PAGE>
7.3 Payment if Participant is Incompetent.
-------------------------------------
If the Bank determines that any person entitled to payments under the
SERP is incompetent by reason of physical or mental disability, it may cause all
payments thereafter becoming due to such person to be made to any other person
for the benefit of the incompetent person, without responsibility to follow
application of amounts so paid. Payments made pursuant to this provision shall
completely discharge the SERP, the Bank and the Committee.
7.4 Termination for Cause.
---------------------
If any Participant entitled to payments under the SERP separates from
service as a result of Termination for Cause, the Bank may cause all payments
thereafter becoming due to such Participant to be forfeited under the SERP.
7.5 The Bank Sole Source of Benefits.
--------------------------------
The Bank shall be the sole source of benefits under the SERP, and each
Employee, Participant, beneficiary, or any other person who shall claim the
right to any payment or benefit under the SERP shall be entitled to look solely
to the Bank for payment of benefits.
7.6 Lost Participants.
-----------------
If the Bank is unable to make payment to any Participant, beneficiary,
or any other person to whom a payment is due under the SERP, because it cannot
ascertain the identity or whereabouts of such Participant, beneficiary, or other
person after reasonable efforts have been made to identify or locate such person
(including a notice of the payment so due mailed to the last known address of
such Participant, beneficiary, or other person shown on the records of the
Bank), such payment and all subsequent payments otherwise due to such
Participant, beneficiary or other person shall be forfeited twenty-four (24)
months after the date such payment first became due; provided, however, that
such payment and any subsequent payments shall be reinstated, retroactively, no
later than sixty (60) days after the date on which the Participant, beneficiary,
or other person is identified or located.
7.7 Withholding.
-----------
If upon the payment of any benefits under the SERP, the Bank shall be
required to withhold any amounts with respect to such payment by reason of any
federal, state or local tax laws, rules or regulations, then the Bank shall be
entitled to deduct and withhold such amounts from any such payments. In any
event, such person shall make available to the Bank, promptly when requested by
the Bank, sufficient funds or other property to meet the requirements of such
withholding. Furthermore, the Bank shall be entitled to take and authorize such
steps as it may deem advisable in order to have the amounts required to be
withheld made available to the Bank
9
<PAGE>
out of any funds or property due to become due to such person, whether under the
SERP or otherwise.
7.8 Governing Law.
-------------
The provisions of the SERP shall be construed, administered and
governed under applicable federal laws and the laws of the State of New York.
7.9 Operation as Unfunded Nonqualified Plan.
---------------------------------------
The SERP is intended to be an unfunded, Nonqualified Plan maintained
"primarily for the purpose of providing deferred compensation for a select group
of management or highly compensated employees" as that phrase is used for
purposes of Sections 201, 301 and 401 of ERISA. The SERP is not intended to
comply with the requirements of section 401(a) of the Code. The SERP shall be
administered and construed so as to effectuate this intent.
10
<PAGE>
Richmond County Savings Bank has adopted this Plan, to be executed by a designee
of the Board and duly attested, on this the day of _______, 199__.
ATTEST: RICHMOND COUNTY SAVINGS BANK
By
- - - ---------------------------- -------------------------
11
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Consolidated Statements of Income" and to the use of our reports dated August
22, 1997 (with respect to the consolidated financial statements of Richmond
County Savings Bank) and July 14, 1997 (with respect to the financial statements
of Richmond County Savings Bank 401(k) Savings Plan in RSI Retirement Trust),
included in the Registration Statement and related Prospectus of Richmond County
Financial Corp. dated October 2, 1997, for the registration of up to 21,275,000
shares of common stock, the Application for Conversion on Form 86-AC and the
Notice and Application for Conversion.
/s/ Ernst & Young LLP
New York, New York
October 2, 1997
<PAGE>
EXHIBIT 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form S-1 filed by Richmond County Financial Corp.,
Staten Island, New York, and all amendments thereto; in the Form H-(e)1-S for
Richmond County Financial Corp., and all amendments thereto; and in the
Application for Conversion on Form 86-AC filed by Richmond County Savings Bank
(the "Bank"), and all amendments thereto, and in the Notice and Application for
Richmond County Savings Bank filed with the Federal Deposit Insurance
Corporation and all amendments thereto, relating to the conversion of the Bank
from a New York State chartered mutual savings bank to a New York State
chartered stock savings bank, the concurrent issuance of the Bank's outstanding
capital stock to Richmond County Financial Corp., a holding company formed for
such purpose, and the offering of Richmond County Financial Corp.'s common
stock.
/s/ MULDOON, MURPHY & FAUCETTE
Dated this 2nd day of
October, 1997
<PAGE>
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL APPEARS HERE]
Exhibit 23.3
October 2, 1997
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
We hereby consent to the references to this firm and our opinions in the
Registration Statement on Form S-1 by Richmond County Financial Corp. and all
amendments thereto, the Application for Conversion on the Form 86-AC filed by
Richmond County Savings Bank (the "Bank") and all amendments thereto, and the
Notice and Application for Conversion for Richmond County Savings Bank, filed by
Richmond County Savings Bank, Staten Island, New York, with the Federal Deposit
Insurance Corporation and all amendments thereto, relating to the conversion of
the Bank from a New York chartered mutual savings bank to a New York chartered
stock savings bank, the concurrent issuance of the Bank's outstanding capital
stock to Richmond County Financial Corp. a holding company formed for such
purpose, and the offering of Richmond County Financial Corp.'s common stock.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
[LETTERHEAD OF KELLER & COMPANY, INC.]
October 2, 1997
Re: Valuation Appraisal of Richmond County Financial Corp.
Richmond County Savings Bank
Staten Island, New York
We hereby consent to the use of our firm's name, Keller & Company, Inc.
("Keller"), and the reference to our firm as experts in the Application for
Conversion on Form 86-AC to be filed by Richmond County Savings Bank and any
amendments thereto and references to our opinion regarding subscription rights
filed as an exhibit to the applications referred to hereafter. We also consent
to the use of our firm's name in the Form S-1 to be filed by Richmond County
Financial Corp. with the Securities and Exchange Commission and any amendments
thereto, and to the statements with respect to us and the references to our
Valuation Appraisal Report and in the said Form 86-AC and any amendments
thereto and in the notice and Application for Conversion filed by the Richmond
County Savings Bank, Staten Island, New York.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
----------------------------
Michael R. Keller
President
<PAGE>
[LETTERHEAD OF KELLER & COMPANY, INC.]
October 2, 1997
The Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue, West New Brighton
Staten Island, New York 10310-1702
Re: Subscription Rights -- Conversion of Richmond County Savings Bank
Staten Island, New York
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of Richmond County
Financial Corp. ("Richmond Corp." or the "Corporation"), Staten Island, New York
in regard to the conversion of Richmond County Savings Bank ("Richmond" or the
"Bank") from a state-chartered mutual savings bank to a state-chartered stock
savings bank.
Because the Subscription Rights to purchase shares of Common Stock in Richmond
Corp,. which are to be issued to the depositors of Richmond and the other
members of the Bank and will be acquired by such recipients without cost, will
be nontransferable and of short duration and will afford the recipients the
right only to purchase shares of Common Stock at the same price as will be paid
by members of the general public in a Direct Community Offering, we are of the
opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
<PAGE>
Exhibit 23.5
CONSENT
We hereby consent to the reference to this firm and our opinion in the
Registration Statement on Form S-1 filed by Richmond County Financial Corp.,
Staten Island, New York (the "Company"), and all amendments thereto; in the
Application for Conversion on Form 86-AC filed by Richmond County Savings Bank
(the "Bank") and the Company, and all amendments thereto, and in the Notice and
Application for the Bank and the Company filed with the Federal Notice and
Application for the Bank and the Company filed with the Federal Deposit
Insurance Corporation and all amendments thereto; and references to our firm
under the heading "Experts," relating to the conversion of the Company from the
mutual to stock form, the concurrent issuance of the Bank's outstanding capital
stock to the Company and the offering of the Company's common stock.
/s/ William M. Mercer, Incorporated
WILLIAM M. MERCER, INCORPORATED
Philadelphia, Pennsylvania
Dated this 2nd day of October 1997
<PAGE>
Exhibit 24.1
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Michael F. Manzulli as the true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
or all amendments to the Application for Conversion on Form 86-AC and the Form
S-1 Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the New York State Banking
Department or the U.S. Securities and Exchange Commission, respectively,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and things requisite and necessary to be done as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the New York State Banking Department
regulations and the Securities Act of 1933, as amended, and any rules and
regulations promulgated thereunder, the foregoing Powers of Attorney prepared in
conjunction with the Application for Conversion on Form 86-AC and the Form S-1
Registration Statement have been duly signed by the following persons in the
capacities and on the dates indicated.
NAME DATE
---- ----
/s/ Michael F. Manzulli October 2, 1997
- - - --------------------------------
Michael F. Manzulli
Chairman of the Board and Chief Executive
Officer
(principal executive officer)
Richmond County Financial Corp.
President, Chief Executive Officer and Trustee
(principal executive officer)
Richmond County Savings Bank
/s/ Andrew M. Sisock October 2, 1997
- - - --------------------------------
Andrew M. Sisock
Vice President and Accounting Officer
(principal accounting and financial officer)
Richmond County Financial Corp.
Senior Vice President and Senior Financial Officer
(principal accounting and financial officer)
Richmond County Savings Bank
<PAGE>
/s/ Anthony E. Burke October 2, 1997
- - - --------------------------------
Anthony E. Burke
Director
Richmond County Financial Corp.
/s/ Godfrey H. Carstens, Jr. October 2, 1997
- - - --------------------------------
Godfrey H. Carstens, Jr.
Director
Richmond County Financial Corp.
Trustee
Richmond County Savings Bank
/s/ Robert S. Farrell October 2, 1997
- - - --------------------------------
Robert S. Farrell
Director
Richmond County Financial Corp.
Trustee
Richmond County Savings Bank
/s/ William C. Frederick, M.D. October 2, 1997
- - - --------------------------------
William C. Frederick, M.D.
Director
Richmond County Financial Corp.
Trustee
Richmond County Savings Bank
/s/ James L. Kelley October 2, 1997
- - - --------------------------------
James L. Kelley
Director
Richmond County Financial Corp.
Trustee
Richmond County Savings Bank
/s/ T. Ronald Quinlan, Jr. October 2, 1997
- - - --------------------------------
T. Ronald Quinlan, Jr.
Director
Richmond County Financial Corp.
Trustee
Richmond County Savings Bank
/s/ Maurice K. Shaw October 2, 1997
- - - --------------------------------
Maurice K. Shaw
Director
Richmond County Financial Corp.
Trustee
Richmond County Savings Bank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 26,543
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,104
<INVESTMENTS-CARRYING> 390,323
<INVESTMENTS-MARKET> 391,955
<LOANS> 503,329
<ALLOWANCE> 5,470
<TOTAL-ASSETS> 993,370
<DEPOSITS> 884,531
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7,974
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 100,865
<TOTAL-LIABILITIES-AND-EQUITY> 993,370
<INTEREST-LOAN> 38,068
<INTEREST-INVEST> 26,342
<INTEREST-OTHER> 1,371
<INTEREST-TOTAL> 65,781
<INTEREST-DEPOSIT> 27,697
<INTEREST-EXPENSE> 27,707
<INTEREST-INCOME-NET> 38,074
<LOAN-LOSSES> 1,080
<SECURITIES-GAINS> (107)
<EXPENSE-OTHER> 19,667
<INCOME-PRETAX> 20,188
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,725
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 2,672
<LOANS-PAST> 1,205
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,796
<CHARGE-OFFS> 475
<RECOVERIES> 69
<ALLOWANCE-CLOSE> 5,470
<ALLOWANCE-DOMESTIC> 5,470
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,084
</TABLE>
