As filed with the Securities and Exchange Commission on January 2, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 6035 Applied For
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
52 North Main Street, Gloversville, New York 12078-3084 (518) 725-6335
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Lewis E. Kolar
President and Chief Executive Officer
Adirondack Financial Services Bancorp, Inc.
52 North Main Street
Gloversville, New York 12078-3084
(518) 725-6335
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Please send copies of all communications to:
Kip A. Weissman, P.C.
Daniel L. Torbenson, Esq.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability partnership including professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered (1) Per Share (1) Price (1) Registration Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 661,250 shares $10.00 $6,612,500 $1,951
======================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
Prospectus
[LOGO]
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
(Proposed Holding Company for Gloversville Federal Savings and Loan Association)
$10.00 Per Share
575,000 Shares of Common Stock
(Anticipated Maximum)
Adirondack Financial Services Bancorp, Inc. (the "Holding Company") is
offering up to 575,000 shares of common stock, par value $0.01 per share (the
"Common Stock"), in connection with the conversion of Gloversville Federal
Savings and Loan Association ("Gloversville Federal" or the "Association") from
a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association and the issuance of all of
Gloversville Federal outstanding stock to the Holding Company (the
"Conversion"). Pursuant to the Association's plan of conversion (the "Plan of
Conversion" or the "Plan"), non-transferable rights to subscribe for the Common
Stock ("Subscription Rights") have been given to (i) Gloversville Federal's
depositors with account balances of $50 or more as of September 30, 1996
("Eligible Account Holders"), (ii) tax-qualified employee plans of Gloversville
Federal and the Holding Company ("Tax-Qualified Employee Plans"), provided,
however, that the Tax-Qualified Employee Plans shall have first priority
Subscription Rights to the extent that the total number of shares of Common
Stock sold in the Conversion exceeds the maximum of the Estimated Valuation
Range as defined below, (iii) Gloversville Federal's depositors with account
balances of $50 or more as of ___________, 1998 ("Supplemental Eligible Account
Holders"), (iv) certain of its other members ("Other Members"), and (v) its
employees, officers and directors (the "Subscription Offering.) (continued on
next page)
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE STOCK
INFORMATION CENTER AT (518) ___-____.
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED, SEE "RISK
FACTORS" AT PAGE __.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION
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 SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
Estimated Underwriting Fees,
Commissions and Other Estimated Net
Purchase Price(1) Expenses(2) Conversion Proceeds(3)
----------------- ----------- ----------------------
<S> <C> <C> <C>
Per Share(4).................................... $10.00 $1.02 $8.98
Minimum Total................................... $4,250,000 $508,000 $3,742,000
Midpoint Total.................................. $5,000,000 $508,000 $4,492,000
Maximum Total................................... $5,750,000 $508,000 $5,242,000
Maximum Total, As Adjusted(5)................... $6,612,500 $508,000 $6,104,500
</TABLE>
(1) Determined on the basis of an appraisal prepared by RP Financial, Inc. ("RP
Financial) dated [Appraisal Date], which states that the estimated pro
forma market value of the Common Stock ranged from $4,250,000 to $5,750,000
or between 425,000 shares and 575,000 shares, of Common Stock at $10.00 per
share. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
(2) Consists of the estimated costs to the Association and the Holding Company
arising from the Conversion, including the payment to Capital Resources,
Inc. ("Capital Resources") of a fee of $90,000 and estimated expenses of
$418,000 in connection with the sale of shares in the Offering. Such fees
may be deemed to be underwriting fees. The Holding Company has agreed to
indemnify Capital Resources against certain liabilities, including
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing Arrangements" for a more
detailed description of underwriting fees and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price and the number of shares issued. The Purchase Price and
the actual number of shares of Common Stock to be issued in the Conversion
will not be determined until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $1.20, $0.88 or $0.77, respectively, resulting in estimated
net Conversion proceeds per share of $8.80, $9.12 or $9.23, respectively.
<PAGE>
(5) As adjusted to give effect to the sale of up to an additional 86,250 shares
(15% above the maximum of the Estimated Valuation Range) which may be
offered in the Conversion without the resolicitation of subscribers or any
right of cancellation, to reflect changes in market and financial
conditions following the commencement of the Offering. See "Pro Forma
Data," and "The Conversion - Stock Pricing and Number of Shares to be
Issued."
Capital Resources, Inc.
The date of this Prospectus is February __, 1998
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling or
otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions at or near the completion of the Subscription Offering,
the Holding Company may also offer the Common Stock for sale through Capital
Resources on a best efforts basis in a public offering to selected persons to
whom this prospectus is delivered (the "Public Offering" and when referred to
together with the Subscription Offering, the "Offering"). Depending on market
conditions and availability of shares, the shares of Common Stock may be offered
for sale in the Public Offering on a best-efforts basis by a selling group of
selected broker-dealers to be managed by Capital Resources. The Association and
the Holding Company reserve the right, in their absolute discretion, to accept
or reject, in whole or in part, any or all orders in the Public Offering.
The total number of shares to be issued in the Conversion will be based upon an
appraised valuation of the estimated aggregate pro forma market value of the
Holding Company and the Association as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current aggregate
valuation range of $4,250,000 to $5,750,000 (the "Estimated Valuation Range"),
the Holding Company is offering up to 575,000 shares. Depending upon the market
and financial conditions at the time of the completion of the Subscription
Offering and the Public Offering, if any, the total number of shares to be
issued in the Conversion may be increased or decreased from the 575,000 shares
offered hereby, provided that the product of the total number of shares
multiplied by the price per share remains within, or does not exceed by more
than 15% the maximum of the Estimated Valuation Range. If the aggregate Purchase
Price of the Common Stock sold in the Conversion is below $4,250,000 or above
$6,612,500 , or if the Offering is extended beyond , 1998, subscribers will be
permitted to modify or cancel their subscriptions and to have their subscription
funds returned promptly with interest. Under such circumstances, if subscribers
take no action, their subscription funds will be promptly returned to them with
interest. In all other circumstances, subscriptions are irrevocable by
subscribers. See "The Conversion - Offering of Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans, no Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member may purchase in
their capacity as such in the Subscription Offering more than $150,000 of Common
Stock; no person, together with associates of and persons acting in concert with
such person, may purchase more than $150,000 of Common Stock in the Public
Offering and no person, together with associates of and persons acting in
concert with such person, may purchase more than $150,000 of Common Stock
offered in the Conversion based on the Estimated Valuation Range (as calculated
without giving effect to any increase in the Estimated Valuation Range
subsequent to the date hereof). Under certain circumstances, the maximum
purchase limitations may be increased or decreased at the sole discretion of the
Association and the Holding Company up to 9.99% of the total number of shares of
Common Stock sold in the Conversion or to one percent of shares of Common Stock
offered in the Conversion. The minimum purchase is 25 shares. See "The
Conversion - Additional Purchase Restrictions." The Association and the Holding
Company have engaged Capital Resources as financial advisor and agent to
consult, advise and assist in the distribution of shares of Common Stock, on a
best-efforts basis in the Offering including, if necessary, managing selected
broker-dealers to assist in selling stock in the Public Offering. For such
services, Capital Resources will receive a marketing fee of $90,000. If selected
dealers are used, the selected dealers will receive a fee estimated to be up to
% of the aggregate Purchase Price for all shares of Common Stock sold in the
Offering through such selected dealers. Such fees may be deemed to be
underwriting commissions. Capital Resources and the selected dealers may be
deemed to be underwriters. See "The Conversion - Marketing Arrangements" and
"The Conversion - Offering of Holding Company Common Stock."
<PAGE>
To subscribe for shares of Common Stock in the Subscription Offering, the
Holding Company must receive a stock order form ("Order Form") and certification
form, together with full payment at $10.00 per share (or appropriate
instructions authorizing a withdrawal from a deposit account at the Association)
for all shares for which subscription is made, at any office of the Association,
by noon, Gloversville, New York time, on _______, 1998, unless the Subscription
Offering is extended, at the discretion of the Board of Directors, up to an
additional 45 days with the approval of the OTS, if necessary, but without
additional notice to subscribers (the "Expiration Date"). The date by which
orders must be received in the Public Offering, if any, will be set by the
Holding Company at the time of such offering provided that, if the Offering is
extended beyond _________, 1998, each subscriber will have the right to modify
or rescind his or her subscription. Subscription funds will be returned promptly
with interest to each subscriber unless he or she affirmatively indicates
otherwise. See "The Conversion Offering of Holding Company Common Stock."
Subscriptions paid by check, bank draft or money order will be placed in a
segregated account at the Association and will earn interest at the
Association's passbook rate from the date of receipt until completion or
termination of the Conversion. Payments authorized by withdrawal from deposit
accounts at the Association will continue to earn interest at the contractual
rate until the Conversion is completed or terminated; these funds will be
otherwise unavailable to the depositor until such time. Authorized withdrawals
from time accounts for the purchase of Common Stock will be permitted without
the imposition of early withdrawal penalties or loss of interest.
2
<PAGE>
The Holding Company has never issued capital stock. Consequently, there is no
existing market for the Holding Company Common Stock at this time. Therefore, no
assurance can be given that an established and liquid trading market for the
Holding Company Common Stock will develop or that resales of the Common Stock
can be made at or above the Purchase Price. Following the Conversion the Holding
Company Common Stock will be traded in the over-the-counter market. Although it
has no obligation to do so, Capital Resources intends to make a market for the
Holding Company Common Stock, depending upon the volume of trading activity in
the common stock. See "Market for Common Stock" and "The Conversion - Stock
Pricing and Number of Shares to be Issued."
3
<PAGE>
[MAP OMITTED]
4
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and financial statements appearing
elsewhere herein.
Adirondack Financial Services Bancorp, Inc.
The Holding Company, Adirondack Financial Services Bancorp, Inc. was
recently formed by Gloversville Federal under the laws of Delaware for the
purpose of becoming a savings and loan holding company which will own all of the
outstanding capital stock that Gloversville Federal will issue in connection
with the Conversion. Immediately following the Conversion, the only significant
assets of the Holding Company will be the capital stock of Gloversville Federal,
a note evidencing the Holding Company's loan to the ESOP and up to approximately
50% of the net proceeds from the Conversion. See "Use of Proceeds." Upon
completion of the Conversion, the Holding Company's business initially will
consist only of the business of Gloversville Federal. See "Adirondack Financial
Services Bancorp, Inc."
Gloversville Federal
General. Gloversville Federal is a federally chartered mutual savings
and loan association headquartered in Gloversville, New York. Gloversville
Federal was originally chartered in 1923. Gloversville Federal currently serves
the financial needs of communities in its market area through its main office
located in Gloversville and its branch office located in the city of Saratoga
Springs, New York. Its deposits are insured up to applicable limits by the
Federal Deposit Insurance Corporation ("FDIC"). At September 30, 1997,
Gloversville Federal had total assets of $61.0 million, deposits of $56.1
million and equity of $3.3 million. See "Business - Market Area" and "
Competition."
Gloversville Federal's business has historically involved attracting
deposits from the general public and using such deposits, together with other
funds, to originate primarily one- to four-family residential mortgages and, to
a lesser extent, multi-family and commercial real estate, commercial business,
home equity and other loans in its market area. The Association also invests in
securities and other permissible investments. See "Business - Investment
Activities - Securities." The Association has suffered significant losses in
recent years on its residential lending program, in part due to loan
underwriting and monitoring deficiencies. In order to address these issues, the
Board of Directors has revised the Association's loan underwriting and
monitoring procedures and hired new personnel to perform such functions. In
addition, in fiscal 1995, the Association hired a new President and Chief
Executive Officer experienced in residential mortgage lending, income producing
property and business lending and determined to expand the Association's
multi-family and commercial real estate and commercial business lending. See
"Business - Lending Activities -Multi-family and Commercial Real Estate Lending"
and "- Commercial Business Lending." However, loan losses continued in the
residential loan portfolio into fiscal 1997 and there can be no assurance that
any of these new programs can successfully address the Association's loan
problems.
5
<PAGE>
Financial and operational highlights of the Association include the
following:
o Capital Strength. At September 30, 1997, the Association had total equity
of $3.3 million and exceeded all of the applicable regulatory capital
requirements with tangible, core and total risk-based capital ratios of
5.41%, 5.41% and 10.01%, respectively. Assuming on a pro forma basis that
$____ million, the midpoint of the Estimated Valuation Range, of shares
were sold in the Conversion and approximately 50% of the net proceeds were
retained by the Holding Company, as of September 30, 1997, the
Association's tangible capital would have been $____ million (____% of
assets). See "Pro Forma Regulatory Capital Analysis."
o Losses from Operations. The Association has recorded a net loss from
operations in three out of its last five fiscal years, primarily due to
significant additions to its allowance for loan losses as well as, in 1996,
a significant charge to operations for delinquent property taxes on certain
non-performing residential loans and a special FDIC assessment. The
Association's income (loss) was ($583,000), ($1.0 million), $251,000,
$272,000 and ($239,000) for the years ended September 30, 1997, 1996, 1995,
1994 and 1993, respectively. While the Board believes that it has addressed
most of the problems which have caused these losses, the Association
continues to have significant credit risk in its loan portfolio and its
general and administrative expenses have increased as a result of new
lending procedures and personnel. Accordingly, there can be no assurance
that the Association's results of operations will reach favorable levels in
the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
o Income Producing Property and Business Lending Activities. In order to
increase the yield and interest rate sensitivity of the Association's loan
portfolio, the Association recently has increased its multi-family and
commercial real estate and commercial business lending. While no such loans
were delinquent at September 30, 1997, a number of underwriting,
documentation and monitoring deficiencies have been noted. As a result,
while no multi- family and commercial real estate or commercial business
loans have been classified as non- performing, $1.1 million of such loans
have been classified as "of concern" as of September 30, 1997. Based on the
above and in view of the higher level of credit risk generally associated
with such loans, there can be no assurance that such new lending programs
will be successful. See "Risk Factors - Non-Residential Lending
Activities."
o Asset Quality. As a result of residential loan underwriting and monitoring
deficiencies which the Board believes have now been addressed, as well as
the relatively weak economy and weak real estate market in the
Association's market area, the Association has experienced significant
delinquencies and loan losses on its one- to four-family residential loans.
In addition, since fiscal 1995, the Association has significantly increased
its multi- family and commercial real estate and commercial business
lending. At September 30, 1997, the Association's non-performing loans, all
of which were one- to four- family residential loans, stood at $3.8 million
or 7.4% of gross loans, while "other loans of concern" stood at $1.1
million. On the same date, the Association's loan loss reserves stood at
$1.6 million or 3.1% of gross loans and 42.5% of non-performing loans and
33.0% of non-performing
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<PAGE>
loans and other loans of concern. At September 30, 1997, the Association's
total non-performing assets stood at $4.1 million or 6.7% of assets.
While the Association currently believes that its current allowance for
loan losses is adequate, there can be no assurance that the Association
will not continue to experience significant loan delinquencies and losses
in the future. See "Business - Delinquencies and Non-Performing Assets."
o Interest Rate Sensitivity. The Association's profitability, like that of
most financial institutions, is dependent to a large extent upon its net
interest income, which is the difference between its interest income and
interest expense. In managing its asset/liability mix, Gloversville Federal
generally, depending on the relationship between long and short- term
interest rates, market conditions and consumer preference, places greater
emphasis on maximizing its net interest margin than on matching the
interest rate sensitivity of its assets and liabilities. At September 30,
1997, the net value of the Association's portfolio equity was projected to
decline by 22.9% and 53.5% if there were instantaneous increases in
interest rates of 200 and 400 basis points, respectively. See "Risk Factors
- Interest Rate Risk Exposure" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability
Management."
The Conversion
The Offering is being made in connection with the conversion of
Gloversville Federal from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association and the
formation of Adirondack Financial Services Bancorp, Inc. as the holding company
of Gloversville Federal. The Conversion is subject to certain conditions,
including the prior approval of the Plan by the Association's members at a
Special Meeting to be held on January 21, 1998. After the Conversion, the
Association's current voting members (who include certain deposit account
holders and borrowers) will have no voting rights in Gloversville Federal and
will have no voting rights in the Holding Company unless they become Holding
Company stockholders. Eligible Account Holders and Supplemental Eligible Account
Holders, however, will have certain liquidation rights in the Association. See
"The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association - Liquidation Rights."
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Association totaled $50.00 or more on September 30, 1996); (ii)
Tax-Qualified Employee Plans; provided, however, that the Tax Qualified Employee
Plans shall have first priority Subscription Rights to the extent that the total
number of shares of Common Stock sold in the Conversion exceeds the maximum of
the Estimated Valuation Range; (iii) Supplemental Eligible Account Holders
(i.e., depositors whose accounts in the Association totaled $50.00 or more on
___________, 1998); (iv) Other Members (i.e., depositors as of ___________ __,
1998 and certain borrowers of the Association as of ________ __, ____ and
_______ __, 1998); and (v) employees, officers and directors of the Association.
Subscription Rights received in any of the
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<PAGE>
foregoing categories will be subordinated to the Subscription Rights received by
those in a prior category. Subscription Rights will expire if not exercised by
noon, Gloversville, New York time, on ____________ __, 1998, unless extended
(the "Expiration Date").
Subject to the prior rights of holders of Subscription Rights and
market conditions at or near the completion of the Subscription Offering, any
shares of Common Stock not subscribed for in the Subscription Offering may be
offered at the same price in a Public Offering and/or Direct Community Offering
through Capital Resources on a best efforts basis to selected persons to whom
this prospectus is delivered. To order Common Stock in connection with the
Public Offering and/or Direct Community Offering, if any, an executed stock
order form and account withdrawal authorization and certification must be
received by Capital Resources prior to the termination of such offerings. The
date by which orders must be received in the Public Offering and/or Direct
Community Offering, if any, will be set by the Holding Company at the time of
such offering provided that if the Offering is extended beyond __________ __,
1998, each subscriber will have the right to modify or rescind his or her
subscription. The Holding Company and the Association reserve the absolute right
to accept or reject any orders in the Public Offering and Direct Community
Offering, if any, in whole or in part.
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by Capital Resources. See "The Conversion - Public Offering and Direct
Community Offering."
The Association and the Holding Company have engaged Capital Resources
to consult with and advise the Holding Company and the Association with respect
to the Offering, and Capital Resources has agreed to solicit subscriptions and
purchase orders for shares of Common Stock in the Offering. Neither Capital
Resources nor any selected broker-dealers will have any obligation to purchase
shares of Common Stock in the Offering. Capital Resources will receive for its
services a marketing fee of $90,000. To the extent selected broker-dealers are
utilized in connection with the sale of shares in the Public Offering, the
selected dealers will receive a fee of up to _____% and Capital Resources will
receive a fee of _____% of the aggregate Purchase Price for all shares of Common
Stock sold through such broker-dealers. Capital Resources will also receive
reimbursement for certain expenses incurred in connection with the Offering. The
Holding Company has agreed to indemnify Capital Resources against certain
liabilities, including certain liabilities under the Securities Act of 1933, as
amended ("Securities Act"). See "The Conversion Marketing Arrangements."
The Association has established a Stock Information Center, which will
be managed by Capital Resources, to coordinate the Offering, and answer
questions about the Offering received by telephone. All subscribers will be
instructed to mail payment to the Stock Information Center or deliver payment
directly to the Association's office. Payment for shares of Common Stock may be
made by cash (if delivered in person), check or money order or by authorization
of withdrawal from deposit accounts maintained with the Association. Such funds
will not be available for withdrawal and will not be released until the
Conversion is completed or terminated. See "The Conversion - Method of Payment
for Subscriptions."
8
<PAGE>
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $150,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$150,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $150,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock. These purchase limits may be
increased or decreased consistent with the Office of Thrift Supervision ("OTS")
regulations at the sole discretion of the Holding Company and the Association.
See "The Conversion - Offering of Holding Company Common Stock."
Restrictions on Transfer of Subscription Rights. Prior to the
completion of the Conversion, no person may transfer or enter into any agreement
or understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Common Stock to be
issued upon their exercise. Persons found to be selling or otherwise
transferring their right to purchase stock in the Subscription Offering or
purchasing Common Stock on behalf of another person will be subject to
forfeiture of such rights and possible federal penalties and sanctions. See "The
Conversion - Restrictions on Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Gloversville Federal, as converted, was estimated by RP Financial,
which is experienced in appraising converting thrift institutions, to be the
Estimated Valuation Range. The Board of Directors has reviewed the Estimated
Valuation Range as stated in the appraisal and compared it with recent stock
trading prices as well as other recent pro forma market value estimates. The
Board of Directors has also reviewed the appraisal report, including the
assumptions and methodology utilized therein, and determined that it was not
unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
575,000 shares offered hereby and the Purchase Price may be decreased. However,
subscribers will be permitted to modify or rescind their subscriptions if the
product of the total number of shares to be issued multiplied by the price per
share is less than $4,250,000 or more than $6,612,500. The appraisal is not
intended to be, and must not be interpreted as, a recommendation of any kind as
to the advisability of voting to approve the Conversion or of purchasing shares
of Common Stock. The appraisal considers Gloversville Federal and the Holding
Company only as going concerns and should not be considered as any indication of
the liquidation value of Gloversville Federal or the Holding Company. Moreover,
the appraisal is necessarily based on many factors which change from time to
time. There can be no assurance that persons who purchase shares in the
Conversion will be able to sell such shares at prices at or above the Purchase
Price. See "Pro Forma Data" and "The Conversion - Stock Pricing and Number
9
<PAGE>
of Shares to be Issued" for a description of the manner in which such valuation
was made and the limitations on its use.
Purchases by Directors and Executive Officers
The directors and executive officers of Gloversville Federal intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $385,500 of Common Stock, or
9.1%, 7.7% or 6.7% of the shares to be sold in the Conversion at the minimum,
midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion is anticipated to be purchased by the ESOP. See "The
Conversion - Participation by the Board and Executive Officers."
Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the
Association has adopted an ESOP, a tax-qualified employee benefit plan for
officers and employees of the Holding Company and the Association. All employees
of the Association are eligible to participate in the ESOP after they attain age
21 and complete one year of service. The Association's contribution to the ESOP
is allocated among participants on the basis of their relative compensation.
Each participant's account will be credited with cash and shares of Holding
Company Common Stock based upon compensation earned during the year with respect
to which the contribution is made. The ESOP intends to buy up to 8% of the
Common Stock issued in the Conversion (approximately $340,000 to $460,000 of the
Common Stock based on the issuance of the minimum and the maximum of the
Estimated Valuation Range and the $10.00 per share Purchase Price). The ESOP
will purchase the shares with funds borrowed from the Holding Company, and it is
anticipated that the ESOP will repay the loans through periodic tax-deductible
contributions from the Association over a ten-year period. These contributions
will increase the compensation expense of the Association. See "Management
Benefit Plans - Employee Stock Ownership Plan" for a description of this plan.
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Association will receive awards under these plans. It is
currently anticipated that an amount of shares equal to 10% and 4% of the shares
sold in the Conversion will be reserved for issuance under the Stock Option Plan
and RRP, respectively. Depending upon market conditions in the future, the
Holding Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to __% of
the shares sold in the Conversion (or ______ and ______ shares, respectively, of
Common Stock based on the minimum and maximum of the Estimated Valuation Range)
at an exercise price equal to the market value per share of the Common
10
<PAGE>
Stock on the date of grant. Such options will be awarded at no expense to the
recipients and pose no financial risk to the recipients until exercised. It is
presently anticipated that Lewis Kolar, President and Menzo Case, Executive Vice
President will each receive an option to purchase an amount of shares equal to
2.0% of the shares sold in the Conversion (or 8,500 and 11,500 shares, assuming
the minimum and maximum of the Estimated Valuation Range, respectively). See
"Management - Benefit Plans - Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan
will not result in any expense to the Holding Company; however, when the options
are exercised (or, depending on market conditions, potentially prior to
exercise) , the per share earnings and book value of existing stockholders will
likely be diluted.
It is also intended that directors and executive officers be granted
(without any requirement of payment by the grantee) an amount of shares of
restricted stock awards equal to ___% of the shares sold in the Conversion (or
_________ and ________ shares, respectively, based on the minimum and maximum of
the Estimated Valuation Range) which will vest over five years commencing one
year from stockholder ratification and which will have a total value of
$________ and $__________ based on the Purchase Price of $10.00 per share at the
minimum and maximum of the Estimated Valuation Range, respectively. It is
presently anticipated that President Kolar will receive a restricted stock award
equal to 1.0% of the shares sold in the Conversion (or 4,250 and 5,750 shares,
assuming the minimum and maximum of the Estimated Valuation Range) and that
Executive Vice President Case will receive a restricted stock award equal to .6%
of the conversion shares. The restricted stock award to President Kolar and
Executive Vice President Case would have an aggregate value ranging from $42,500
and $57,500, and $25,500 and $34,500, respectively, (at the minimum and maximum
of the Estimated Valuation Range) based upon the original Purchase Price of
$10.00 per share. See "Risk Factors - Takeover Defensive Provisions" and
"Management Benefit Plans - Recognition and Retention Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the RRP through open-market purchases would range from approximately
$170,000 (based upon the sale of shares at the minimum of the Estimated
Valuation Range) to approximately $230,000 (based upon the sale of shares at the
maximum of the Estimated Valuation Range). In the event that the per share price
of the Common Stock increases above the $10.00 per share Purchase Price
following completion of the Offering, the amount necessary to fund the RRP would
also increase. The expense related to the cost of the RRP will be recognized
over the five-year vesting period of the awards made pursuant to such plan. The
use of authorized but unissued shares to fund the RRP would dilute the holdings
of stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
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<PAGE>
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Association believes that the RRP and the
Stock Option Plan will provide important incentives for the performance and
retention of management, the Association has no reason to believe that the
failure to obtain shareholder ratification of such plans would result in the
departure of any members of senior management.
Change in Control Severance Agreements. The Association intends to
enter into change in control agreements with President Kolar and Executive Vice
President Case. It is anticipated that such agreements will have initial terms
of 24 and 12 months, respectively, and become effective upon completion of the
Conversion. In the event that President Kolar or Executive Vice President Case
is terminated following a "change in control" (as defined in the agreements),
such officer will be entitled to a severance payment of 200% and 100%,
respectively, of his current compensation. See "Management - Executive
Compensation - Change in Control Severance Agreements" for the definition of
"change in control" and a more detailed description of these agreements.
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $3.7 million, $4.5 million, $5.2 million and $6.1 million based on
sales at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively) will substantially increase the capital
of Gloversville Federal. See "Pro Forma Data." The Holding Company will utilize
approximately 50% of the net proceeds from the issuance of the Common Stock to
purchase all of the common stock of Gloversville Federal to be issued upon
Conversion and will retain approximately 50% of the net proceeds; provided that
the amount retained by the Holding Company will be reduced to the extent
required that, upon the completion of the transaction, the Association's ratio
of capital to assets is at least 10%. The proceeds retained by the Holding
Company will be invested initially in short-term investments. Such proceeds will
subsequently be invested in _______________ and investment securities and will
be available for general corporate purposes, including the possible repurchase
of shares of the Common Stock, as permitted by the OTS. The Holding Company
currently has no specific plans to make any such repurchases of any of its
Common Stock. In addition, the Holding Company intends to provide the funding
for the ESOP loan. Based upon the initial Purchase Price of $10.00 per share,
the dollar amount of the ESOP loan would range from $340,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to $460,000
(based upon the sale of shares at the maximum of the Estimated Valuation Range).
It is anticipated that the ESOP will repay the loan through periodic
tax-deductible contributions from the Association over a ten-year period. The
interest rate to be charged by the Holding Company on the ESOP loan will be
based upon the Internal Revenue Service ("IRS") prescribed applicable federal
rate at the time of origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification. Compensation expense related to the RRP will be
recognized as share awards vest. See "Pro Forma Data." Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the Purchase
Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from
12
<PAGE>
approximately $170,000 (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to approximately $230,000 (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The use of authorized but unissued shares to
fund the RRP could dilute the holdings of stockholders who purchase Common Stock
in the Conversion. See "Management - Benefit Plans - Recognition and Retention
Plan."
The net proceeds received by Gloversville Federal will become part of
Gloversville Federal's general funds for use in its business and will be used to
support the Association's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Conversion, it is
anticipated that the Association will invest such proceeds into short-term
assets. Subsequently, the Association intends to redirect the net proceeds to
the origination of residential loans and, to a lesser extent, multi-family and
commercial real estate, commercial business and home equity loans, subject to
market conditions. In addition, such proceeds may also be utilized to repay
borrowings.
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
Dividends
The declaration and payment of dividends are subject to, among other
things, the Holding Company's financial condition and results of operations,
Gloversville Federal's compliance with its regulatory capital requirements,
including the fully phased-in capital requirements, tax considerations, industry
standards, economic conditions, regulatory restrictions, general business
practices and other factors. There can be no assurance as to whether or when the
Holding Company will pay a dividend. See "Dividends."
Market for Common Stock
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. Following the
completion of the offering, it is anticipated that the Common Stock will be
traded on the over-the-counter market with quotations available through the OTC
Bulletin Board. Capital Resources has indicated its intention to make a market
in the Common Stock. If the Common Stock cannot be quoted and traded on the OTC
Bulletin Board it is expected that transactions in the Common Stock will be
reported in the pink sheets published by the National Quotation Bureau, Inc.
Making a market may include the solicitation of potential buyers and sellers in
order to match buy and sell orders. However, Capital Resources will not be
subject to any obligation with respect to such efforts.
There can be no assurance that an active or liquid trading market will
develop for the Common Stock, or if a market develops, that it will continue. A
public market having the desirable characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of both willing buyers
and sellers of the Common Stock at any given time, which is not within the
control of the Holding Company or any market maker. Accordingly, there can be no
assurance that
13
<PAGE>
purchasers will be able to sell their shares at or above the Purchase Price. See
"Market for Common Stock."
Risk Factors
See "Risk Factors" for information regarding certain factors which
should be considered by prospective investors, including the Association's
recent operating results, market area, income producing property and business
lending activities, interest rate risk exposure, competition, takeover defensive
provisions contained in the Holding Company's certificate of incorporation and
bylaws, post-conversion overhead expenses, regulatory oversight, the risk of a
delayed offering, the absence of an active market for the Common Stock, possible
increase in estimated valuation range and number of shares issued and the
possible consequences of amendment of the Plan of Conversion.
14
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected financial and other data of the
Association. The financial data is derived in part from, and should be read in
conjunction with, the Financial Statements and Notes of the Association
presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Selected Financial Information
At September 30,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
- ----------------------------------
Total assets..................................... $61,022 $61,006 $63,073 $69,597 $61,894
Cash and cash equivalents........................ 1,922 1,198 3,181 6,509 18,184
Loans receivable, net............................ 49,526 49,636 48,239 45,645 40,896
Mortgage-backed securities available for sale.... 3,562 4,044 993 3,968 --
Other securities available for sale.............. 3,455 3,395 4,138 5,781 581
-------- -------- -------- -------- ---------
Total securities available for sale........... 7,017 7,439 5,131 9,749 581
-------- -------- -------- -------- ---------
Investment securities held to maturity........... -- -- 4,402 5,459 --
Deposits......................................... 56,117 55,716 57,866 64,703 57,346
Borrowings....................................... 1,300 300 -- -- --
Total equity..................................... 3,280 3,790 4,854 4,705 4,397
For the Years Ended September 30,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
Selected Operations Data:
- -------------------------
Interest income.................................. 4,905 4,733 4,816 4,805 4,853
Interest expense................................. 2,447 2,416 2,527 2,148 2,586
-------- -------- -------- -------- --------
Net interest income.............................. 2,458 2,317 2,289 2,657 2,267
Provision for loan losses........................ 792 714 129 211 843
--------- --------- --------- --------- ---------
Net interest income after provision for loan
losses......................................... 1,666 1,603 2,160 2,446 1,424
-------- -------- ------- -------- --------
Net gain on sale of securities................... -- -- 204 -- --
Other non-interest income........................ 155 109 188 69 30
-------- --------- --------- ---------- ----------
Total non-interest income........................ 155 109 392 69 30
-------- --------- --------- ---------- ----------
Non-interest expense............................. 2,319 2,970 2,199 2,119 1,755
------- ------- ------- ------- -------
(Loss) income before income tax expense
(benefit) .................................... (498) (1,258) 353 396 (301)
Income tax expense (benefit)..................... 85 (222) 102 124 (62)
--------- --------- -------- -------- ---------
Net (loss) income................................ $ (583) $(1,036) $ 251 $ 272 $ (239)
======== ======= ======== ======== ========
</TABLE>
15
<PAGE>
Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
September 30,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Performance ratios:
- -------------------
Return (Loss) on average assets.................... (0.94)% (1.69)% 0.38% 0.42% (0.37)%
Return (Loss) on average equity.................... (16.30) (22.22) 5.30 5.97 (5.11)
Interest rate spread information:
- ---------------------------------
Average during period.............................. 3.96 3.68 3.35 4.43 3.87
End of period...................................... 4.19 4.21 3.61 4.05 4.18
Net interest margin.............................. 4.11 3.91 3.55 4.42 3.82
Other Operating ratios:
- -----------------------
Ratio of operating expenses to average total
assets(1)......................................... 3.63 3.61 3.11 3.17 2.63
Efficiency ratio(2)................................ 85.94 91.10 86.67 75.85 74.46
Ratio of average interest-earning assets to
average interest-bearing liabilities.............. 103.76 105.53 105.01 99.70 98.73
Asset Quality ratios:
- ---------------------
Non-performing assets to total assets
at end of period................................... 6.73 3.74 4.38 5.53 4.22
Allowance for loan loss to non-performing loans
at end of period................................... 42.53 56.53 30.20 24.34 41.63
Allowance for loan losses to gross loans
receivable at end of period........................ 3.14 2.45 1.58 1.83 2.08
Capital ratios:
- ---------------
Equity to total assets at end of period............ 5.38 6.21 7.70 6.76 7.10
Average equity to average assets................... 5.78 7.62 7.11 6.99 7.17
Other data:
- -----------
Number of full service offices....................... 2 2 2 2 2
</TABLE>
(1) Operating expenses exclude OREO expenses of $73,000, $27,000, $127,000,
$52,000 and $44,000 for years ended September 30, 1997, 1996, 1995, 1994
and 1993, respectively. In addition, operating expenses for the year ended
September 30, 1996 exclude expenses incurred by the Association for
delinquent property taxes on collateral secured by certain nonperforming
one- to four-family residential loans paid on behalf of borrowers of
$318,000 and the special one-time SAIF assessment of $415,000.
(2) The efficiency ratio represents operating expenses (as defined in footnote
1 above) divided by the sum of net interest income and other operating
income (excluding a gain on sale of building of $86,000 and net gains from
security transactions of $204,000 for the year ended September 30, 1995).
16
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered in the Offering.
Recent Operating Losses
The Association has recorded significant losses from operations over
the last several years due primarily to losses related to loans (including
additions to the allowance for loan losses, a charge to operations for past due
property taxes on certain non-performing residential loans on which tax payments
were not effectively monitored and valuation adjustments and expenses related to
foreclosed real estate). In addition in 1996, the Association recorded a
$415,000 pre tax accrual for a special FDIC assessment. The Association's net
income (loss) was ($583,000), ($1.0 million) and $251,000 for the years ended
September 30, 1997, 1996 and 1995, respectively. The Association has attempted
to address these losses through increased loan monitoring (including the hiring
of an internal auditor and credit analyst), tightened loan underwriting
standards and enhanced collection procedures. In addition, in fiscal 1995, the
Association began to focus a portion of its lending on multi-family and
commercial real estate, and commercial business loans. However, in view of (i)
the higher level of credit risk inherent in the Association's new multi-family
and commercial real estate and commercial business lending activities, (ii) the
relatively low level of loan demand and high level of competition in much of the
Association's market area, (iii) the decline in real estate values in much of
the Association's market area, (iv) the higher level of expense required for the
increased monitoring of the portfolio and the expansion of the types of lending
products offered and (v) the Association's continued vulnerability to changes in
interest rates, there can be no assurance that the Association's results of
operations will return to satisfactory levels in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
Comparison of Operating Results for the Years Ended September 30, 1997 and
1996."
Market Area
The Association maintains an office in Fulton County, New York, which
is located approximately 50 miles northwest of Albany, and in Saratoga County,
New York, which is located approximately 30 miles north of Albany. The
Association considers its primary market area to include Fulton and Saratoga
counties as well as portions of the surrounding counties of Montgomery and
Hamilton, New York. As a result of a decline in the local manufacturing base
over the last 15 years, the employment and economic growth rates of much of the
Association's market area (with the partial exception of Saratoga County) have
been less favorable than the United States and New York State averages. As a
result of these conditions, the Association believes that real estate values
have declined through much of its market area. Based in part on the above, the
Association has experienced a significant level of losses related to its lending
activities. In addition, there can be no assurance that such conditions will not
contribute to losses related to its lending activities in the future. See
"Business - Market Area."
17
<PAGE>
Income Producing Property and Business Lending Activities
In fiscal 1995, the Board of Directors hired a new President and Chief
Executive Officer with a commercial banking background as well as a residential
lending background, and directed him to develop a new strategy to improve the
Association's operations. After due consideration and consultation with the new
President, in order to increase the yield and interest rate sensitivity of the
Association's loan portfolio and in view of the relatively low demand for
residential loans in the Association's market area, the Board determined to
expand the Association's multi-family and commercial real estate and commercial
business lending activities. Later that year, the Association hired a commercial
lending officer with experience in multi-family and commercial real estate and
commercial business lending. The Association's multi-family and commercial real
estate loans, and its commercial business loans, have increased from $878,000
and $0 at September 30, 1994, respectively, to $8.0 million and $1.4 million at
September 30, 1997, respectively.
A number of financial weaknesses as well as underwriting, documentation
and monitoring deficiencies have been discovered in the Association's
multi-family and commercial real estate and commercial business loans.
Accordingly, while no multi-family and commercial real estate or commercial
business loans were classified as non-performing at September 30, 1997, the
Association determined to classify $1.1 million of such loans as "of concern" as
of such date. See "Business Lending Activities - Other Loans of Concern."
Multifamily and commercial real estate and commercial business lending
is generally believed to involve a higher degree of credit risk than one- to
four-family residential lending. This higher risk is due to several factors,
including the greater concentration of principal and the smaller number of loans
and borrowers, the effects of general economic conditions on income-producing
ventures and properties and the increased difficulty of evaluating and
monitoring these types of loans. In addition, the Association's multi-family,
commercial real estate and commercial business loans, particularly those
originated when the Association first expanded these product lines, may be
subject to an additional level of risk related to the Association's relative
inexperience with this type of lending. Accordingly, while none of the
Association's multi-family and commercial real estate and commercial business
loans were 60 days or more delinquent as of the date hereof, there can be no
assurance that the Association will not experience significant losses on such
loans in the future. See "Business - Lending Activities - Multi-family and
Commercial Real Estate Lending" and "Commercial Business Lending."
Interest Rate Risk Exposure
The Association'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 investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. When interest
rates rise, the Association's net interest income tends to be adversely impacted
since its liabilities tend to reprice more quickly than its assets. Conversely,
in a declining rate environment the Association's net interest income is
generally positively impacted since its assets tend to reprice more slowly than
its liabilities. Changes in the level of interest rates also affect the amount
of loans originated by the Association and, thus, the amount of loan and
commitment fees, as well as the
18
<PAGE>
market value of the Association's interest-earning assets. Moreover, increases
in interest rates also can result in disintermediation, which is the flow of
funds away from savings institutions into direct investments, such as corporate
securities and other investment vehicles, which generally pay higher rates of
return than savings institutions. Finally, a flattening of the "yield curve"
(i.e., a decline in the difference between long and short term interest rates),
could adversely impact net interest income to the extent that the Association's
assets have a longer average term than its liabilities.
In managing its asset/liability mix, the Association generally,
depending on the relationship between long- and short-term interest rates,
market conditions and consumer preference, places more emphasis on managing net
interest margin than on better matching the interest rate sensitivity of its
assets and liabilities in an effort to enhance net interest income. As a result,
the Association will continue to be significantly vulnerable to changes in
interest rates and to decreases in the difference between long and short term
interest rates.
At September 30, 1997, the Association's net portfolio value would have
declined by 23% and 53%, respectively, in the event of a 200 and a 400 basis
point increase in general interest rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -Asset/Liability
Management."
Competition
Gloversville Federal experiences significant competition in its local
market area in both originating real estate and other loans and attracting
deposits. This competition arises from other savings institutions as well as
commercial banks, mortgage banks, credit unions and national and local
securities firms. The Association's competitors include many significantly
larger banks, including several large regional banks with offices in
Gloversville Federal's primary market area. Due to their size, these large banks
can achieve certain economies of scale and as a result offer a broader range of
products and services than are currently available at the Association. The
Association attempts to mitigate the effect of such factors by emphasizing
customer service. Such competition may limit Gloversville Federal's growth in
the future. See "Business - Competition."
In view of the increasing cost and complexity of operating a financial
institution, the Board of Directors believes that moderate growth of the
Association's assets and liabilities is important for maintaining profitability.
In addition, the Board of Directors believes that growth will be needed in the
future to leverage the new capital raised by the Conversion. See "Use of
Proceeds."
Unfortunately, as a result of competition from both depository as well
as non-depository firms (such as mutual funds), the Association has found it
very difficult to increase its deposits on a cost effective basis. Based on the
above, the Board believes that future internal growth can be effectively
sustained only at modest levels. See "Pro Forma Data" and "Use of Proceeds."
Takeover Defensive Provisions
Holding Company and Association Governing Instruments. Certain
provisions of the Holding Company's Certificate of Incorporation and Bylaws
assist the Holding Company in
19
<PAGE>
maintaining its status as an independent publicly owned corporation. However,
such provisions may also block stockholders from approving a potential takeover
of the Holding Company which a majority of such stockholders believe to be in
their best interests. These provisions provide for, among other things, limiting
voting rights of beneficial owners of more than 10% of the Common Stock,
staggered terms for directors, noncumulative voting for directors, limits on the
calling of special meetings, a fair price/supermajority vote requirement for
certain business combinations and certain notice requirements. The 10% vote
limitation would not affect the ability of an individual who is not the
beneficial owner of more than 10% of the Common Stock to solicit revocable
proxies in a public solicitation for proxies for a particular meeting of
stockholders and to vote such proxies. In addition, provisions in the
Association's federal stock Charter that have an anti-takeover effect could also
be applicable to changes in control of the Holding Company as the sole
shareholder of the Association. The Association's Charter includes a provision
applicable for five years which prohibits acquisitions and offers to acquire,
directly or indirectly, the beneficial ownership of more than 10% of the
Association's securities. Any person violating this restriction may not vote the
Association's securities in excess of 10%. Any or all of these provisions may
discourage potential proxy contests and other takeover attempts, particularly
those which have not been negotiated with the Board of Directors. In addition,
the Holding Company's certificate of incorporation also authorizes preferred
stock with terms to be established by the Board of Directors which may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, may have full or limited voting rights and may have a dilutive effect on
the ownership interests of holders of the Common Stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Regulatory and Statutory Provisions. Federal regulations prohibit, for
a period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than 10%
of the stock of a converted savings institution or its holding company without
prior OTS approval. Federal law also requires OTS approval prior to the
acquisition of "control" (as defined in OTS regulations) of an insured
institution, including a holding company thereof. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Change in Control Severance Agreements and Other Benefit Plans. The
change in control severance agreements, the proposed Stock Option Plan and the
proposed RRP also contain provisions that could have the effect of discouraging
takeover attempts of the Holding Company.
The Association intends to enter into change in control severance
agreements with President Kolar and Executive Vice President Case. Such
agreements become effective upon completion of the Conversion and have initial
terms of 24 and 12 months, respectively. In the event the applicable officer is
terminated following a change in control (as defined in the agreements), such
officer will be entitled to a severance payment equal to 200% and 100%,
respectively, of his annual compensation. For more information regarding these
agreements, see "Management - Change in Control - Severance Agreements."
Possible Dilutive Effects. The issuance of additional shares pursuant
to the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding
20
<PAGE>
Company of those persons purchasing Common Stock in the Conversion, assuming
that the shares utilized to fund the proposed Stock Option Plan and RRP awards
come from authorized but unissued shares. Assuming the exercise of all options
available under the Stock Option Plan and the award of all shares available
under the RRP, and assuming the use of authorized but unissued shares, the
interest of stockholders will be diluted by approximately 9.1% and 3.8%,
respectively. See "Pro Forma Data," "Management - Benefit Plans - Stock Option
and Incentive Plan," and "- Recognition and Retention Plan" and "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions." For financial
accounting purposes, certain incentive grants under the proposed RRP will result
in the recording of compensation expense over the vesting period. See "Pro Forma
Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers (8 persons) of the Association are anticipated to purchase an
aggregate of approximately $385,000 or approximately .90% of the shares offered
in the Conversion at the minimum of the Estimated Valuation Range, or .67% of
the shares offered in the Conversion at the maximum of the Estimated Valuation
Range. Directors and executive officers will also receive awards under the
proposed Stock Option Plan and the proposed RRP. Assuming the purchase of
$385,500 of Common Stock in the Conversion by directors and executive officers
in the aggregate, the full vesting of the restricted stock to be awarded under
the proposed RRP and the issuance of shares from authorized but unissued shares
in connection with the exercise of all options intended to be awarded under the
proposed Stock Option Plan the Conversion and approval of the Stock Option Plan
and the RRP by the stockholders, the shares owned by the directors and executive
officers in the aggregate would be between ____% (at the maximum of the
Estimated Valuation Range) and ____% (at the minimum of the Estimated Valuation
Range) of the outstanding shares. In addition, the ESOP is expected to purchase
8% of the shares sold in the Conversion. This stock ownership, if voted as a
block, could defeat takeover attempts favored by other stockholders.
Post Conversion Overhead Expense
After completion of the Conversion, the Holding Company's noninterest
expense is likely to increase as a result of the financial accounting, legal and
tax expenses usually associated with operating as a public company. See
"Regulation - Federal and State Taxation" and "Additional Information." In
addition, it is currently anticipated that the Holding Company will record
additional expense based on the proposed RRP. See "Pro Forma Data" and
"Management - Benefit Plans Recognition and Retention Plan." Finally, the
Holding Company will also record additional expense as a result of the adoption
of the ESOP. See "Management - Benefit Plans - Employee Stock Ownership Plan."
Statement of Position 93-6 "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP 93-6") requires an employer to record compensation
expense in an amount equal to the fair value of shares committed to be released
to employees from an employee stock ownership plan. Assuming shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 may increase
compensation expense relating to the ESOP to be established in connection with
the Conversion as compared with prior guidance which required the recognition of
compensation expense based on the cost of shares acquired by the ESOP. It is
impossible to determine at this time the extent of such impact on future net
income. See "Management's Discussion and Analysis of
21
<PAGE>
Financial Condition and Results of Operations - Impact of New Accounting
Standards" and "Pro Forma Data."
Regulatory Oversight
The Association is subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
The Association is a member of the Federal Home Loan Bank (the "FHLB") of New
York and is subject to certain limited regulation by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"). As the savings and loan
holding company of the Association, the Holding Company will be subject to
regulation and oversight by the OTS. See "Regulation." Such regulation and
supervision governs the activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors.
Regulatory authorities have been granted extensive discretion in connection with
their supervisory and enforcement activities which are intended to strengthen
the financial condition of the banking industry, including the imposition of
restrictions on the operation of an institution, the classification of assets by
the institution and the adequacy of an institution's allowance for loan losses.
See "Regulation - Federal Regulation of Savings Associations" and "- Regulatory
Capital Requirements." Any change in such regulation and oversight, whether by
the OTS, the Federal Reserve Board, the FDIC or Congress, could have a material
impact on the Holding Company, the Association and their respective operations.
Risk of Delayed Offering
The Subscription Offering will expire at noon, Gloversville, New York
time, on ___________ __, 1998 unless extended by the Association and the Holding
Company. Depending on the availability of shares and market conditions at or
near the completion of the Subscription Offering, the Holding Company may
conduct a Public Offering through Capital Resources. If the Offering is extended
beyond __________ __, 1998, all subscribers will have the right to modify or
rescind their subscriptions and to have their subscription funds returned with
interest. There can be no assurance that the Offering will not be extended as
set forth above.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs in completing the Conversion. Significant changes in the
Association's operations and financial condition, the aggregate market value of
the shares to be issued in the Conversion and general market conditions may
occur during such material delay. In the event the Conversion is not consummated
within 24 months after the date of the Special Meeting, OTS regulations would
require the Association to charge accrued Conversion costs to then-current
period operations. See "The Conversion - Risk of Delayed Offering."
Absence of Active Market for the Common Stock
The Holding Company has never issued capital stock. Consequently, there
is no existing market for the Holding Company Common Stock at this time.
Therefore, no assurance can be given that an established and liquid trading
market for the Holding Company Common Stock will develop
22
<PAGE>
or that resales of the Common Stock can be made at or above the Purchase Price.
Following the Conversion the Holding Company Common Stock will be traded in the
over-the-counter market. Although it has no obligation to do so, Capital
Resources intends to make a market for the Holding Company Common Stock,
depending upon the volume of trading activity in the common stock. See "Market
for Common Stock."
Possible Increase in Estimated Valuation 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 maximum of the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription Offering. An increase in the number of shares
issued would decrease the pro forma net earnings per share and stockholders'
equity per share but would increase the Company's pro forma consolidated
stockholders' equity and net earnings. See "Pro Forma Data."
Possible Consequences of Amendment to Plan of Conversion
The Plan of Conversion provides that, if deemed necessary or desirable
by the Boards of Directors of the Association and the Holding Company, the Plan
of Conversion may be substantively amended by a two-thirds vote of the
respective Boards of Directors of the Association and the Holding Company, as a
result of comments from regulatory authorities or otherwise, at any time with
the concurrence of the Securities and Exchange Commission ("SEC") and the OTS.
Moreover, if the Plan of Conversion is amended, subscriptions which have been
received prior to such amendment will not be refunded unless otherwise required
by the SEC or the OTS. If the Plan of Conversion is amended in a manner that is
deemed to be material to the subscribers by the Holding Company, subscription
funds will be returned to subscribers with interest unless they affirmatively
elect to increase, decrease or maintain their subscriptions. No such amendments
are currently contemplated, although the Association reserves the right to
increase or decrease purchase limitations without a subscriber resolicitation.
See "The Conversion - Approval, Interpretation, Amendment and Termination."
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
The Holding Company was formed at the direction of Gloversville Federal
in December 1997 for the purpose of becoming a savings and loan holding company
and owning all of the outstanding stock of the Association issued in the
Conversion. The Holding Company is incorporated under the laws of the State of
Delaware. The Holding Company is authorized to do business in the State of New
York, and generally is authorized to engage in any activity that is permitted by
the Delaware General Corporation Law. The business of the Holding Company
initially will consist only of the business of Gloversville Federal. The holding
company structure will, however, provide the Holding Company with greater
flexibility than the Association has to diversify its business activities,
through existing or newly formed subsidiaries, or through acquisitions or
mergers of stock financial institutions, as well as, other companies. Although
there are no current arrangements, understandings or agreements regarding any
such activity or acquisition, the Holding
23
<PAGE>
Company will be in a position after the Conversion, subject to regulatory
restrictions, to take advantage of any favorable acquisition opportunities that
may arise.
The assets of the Holding Company will consist initially of the stock
of Gloversville Federal, a note evidencing the Holding Company's loan to the
ESOP and up to 50% of the net proceeds from the Conversion (less the amount used
to fund the ESOP loan). See "Use of Proceeds." Initially, any activities of the
Holding Company are anticipated to be funded by such retained proceeds and the
income thereon and dividends from Gloversville Federal, if any. See "Dividends"
and "Regulation Holding Company Regulation." Thereafter, activities of the
Holding Company may also be funded through sales of additional securities,
through borrowings and through income generated by other activities of the
Holding Company. At this time, there are no plans regarding such other
activities other than the intended loan to the ESOP to facilitate its purchase
of Common Stock in the Conversion. See "Management - Benefit Plans - Employee
Stock Ownership Plan."
The executive office of the Holding Company is located at 52 North Main
Street, Gloversville, New York. Its telephone number at that address is (518)
725-6331.
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Gloversville Federal serves the financial needs of communities in its
market area through its main office located at 52 North Main Street,
Gloversville, New York and its branch office located at 295 Broadway, Saratoga
Springs, New York. Its deposits are insured up to applicable limits by the
Federal Deposit Insurance Corporation ("FDIC"). At September 30, 1997
Gloversville Federal had total assets of $61.0 million, deposits of $56.1
million and equity of $3.3 million (or 5.4% of total assets).
Gloversville Federal has been, and intends to continue to be, an
independent, community oriented, financial institution. Gloversville Federal's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate one- to four-family
residential mortgage loans and, to a lesser extent, multi-family and commercial
real estate, commercial business, and home equity and other loans primarily in
its market area. The Association also invests in securities and other
permissible investments. See "Business - Investment Activities - Securities."
The executive office of the Association is located at 52 North Main
Street, Gloversville, New York. Its telephone number at that address is (518)
725-6331.
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 such net proceeds will be between $3.2 million and $4.6 million
(or up to $5.3 million in the event of an increase in the aggregate pro forma
market value of the Common Stock of up to 15% above the maximum of the Estimated
24
<PAGE>
Valuation Range). See "Pro Forma Data" and "The Conversion - Stock Pricing and
Number of Shares to be Issued" as to the assumptions used to arrive at such
amounts.
In exchange for all of the common stock of Gloversville Federal issued
upon conversion, the Holding Company will contribute approximately 50% of the
net proceeds from the sale of the Holding Company's Common Stock to Gloversville
Federal; provided that the amount retained by the Holding Company will be
reduced to the extent required, so that, upon the completion of the transaction,
the Association's ratio of capital to assets is at least 10%. On an interim
basis, the proceeds will be invested by the Holding Company in short-term
investments. The specific types and amounts of short-term assets will be
determined based on market conditions at the time of the completion of the
Conversion. In addition, the Holding Company intends to provide the funding for
the ESOP loan. Based upon the initial Purchase Price of $10.00 per share, the
dollar amount of the ESOP loan would range from $____ million (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to $____ million
(based upon the sale of shares at the maximum of the Estimated Valuation Range).
The interest rate to be charged by the Holding Company on the ESOP loan will be
based upon the IRS prescribed applicable federal rate at the time of
origination. It is anticipated that the ESOP will repay the loan through
periodic tax-deductible contributions from the Association over a ten-year
period.
The net proceeds received by Gloversville Federal will become part of
Gloversville Federal's general funds for use in its business and will be used to
support the Association's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Conversion, it is
anticipated that the Association will invest such proceeds into short-term
assets. Subsequently, the Association will redirect the net proceeds to the
origination of loans, subject to market conditions. In addition, a portion of
the net proceeds may also be utilized to pay down borrowings, subject to future
market conditions.
After the completion of the Conversion, the Holding Company will
redirect the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Association. Also, the Holding Company may use a portion of the proceeds to
fund the RRP, subject to shareholder approval of such plan. Compensation expense
related to the RRP will be recognized as share awards vest. See "Pro Forma
Data." Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the initial Purchase Price of $10.00 per share, the amount
required to fund the RRP through open-market purchases would range from
approximately $________ (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to approximately $________ (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The use of authorized but unissued shares to
fund the RRP could dilute the holdings of stockholders who purchase Common Stock
in the Conversion. See "Business Lending Activities" and " - Investment
Activities" and "Management - Benefit Plans - Employee Stock Ownership Plan" and
"- Recognition and Retention Plan."
25
<PAGE>
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Association's investment
opportunities and capital needs. Under current OTS regulations, no repurchases
may be made within the first year following Conversion except with OTS approval
under "exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Association's ability to pay dividends to the Holding Company to
fund the repurchase. For a description of the restrictions on the Association's
ability to provide the Holding Company with funds through dividends or other
distributions, see "Dividends" and "The Conversion - Restrictions on Repurchase
of Stock."
DIVIDENDS
The Board of Directors of the Holding Company may consider a policy of
paying cash dividends on the Common Stock. Dividends, when and if paid, will be
subject to determination and declaration by the Board of Directors at its
discretion. They will take into account the Holding Company's consolidated
financial condition, the Association's regulatory capital requirements,
including the fully phased-in capital requirements, tax considerations, industry
standards, economic conditions, regulatory restrictions, general business
practices and other factors. The Holding Company may also consider making a one
time only special dividend or distribution (including a tax-free return of
capital) provided that the Holding Company will take no steps toward making such
a distribution for at least one year following the completion of the Conversion.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Gloversville Federal for some
time following the Conversion. As such, the Holding Company does not expect to
have any significant source of income other than earnings on the net proceeds
from the Conversion retained by the Holding Company (which proceeds are
currently estimated to range from $___ million to $___ million based on the
minimum and the maximum of the Estimated Valuation Range, respectively) and
dividends from Gloversville Federal, if any. Consequently, the ability of the
Holding Company to pay cash dividends to its stockholders will be dependent upon
such retained proceeds and earnings thereon, and upon the ability of
Gloversville Federal to pay dividends to the Holding Company. See "Description
of Capital Stock Holding Company Capital Stock - Dividends." Gloversville
Federal, like all savings associations regulated by the OTS, is subject to
certain restrictions on the payment of dividends based on its net income, its
capital in excess of the regulatory capital requirements and the amount of
regulatory capital required for the liquidation account to be established in
connection with the Conversion. See "The Conversion - Effects of Conversion to
Stock Form on Depositors and Borrowers of the Association - Liquidation Rights"
and "Regulation - Regulatory Capital Requirements" and
26
<PAGE>
"- Limitations on Dividends and Other Capital Distributions." Earnings allocated
to Gloversville Federal's "excess" bad debt reserves and deducted for federal
income tax purposes cannot be used by Gloversville Federal to pay cash dividends
to the Holding Company without adverse tax consequences. See "Regulation -
Federal and State Taxation."
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock to the public and,
consequently, there is no existing market for the Common Stock. Following the
completion of the Conversion, it is anticipated that the Common Stock will be
traded on the over-the-counter market with quotations available through the OTC
Bulletin Board. Capital Resources has indicated its intention to make a market
in the Common Stock. If the Common Stock cannot be quoted and traded on the OTC
Bulletin Board it is expected that transactions in the Common Stock will be
reported in the pink sheets published by the National Quotation Bureau, Inc.
Making a market may include the solicitation of potential buyers and sellers in
order to match buy and sell orders. However, Capital Resources will not be
subject to any obligation with respect to such efforts.
There can be no assurance that an active or liquid trading market will
develop for the Common Stock, or if a market develops, that it will continue. A
public market having the desirable characteristics of depth, liquidity and
orderliness depends upon the presence in the marketplace of both willing buyers
and sellers of the Common Stock at any given time, which is not within the
control of the Holding Company or any market maker. Accordingly, there can be no
assurance that purchasers will be able to sell their shares at or above the
Purchase Price.
PRO FORMA DATA
The following table sets forth the historical net loss, equity and per
share data of Gloversville Federal at and for the fiscal year ended September
30, 1997, and after giving effect to the Conversion, the pro forma net loss,
capital stock and stockholders' equity and per share data of the Holding Company
at and for the fiscal year ended September 30, 1997. The pro forma data has been
computed on the assumptions that (i) the specified number of shares of Common
Stock was sold at the beginning of the specified period and yielded net proceeds
to the Holding Company as indicated, (ii) 50% of such net proceeds were retained
by the Holding Company and the remainder were used to purchase all of the stock
of Gloversville Federal, and (iii) such net proceeds, less the amount of the
ESOP and RRP funding, were invested by the Association and Holding Company at
the beginning of the period to yield a pre-tax return of 5.44% for the fiscal
year ended September 30, 1997. The after-tax rate of return is 3.26% assuming a
combined state and federal tax rate of 40%. The assumed return is based upon the
market yield rate of one-year U.S. Government Treasury Securities as of
September 30, 1997. The use of this current rate is viewed to be more relevant
in the current interest rate environment than the use of an arithmetic average
of the weighted average yield earned by the Association on its interest-earning
assets and the weighted average rate paid on its deposits during such periods.
Expenses (including the Capital Resources marketing fee) are estimated to be
$508,200. The pro forma net loss amounts derived from the assumptions set forth
herein should not be considered indicative of the actual results of operations
of the Holding
27
<PAGE>
Company that would have been attained for any period if the Conversion had been
actually consummated at the beginning of such period, and the assumptions
regarding investment yields should not be considered indicative of the actual
yields expected to be achieved during any future period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Offering. However, if the aggregate Purchase Price of the Common Stock sold in
the Conversion is below $4,250,000 (the minimum of the Estimated Valuation
Range) or more than $6,612,500 (15% above the maximum of the Estimated Valuation
Range), subscribers will be offered the opportunity to modify or cancel their
subscriptions. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1997
---------------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
425,000 500,000 575,000 661,250
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
-------------- --------------- --------------- ----------------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 4,250 $ 5,000 $ 5,750 $ 6,613
Less offering expenses and commissions........................ 508 508 508 508
Estimated net conversion proceeds............................ 3,742 4,492 5,242 6,105
Less ESOP shares.............................................. (340) (400) (460) (529)
Less RRP shares............................................... (170) (200) (230) (265)
---------- --------- ---------- ---------
Estimated proceeds available for investment(1)............... $ 3,232 $ 3,892 $ 4,552 $ 5,311
======== ======== ========= ========
Net Loss:
Historical................................................. (583) (583) (583) (583)
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 105 127 149 173
ESOP(3).................................................... (20) (24) (28) (32)
RRP(4)..................................................... (20) (24) (28) (32)
----------- --------- ----------- -----------
Pro forma net loss(5).................................... $ (518) $ (504) $ (490) $ (474)
========= ======== ========= ==========
Net Loss Per Share:
Historical(6)............................................. $ (1.48) $ (1.26) $ (1.10) $ (0.95)
Pro forma Adjustments:
Net earnings from proceeds................................ 0.27 0.27 0.28 0.28
ESOP(3)................................................... (0.05) (0.05) (0.05) (0.05)
RRP(4).................................................... (0.05) (0.05) (0.05) (0.05)
---------- --------- ---------- ----------
Pro forma net loss per share(4)......................... $ (1.31) $ (1.09) $ (0.92) $ (0.77)
========= ========= ========= =========
Number of shares using SOP 93-6(3)................. 392,700 462,000 531,300 610,995
Stockholders' Equity (Book Value)(7):
Historical.................................................. $ 3,280 $ 3,280 $ 3,280 $ 3,280
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 3,742 4,492 5,242 6,105
Less common stock acquired by:
ESOP(3).................................................... (340) (400) (460) (529)
RRP(4)..................................................... (170) (200) (230) (265)
---------- ---------- ---------- ----------
Pro forma book value(4)................................ $ 6,512 $ 7,172 $ 7,832 $ 8,591
========= ========= ======== =========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. 7.72 6.56 5.70 4.96
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 8.80 8.98 9.12 9.23
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
------ ------ ---------- -----------
Pro forma book value per share(5)...................... 15.32 14.34 13.62 12.99
====== ===== ========= ===========
Offering Price per share as a percentage of Pro Forma
Stockholders' equity per share............................. 65.27% 69.74% 73.42% 76.98%
====== ====== ========= ==========
Offering price per share as a percentage of Pro Forma net
loss per share............................................. (7.63)% (9.17) (10.87) (12.99)
====== ====== ========= ==========
Number of shares.............................................. 425,000 500,000 575,000 661,250
</TABLE>
29
<PAGE>
(1) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(which is subject to shareholder ratification) which it is assumed will be
funded from the net proceeds retained by the Holding Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP and RRP, which purchases are to be funded by the Holding Company and
the Association, have been deducted from net proceeds.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP from the net proceeds from the
Conversion retained by the Holding Company. The Association intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Association's payment of the ESOP
debt is based upon equal installments of principal and interest over a
ten-year period. However, assuming the Holding Company makes the ESOP loan,
interest income earned by the Holding Company on the ESOP debt will offset
the interest paid by the Association. Accordingly, only the principal
payments on the ESOP debt are recorded as an expense (tax-effected) to the
Holding Company on a consolidated basis. The amount of ESOP debt is
reflected as a reduction of stockholders' equity. In the event that the
ESOP were to receive a loan from an independent third party, both ESOP
expense and earnings on the proceeds retained by the Holding Company would
be expected to increase.
(4) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed purchase
price of $10.00 per share) following Conversion by the RRP (subject to
stockholder ratification of such plan) of an amount of shares equal to 4%
of the shares of Common Stock sold in the Conversion for the benefit of
certain directors, officers and employees. Funds used by the RRP to
purchase the shares will be contributed to the RRP by the Holding Company
if the RRP is ratified by stockholders following the Conversion. Therefore,
this funding is assumed to reduce the proceeds available for reinvestment.
For financial accounting purposes, the amount of the contribution will be
recorded as a compensation expense (although not an actual expenditure of
funds) over the period of vesting. These grants are scheduled to vest in
equal annual installments over the five years following stockholder
ratification of the RRP. However, all unvested grants will be forfeited in
the case of recipients who fail to maintain continuous service with the
Holding Company or its subsidiaries. In the event the RRP is unable to
purchase a sufficient number of shares of Common Stock to fund the RRP, the
RRP may issue authorized but unissued shares of Common Stock from the
Holding Company to fund the remaining balance. In the event the RRP is
funded by the issuance of authorized but unissued shares in an amount equal
to 4% of the shares sold in the Conversion, the interests of existing
stockholders would be diluted by approximately 3.8%.
In the event that the RRP is funded through authorized but unissued shares,
for the year ended September 30, 1997, pro forma net income per share would
be $(1.25), $(1.03), $(0.87) and $(0.72), respectively, and pro forma
stockholders' equity per share would be $15.12, $14.18, $13.48 and $12.88,
respectively, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range.
(5) No effect has been given to the shares to be reserved for issuance under
the proposed Stock Option Plan which is expected to be adopted by the
Holding Company following the Conversion, subject to stockholder approval.
In the event the Stock Option Plan is funded by the issuance of authorized
but unissued shares in an amount equal to 10% of the shares sold in the
Conversion, at $10.00 per share and all options are vested and exercised
immediately, the interests of existing stockholders would be diluted as
follows: pro forma net income per share for the year ended September 30,
1997 would be $(1.17), $(0.96), $(0.81) and $(0.67), respectively, and pro
forma stockholders' equity per share would be $14.84, $13.95, $13.30 and
$12.72 , respectively, in each case at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range. In the alternative,
the Holding Company may purchase shares in the open market to fund the
Stock Option Plan following stockholder approval of such plan. To the
extent, the entire 10% of the shares to be reserved for issuance under the
Stock Option Plan were funded through open market purchases at the Purchase
Price of $10.00 per share, proceeds available for reinvestment would be
reduced by $425,000, $500,000, $575,000 and $661,250 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range. See "Management - Benefit Plans - Stock Option and Incentive Plan."
(6) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated as outstanding under SOP 93-6.
(7) "Book value" represents the difference between the stated amounts of the
Association's assets and liabilities computed in accordance with generally
accepted accounting principles. The amounts shown do not reflect the effect
of the Liquidation Account which will be established for the benefit of
Eligible and Supplemental Eligible Account Holders in the Conversion, or
the federal income tax consequences of the restoration to income of the
Association's special bad debt reserves for income tax purposes which would
be required in the unlikely event of liquidation. See "The Conversion -
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association" and "Regulation - Federal and State Taxation." The amounts
shown for book value do not represent fair market values or amounts, if
any, distributable to stockholders in the unlikely event of liquidation.
30
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At September 30, 1997, the Association would have exceeded each of the OTS
capital requirements on both a current and a fully phased-in basis. Set forth
below is a summary of the Association's compliance with the OTS capital
standards as of September 30, 1997 based on historical capital and also assuming
that the indicated number of shares were sold as of such date using the
assumptions contained under the caption "Pro Forma Data."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1997
-------------------------------------------------------------------------------------
661,750 Shares
425,000 Shares 500,000 Shares 575,000 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
------------------- ------------------- -------------------- -------------------- -----------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
--------- --------- --------- --------- --------- ---------- --------- ---------- --------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)........... $3,301 5.41% $5,923 9.23% $6,480 10.00% $6,490 10.00% $6,502 10.00%
====== ==== ====== ==== ====== ===== ====== ===== ====== =====
Tangible Capital(3):
Capital level........... $3,301 5.41% $5,923 9.23% $6,480 10.00% $6,490 10.00% $6,502 10.00%
Requirement............. 915 1.50 962 1.50 972 1.50 974 1.50 975 1.50
-------- ---- ------- ---- ------- ------ -------- ------ ------
Excess.................. $2,386 3.91% $4,961 7.73% $5,508 8.50% $5,516 8.50% $5,527 8.50%
====== ==== ====== ==== ====== ==== ====== ====== ====== ======
Core Capital(3):
Capital level........... $3,301 5.41% $5,923 9.23% $6,480 10.00% $6,490 10.00% $6,502 10.00%
Requirement(4).......... 1,830 3.00 1,924 3.00 1,944 3.00 1,947 3.00 1,950 3.00
------- ---- ------ ---- ------ ------ ------- ------ ------- ------
Excess.................. $1,471 2.41% $3,999 6.23% $4,536 7.00% $4,543 7.00% $4,552 7.00%
====== ==== ====== ==== ====== ====== ====== ====== ====== ======
Risk-Based Capital(3):
Capital level(5)........ $3,788 10.01% $6,410 16.66% $6,966 18.05% $6,976 18.07% $6,988 18.09%
Requirement(1).......... 3,027 8.00 3,077 8.00 3,088 8.00 3,089 8.00 3,091 8.00
------ ------ ------ ------ ----- ------ ------- ------ ------- ------
Excess.................. $ 761 2.01% $3,333 8.66% $3,878 10.05% $3,887 10.07% $3,897 10.09%
======= ====== ====== ====== ====== ===== ====== ===== ====== =====
</TABLE>
(1) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight, such as short-term interest-bearing
deposits.
(2) Total retained earnings as calculated under generally accepted accounting
principles ("GAAP"). Assumes that the Association receives 50% of the net
proceeds or such amount as will give the Association, upon completion of
the transaction, a capital to assets ratio of 10% when possible, offset in
part, by the aggregate Purchase Price of Common Stock acquired at a price
of $10.00 per share by the ESOP in the Conversion and the RRP (assuming
stockholder ratification of such plan following completion of the
Conversion).
(3) Tangible and core capital figures are determined as a percentage of
adjusted total assets; risk-based capital figures are determined as a
percentage of risk-weighted assets. Unrealized gains and losses on debt
securities available for sale are excluded from tangible, core and
risk-based capital.
(4) In April 1991, the OTS proposed a core capital requirement for savings
associations comparable to the requirement for national banks that became
effective on November 30, 1990. This proposed core capital ratio is 3% of
total adjusted assets for thrifts that receive the highest supervisory
rating for safety and soundness ("CAMEL" rating), with a 4% to 5% core
capital requirement for all other thrifts. See "Regulation - Regulatory
Capital Requirements."
(5) Includes $486,000 of the allowance for loan losses which qualifies as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
31
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of
Gloversville Federal as of September 30, 1997, and the pro forma capitalization
of the Holding Company at the minimum, the midpoint, the maximum and 15% above
the maximum of the Estimated Valuation Range, after giving effect to the
Conversion and based on other assumptions set forth in the table and under the
caption "Pro Forma Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
---------------------------------------------------------
Maximum
Actual, As of Minimum Midpoint Maximum as adjusted
September 30, 425,000 500,000 575,000 661,250
1997 Shares Shares Shares Shares
--------------- ------------- ------------ -------------- ---------------
(In Thousands, Except Share Amounts)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $56,117 $56,117 $56,117 $56,117 $56,117
Borrowings.................................. 1,300 1,300 1,300 1,300 1,300
--------- --------- --------- --------- ---------
Total deposits and borrowed funds....... $57,417 $57,417 $57,417 $57,417 $57,417
======= ======= ======= ======= =======
Stockholders' Equity:
Common Stock ($0.01 par value)
5,000,000 shares authorized; shares to be
Issued as reflected(2)................... -- 4 5 6 7
Additional paid-in capital................ -- 3,738 4,487 5,236 6,098
Retained earnings, substantially
restricted(3)............................. 3,301 3,301 3,301 3,301 3,301
Net unrealized loss on securities available
for sale............................... (21) (21) (21) (21) (21)
Preferred Stock.............................
Less:
Common Stock acquired by ESOP(4).......... -- (340) (400) (460) (529)
Common Stock acquired by RRP(4)........... -- (170) (200) (230) (265)
----------- -------- --------- --------- ---------
Total Stockholders' Equity.............. $ 3,280 $ 6,512 $ 7,172 $ 7,832 $ 8,591
======= ======= ======= ======= =======
</TABLE>
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend payments
and "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association" regarding the liquidation account to be
established upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Association intends to make contributions to the
ESOP sufficient to service and ultimately retire the ESOP's debt over a
ten-year period. Also assumes that an amount of shares equal to 4% of the
amount of shares sold in the Conversion will be acquired by the RRP,
following shareholder ratification of such plan after completion of the
Conversion. In the event that the RRP is funded by the issuance of
authorized but unissued shares in an amount equal to 4% of the shares sold
in the Conversion, the interest of existing stockholders would be diluted
by approximately 3.8%. The amount to be borrowed by the ESOP and the Common
Stock acquired by the RRP is reflected as a reduction of stockholders'
equity. See "Management - Benefit Plans - Employee Stock Ownership Plan"
and "- Recognition and Retention Plan."
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Association's financial statements and related notes and with the
statistical information and financial data included in this document.
32
<PAGE>
When used in this document, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project", or
similar expressions are intended to identify "forward looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties-including, changes in
economic conditions in the Association's market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the
Association's market area, and competition that could cause actual results to
differ materially from historical results and those presently anticipated or
projected. The Association wishes to caution readers not to place undue reliance
on any such forward looking statements, which speak only as of the date made.
The Association wishes to advise readers that the factors listed above could
affect the Association's financial performance and could cause the Association's
actual results for future periods to materially differ from any opinions or
statements expressed with respect to future periods in any current statements.
The Association does not undertake- and specifically disclaims any
obligation- to publicly release the result of any revisions which may be made to
any forward-looking statements to reflect events or circumstances after the date
of such statements or to reflect the occurrence of anticipated or unanticipated
events.
General
The Company has only recently been formed and, accordingly, has no
results of operations at this time. Therefore, the following discussion
principally reflects the operations of the Association. The Association's
results of operations are predominantly dependent on its net interest income,
which is the difference between the interest income earned on its
interest-earning assets, primarily loans and securities available for sale, and
the interest expense on its interest-bearing liabilities, primarily deposits and
borrowings. Net interest income may be affected significantly by general
economic and competitive conditions and policies of regulatory agencies,
particularly those with respect to market interest rates. The results of
operations are also significantly influenced by the level of non-interest
expenses, such as employee compensation and benefits, non-interest income, such
as fees and service charges, and the Association's provision for loan losses.
The Association operates as a community-oriented financial
institution, obtaining deposits from its local community and investing those
deposits principally in residential one-to-four-family mortgage loans, and, to a
lesser extent, multi-family and commercial real estate, commercial business,
home equity and other loans. In addition, the Association invests excess funds
not used for loan originations in securities issued by the United States
government or its agencies, and mortgage backed securities.
Asset/Liability Management
The Association's net interest income is sensitive to changes in
interest rates, as the rates paid on its interest-bearing liabilities generally
change faster than the rates earned on its interest-earning assets. As a result,
net interest income will frequently decline in periods of rising interest rates
and increase in periods of decreasing interest rates.
33
<PAGE>
In managing its asset/liability mix, Gloversville Federal, depending
on the relationship between long- and short-term interest rates, market
conditions and consumer preference, often places more emphasis on managing short
term net interest margin than on better matching the interest rate sensitivity
of its assets and liabilities. Management believes that the increased net
interest income resulting from a mismatch in the maturity of its asset and
liability portfolios can, during periods of declining or stable interest rates,
provide high enough returns to justify the increased exposure to sudden and
unexpected increases in interest rates.
The Board has taken a number of steps to manage the Association's
vulnerability to changes in interest rates. First, in connection with the
Association's decision to increase the Association's multi-family and commercial
real estate and commercial business lending as well as its increased emphasis in
home equity lending, the Association has increased its interest rate sensitive
lending (which includes all loans which reprice in five years or less). The
Association's interest rate sensitive loans have increased from none at
September 30, 1993 to $15.4 million or 30.0% of the portfolio at September 30,
1997. Second, the Association has used community outreach, customer service and
marketing efforts to acquire the proportion of its deposits consisting of money
market and other transaction accounts. These deposits are believed to be less
interest rate sensitive than other types of deposit accounts. The Association's
money market and transaction accounts have increased from $23.9 million or 41.3%
of deposits at September 30, 1995 to $28.1 million or 50.1% of deposits at
September 30, 1997. Finally, the Association has focused a significant portion
of its investment activities on securities with adjustable interest rates or
terms of five years or less. At September 30, 1997, $3.6 million or 100% of the
Association's mortgage-backed securities had adjustable interest rates or terms
to maturity of five years or less and $2.0 million or 67.0% of the Association's
other securities had adjustable interest rates or terms to maturity of five
years or less based on their amortized cost.
The asset and liability strategies are implemented by the
Association's asset/liability management committee that meets periodically to
determine the rates of interest for loans and deposits and consists of the
President, the Executive Vice President, and the Vice President of Lending.
Interest rates on loans in the short-term are primarily based on the interest
rates offered by other financial institutions in the Association's market area
as well as on the availability of funds. Rates on deposits in the short-term are
primarily based on the Association's need for funds and on a review of rates
offered by other financial institutions in the Association's market area.
Ultimately, the customer plays a significant role in the establishment of both
loan and deposit rates, as it is necessary to remain competitive in both loan
and deposit markets in order to maintain or further expand the customer base.
The Committee develops longer-term pricing strategies based on review
of interest rate sensitivity reports produced quarterly. The Committee also
monitors the impact of the interest rate risk and earnings consequences of such
strategies for consistency with the Association's liquidity needs, growth, and
capital adequacy. The Board of Directors receive and review the Association's
estimated interest rate sensitivity report every quarter.
In order to encourage savings associations to reduce their interest
rate risk, the OTS adopted a rule incorporating an interest rate risk ("IRR")
component into the risk-based capital rules. For various technical reasons, the
OTS has delayed the effectiveness of the rule. Under the rule, the IRR
34
<PAGE>
component is measured in terms of the sensitivity of the net portfolio value
("NPV") to changes in interest rates. NPV is the difference between incoming and
outgoing discounted cash flows from assets, liabilities, and off-balance sheet
contracts. An institution's IRR is measured as the change to its NPV as a result
of a hypothetical 200 basis point ("bp") change in market interest rates. When
the rule becomes effective, 50% of any resulting change in NPV as a percentage
of the present value of total assets of more than 2% of the estimated present
value of total assets ("PV") must be deducted from capital. If this rule had
been in effect at September 30, 1997, the Association would have been required
to deduct $44,000 from its capital in determining its risk-based capital.
The following table presents the Association's NPV at September 30,
1997, as calculated by the OTS, based on quarterly information provided to the
OTS by the Association.
NPV
Estimated to
Assumed Change NPV PV of Change % Change
in Interest Rates Amount Total Assets in NPV in NPV
- ----------------------------------------------------------------------------
(Basis Points)
(In Thousands)
+400 $2,762 4.62% $(3,176) (53.49)%
+300 3,676 6.04% (2,262) (38.09)%
+200 4,578 7.39% (1,360) (22.90)%
+100 5,378 8.55% (560) (9.43)%
--- 5,938 9.33% -- --
-100 6,179 9.65% 241 4.06%
-200 6,441 9.99% 503 8.47%
-300 6,802 10.46% 864 14.55%
-400 7,388 11.23% 1,450 24.42%
Certain assumptions utilized by the OTS in assessing the interest rate
risk of savings associations were employed in preparing the previous table.
These assumptions related to interest rates, loan prepayment rates, deposit
decay rates, and the market values of certain assets under the various interest
rate scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Association's assets and liabilities would perform
as set forth above.
Financial Condition
Comparison of Financial Condition at September 30, 1997 and September
30, 1996. Total assets were $61.0 million at both September 30, 1997 and 1996. A
$724,000 or 60.5% increase in cash and cash equivalents and a $243,000 increase
in other real estate owned, from September 30, 1996 to September 30, 1997, were
offset by a decrease during these same periods in securities available for sale
of $422,000 or 5.7%, a net decrease in premises and equipment of $255,000 or
14.2% and a decrease in prepaid expenses and other assets of $167,000 or 30.9%.
While gross loans receivable increased by only $204,000, there were
substantial changes in the composition of the loan portfolio. Residential one-
to four-family loans declined by $3.4 million
35
<PAGE>
or 8.4% from September 30, 1996 to September 30, 1997. Multi-family and
commercial real estate loans increased $3.3 million or 71.5% from September 30,
1996 to September 30, 1997. Construction loans declined $399,000 or 42.5%, and
home equity loans increased by $511,000 or 17.8% from September 30, 1996 to
September 30, 1997. Commercial business loans increased by $192,000 or 15.6%
while other consumer loans decreased by $43,000 or 3.7%. The loan composition
change reflected the Association's efforts to improve the yield earned on the
loan portfolio and increase the percentage of adjustable rate loans in the loan
portfolio. See "Business Lending Activities."
Securities available for sale decreased primarily from principal
payments received on mortgage-backed securities. There were no securities held
to maturity at September 30, 1997 or 1996.
Prepaid expenses and other assets decreased $167,000 or 30.9%
primarily from tax refunds received and a decline in the Association's net
deferred tax assets. Net premises and equipment decreased $255,000 or 14.2%
through normal depreciation.
Cash and cash equivalents increased $724,000 or 60.5% from $1.2
million at September 30, 1996 to $1.9 million at September 30, 1997 primarily as
a result of a new requirement to maintain a $500,000 compensating balance at a
correspondent bank.
The Association's total deposits showed little change from September
30, 1996 to September 30, 1997, increasing by $401,000, or approximately 1.0%,
to $56.1 million from $55.7 million. Within the various deposit classifications,
from September 30, 1996 to September 30, 1997, time deposit increases of $1.0
million or 3.7%, and money market account increases of $558,000 or 5.4% were
partially offset by a $1.1 million or 8.6% decrease in savings account balances.
Borrowings increased from $300,000 at September 30, 1996 to $1.3
million at September 30, 1997. The increase in borrowings was the result of the
Association taking advantage of alternative funding sources whose maturity and
pricing were more closely aligned with the Association's funding needs.
Accrued expenses and other liabilities declined by $875,000 or 72.9%
from September 30, 1996 to September 30, 1997. Approximately $415,000 of the
accrued expenses and other liabilities at September 30, 1996 was the special
one-time assessment levied by the FDIC to recapitalize the Savings Association
Insurance Fund ("SAIF") which was paid during fiscal year ended September 30,
1997. See Note 11 to the Financial Statements. In addition, $210,000 of the
accrued expenses and other liabilities at September 30, 1996, which related to
the Association's computer conversion and the newly constructed Gloversville
office drive-thru, was also paid in fiscal 1997. Lastly, approximately $318,000
was expensed, of which $249,000 remained unpaid at September 30, 1996, for past
due property taxes on collateral securing certain one- to four-family
residential non-performing loans. These past due taxes were subsequently paid
during the fiscal year ended September 30, 1997.
The Association's equity decreased $510,000 or 13.5% from $3.8 million
at September 30, 1996 to $3.3 million at September 30, 1997. The decrease was
primarily the result of the
36
<PAGE>
Association's net loss for fiscal 1997 offset by a reduction in the net
unrealized loss on its portfolio of securities available for sale.
Comparison of Operating Results for the Years Ended September 30, 1997 and 1996.
Net Loss. The Association's fiscal 1997 net loss of $583,000 was
$453,000 or 43.8% less than the fiscal 1996 net loss of $1.0 million. The net
loss for fiscal 1997 was reduced from fiscal 1996 primarily as a result of an
increase of $141,000 or 6.1% in net-interest income, and a $652,000 or 21.9%
reduction in other expenses consisting primarily of $415,000 related to the
one-time SAIF assessment and $318,000 expense related to past due property taxes
on certain non-performing one-to four-family residential loans, partially offset
by a decrease in income tax benefit of $307,000 or 138%.
Interest income. Interest and fees on loans increased by approximately
$277,000 or 6.7% to $4.4 million for fiscal 1997, from $4.1 million for fiscal
1996. The increase for fiscal 1997 was largely the result of an increase of $2.1
million or 4.2% in the average balance of loans outstanding during fiscal 1997,
to $51.3 million, as compared to $49.2 million in fiscal 1996. This increase was
primarily in the area of multi-family and commercial real estate, home equity
and commercial business loans offset by decreases in the average balance of
residential one-to-four-family loans. At September 30, 1997, multi-family and
commercial real estate, home equity and commercial business loans totaled $12.8
million as compared to $8.7 million at September 30, 1996. This increase
reflects management's plan to diversify the loan portfolio, increase portfolio
yield, and increase the amount of adjustable rate loans. Originated with various
terms and repricing schedules, these loans generally provide reduced interest
rate risk due to their shorter terms and provide higher yields compared to
longer term, fixed rate residential one-to-four-family loans. However,
multi-family and commercial real estate and commercial business loans generally
have higher outstanding loan balances and increased credit risk relative to
residential one-to-four-family loans. In addition to the increase in the average
balance of loans, the yield earned on the average balance of loans receivable
increased by 20 basis points to 8.59% in fiscal 1997 as compared to 1996 due in
part to the higher yielding nature of multi-family and commercial real estate
and commercial business loans. See "Business - Lending Activities."
Interest income on securities available for sale decreased by $8,000
or 1.7%. There were no investment purchases or sales during fiscal 1997.
Accordingly, the reduction in interest income on securities available for sale
is solely attributable to reduced average balances as a result of principal
repayments. The average balance decreased $427,000 or 5.5% during fiscal 1997.
Interest income on interest-bearing deposits decreased $98,000 or
72.7% as a result of reduced average balances, coupled with lower contracted
rates. Periodically in fiscal 1996, interest-bearing deposits were invested on a
longer term basis, resulting in a higher yielding investment in 1996 as compared
to 1997. Interest-bearing deposits were primarily invested on an overnight basis
in fiscal 1997.
The yield on the average balance of interest-earning assets was 8.21%
and 7.98% for fiscal 1997 and 1996, respectively.
37
<PAGE>
Interest Expense. Interest expense of $2.4 million remained relatively
consistent for the years ended September 30, 1997 and 1996, increasing only
$30,000 or 1.3% in 1997. While total interest expense did not change
dramatically from year to year, the components of interest expense reflected
management's progress in increasing the level of lower costing money market
accounts. While the amount of year-end deposits only increased $401,000, or
1.0%, the average balance of money market accounts increased $3.4 million or
46.5% to $10.7 million while the average balance of time deposits decreased $1.7
million or 5.4% to $28.7 million. The average cost on money market accounts was
4.09% in 1997 as compared to 3.39% in fiscal 1996, and the average cost of time
deposits was 5.30% in fiscal 1997 versus 5.49% in fiscal 1996. Overall money
market rates increased due to the introduction in 1996 of a tiered money market
account with checking which proved popular with consumers but carried a somewhat
higher cost than the Association's other money market products. The changes in
the average balances of savings, demand, and NOW accounts and the related rates
paid were not significant from fiscal 1996 to 1997.
Interest expense on borrowings increased to $22,000 in fiscal 1997, as
the average amount of borrowed funds increased from $6,000 for fiscal 1996 to
$391,000 in fiscal 1997. Fiscal 1996 interest expense on borrowed funds was less
than $1,000.
The rate paid on the average balance of interest-bearing liabilities
was 4.25% and 4.30% for fiscal 1997 and 1996, respectively.
Net Interest Income. Net interest income increased by approximately
$141,000 or 6.1% to $2.5 million for fiscal 1997 from $2.3 million for fiscal
1996. The average interest rate spread increased to 3.96% for fiscal 1997 from
3.68% for fiscal 1996. The increase in interest rate spread is primarily the
result of an increase in higher yielding multi-family and commercial real estate
loans and the repricing of home equity loans.
Provision for Loan Losses. The Association continually monitors and
adjusts its allowance for loan losses based upon its analysis of the loan
portfolio. The allowance is increased by the recording of a provision for loan
losses, the amount of which depends on an analysis of the changing risks
inherent in the Association's loan portfolio. The provision for loan losses
increased $78,000 or 10.9% to $792,000 for fiscal year 1997 from $714,000 for
fiscal year 1996. The increase in the amount of the provision for fiscal 1997
was based on management's evaluation of the inherent risk in the Association's
loan portfolio; a $1.6 million or 71.4% increase in non-performing loans to $3.8
million at September 30, 1997 as compared to $2.2 million at September 30, 1996;
significantly increased net loan charge offs amounting to $430,000 in fiscal
1997, $187,000 or 77.0% greater than in 1996; continued expansion of commercial
business and multi-family and commercial real estate lending; the continued
economic weakness in the Association's market area; declining real estate values
collateralizing much of the Association's loan portfolio; as well as
management's evaluation of the prospects in the Association's market areas.
For a discussion of the factors considered by the Association in
determining the provision for loan losses, see "Business - Delinquencies and
Non-Performing Assets."
Other Income. Other income increased by $46,000 or 42.0% to $155,000
during fiscal year 1997 from $109,000 for fiscal year 1996. This increase was
primarily due to increases in fees and
38
<PAGE>
service charges of $22,000 or 18.4% as well as the inclusion in fiscal 1996 of a
$15,000 loss on the writedown of premises and equipment.
Other Expense. Other expenses decreased $652,000 or 21.9% to $2.3
million in fiscal year 1997 from $3.0 million in fiscal year 1996. Compensation
and benefits expenses increased by $66,000 or 8.0% to $892,000 for fiscal year
1997 from $826,000 for fiscal year 1996. The increase in compensation and
benefits expenses in fiscal year 1997 was primarily the result of the general
cost of living and merit raises to Association employees, coupled with increased
pension and health insurance expenses. Director's fees increased by $27,000 or
34.9% from $76,000 in fiscal year 1996 to $103,000 in fiscal year 1997,
reflecting increased meeting frequency and an increase in per meeting fees.
Other real estate expenses increased $46,000 or 170% to $73,000 reflecting
increased costs associated with foreclosures and disposition of other real
estate owned. See "Business Delinquencies and Non-Performing Assets."
More than offsetting these increases were reductions in the special
one-time FDIC assessment, federal deposit insurance premiums, advertising
expenses and other operating expenses. In fiscal 1996 the Association accrued a
special assessment to recapitalize the SAIF in the amount of $415,000. As a
result of the recapitalization, the Federal deposit insurance premiums decreased
in fiscal 1997 by $74,000 or 56.6 % to $57,000. Advertising expenses decreased
in fiscal 1997 by $29,000 or 21.0% to $111,000. This decrease is due to the
inclusion in fiscal 1996 of significant costs associated with the implementation
of a new logo and brochures and initial use of television advertising which was
not repeated in fiscal 1997. Occupancy expenses and equipment and data
processing expenses were slightly greater in fiscal 1997 as compared to fiscal
1996 with increases of $13,000 or 5.9% and $9,000 or 2.9%, respectively.
As of the end of fiscal 1996, the Association first became aware that,
as of such date, a number of one- to four-family residential loans which were
delinquent as to principal and interest were also delinquent as to the payment
of property taxes. Because some of the related borrowers were unable or
unwilling to pay promptly these taxes, the Association incurred approximately
$318,000 in expenses for the purpose of paying such taxes in order to preserve
its collateral interest in these loans, many of which were subsequently
foreclosed upon. The decline in other expense in 1997 was based on the
non-reoccurrence in 1997 of this expense.
As a result of the above, during 1997, the Association performed an in
depth review of all loans without a tax escrow requirement. This review
indicated that a number of loans which were current as to principal and interest
were delinquent as to the payment of property taxes. The Association contacted
all of the borrowers on these loans. Where the borrowers promptly brought the
real estate taxes current, no actions were taken with respect to the loan terms.
However, where the borrowers were unable to promptly bring real estate taxes
current, the Association restructured the loans or otherwise advanced additional
funds (which advances were added to the loan principal) in order to pay the
delinquent property taxes. As a result, all restructured or rewritten loans were
classified as non-performing as of September 30, 1997. To date, all such loans
have performed in accordance with their revised terms. See "Business - Lending
Activities" and "- Delinquencies and Non-Performing Assets."
39
<PAGE>
Income Taxes. The provision for income taxes increased $307,000 from a
fiscal year 1996 benefit of $222,000 to a fiscal year 1997 expense of $85,000.
The increase in tax expense for fiscal year 1997 as compared to fiscal year 1996
was primarily the result of a $760,000 decrease in the loss before income taxes,
coupled with a $25,000 increase in the change in the valuation allowance for
deferred tax assets. In assessing whether the deferred tax assets will more
likely than not be realized, the Association considers the historical level of
taxable income, the time period over which the temporary differences are
expected to reverse, as well as estimates of future taxable income. In 1997, as
a result of the Association experiencing a second year of significant losses
before taxes (loss before taxes of $498,000 and $1.3 million in fiscal 1997 and
1996, respectively), continued economic weakness in the Association's market
area, including declining real estate values collateralizing much of the
Association's loan portfolio, and reduced expectations of earnings in the
future, as well as a reduction in the amount of historical taxes available for
carryback in 1997, the Association increased its deferred tax valuation
allowance by $274,000 to $625,000 at September 30, 1997. As of September 30,
1997, the net deferred tax asset is considered to be more likely than not
realizable based upon the remaining amount of historical taxes available for
carryback, amounting to approximately $50,000, the reversal of temporary taxable
items and reliance on future taxable income amounting to approximately $175,000.
Comparison of Operating Results for the Years Ended September 30, 1996 and 1995.
Net Income. The 1995 net income of $251,000 decreased by $1.3 million
to a fiscal year 1996 net loss of $1.0 million. The net loss for fiscal year
1996 is primarily the result of a $585,000 increase in the provision for loan
losses, the above referenced $415,000 one-time SAIF assessment, and the above
mentioned expense of approximately $318,000 related to delinquent property taxes
on property collateralizing certain non-performing loans. Additionally, fiscal
1995 included a $204,000 net gain on sales of securities and a $86,000 gain on
the sale of premises and equipment.
There were no such gains in fiscal 1996.
Interest Income. Interest and fees on loans increased by approximately
$203,000 or 5.2% to $4.1 million for fiscal year 1996 from $3.9 million for
fiscal year 1995. The increase for fiscal year 1996 was partially the result of
an increase of $514,000 or 1.0% in the average balance of loans outstanding, to
$49.2 million, as compared to $48.7 million in fiscal year 1995. This increase
was primarily in the area of multi-family and commercial real estate loans.
During fiscal year 1996 the Association continued to increase the multi-family
and commercial real estate as well as commercial business portfolios. At
September 30, 1996 multi-family and commercial real estate loans totaled $4.6
million as compared to $1.7 million at September 30, 1995 and commercial
business loans grew to $1.2 million at September 30, 1996 compared to $1.1 at
September 30, 1995. Offsetting these increases was a decrease in residential
one-to-four-family loans. In addition to the increase in the average balance of
loans, the yield earned on the average balance of loans receivable increased by
33 basis points to 8.39% in fiscal year 1996 as compared to 8.06% in fiscal year
1995 due in part to the higher yielding nature of multi-family and commercial
real estate, home equity and commercial business loans.
Interest income on securities available for sale decreased by $234,000
or 33.3% to $467,000 in fiscal year 1996 from $701,000 in fiscal year 1995.
During fiscal year 1995, the Association sold securities with an amortized cost
of approximately $13.4 million. Accordingly, the reduction in
40
<PAGE>
interest income is largely attributable to reduced average balances as a result
of the fiscal year 1995 sales. The average balance in securities available for
sale decreased $4.9 million or 38.5% from $12.6 million in fiscal 1995 to $7.8
million in fiscal year 1996. Interest income on interest-bearing time deposits
decreased $53,000 or 28.0% primarily as a result of a $832,000 or 26.6% decrease
in the average balance.
The yield on the average balance of interest-earning assets was 7.98%
and 7.47% for fiscal years 1996 and 1995, respectively.
Interest Expense. Interest expense on deposits and borrowings
decreased by approximately $111,000 or 4.4% to $2.4 million for fiscal year 1996
as compared to $2.5 million for fiscal year 1995. This decrease was primarily
the result of a $5.5 million or 15.3% decrease in the average balance of time
deposits, offset by an increase in the cost of time deposits in fiscal year 1996
because the cost of time deposit accounts maintained or acquired carried a
higher rate than time deposits maturing. The average cost on time deposits was
5.49% in 1996 versus 5.01% in fiscal year 1995.
The rate paid on the average balance of interest-bearing liabilities
was 4.30% and 4.12%, for fiscal years 1996 and 1995, respectively.
Net Interest Income. In fiscal 1996 net interest income increased from
fiscal 1995 by approximately $28,000 or 1.2%, to $2.3 million. The average
interest rate spread increased to 3.68% for fiscal year 1996 from 3.35% for
fiscal year 1995. The increase in interest rate spread is primarily the result
of an increase in higher yielding multi-family and commercial real estate loans,
and a reduction in the average balance in of certain lower yielding securities
available for sale offset by an increase in the rate on interest bearing
liabilities.
Provision for Loan Losses. The provision for loan losses increased
$585,000 to $714,000 for fiscal year 1996 from $129,000 for fiscal year 1995.
The significant increase in the amount of the provision for fiscal year 1996 was
based on management's evaluation of the inherent risk in the Association's loan
portfolio, the continued expansion of commercial business and multi-family and
commercial real estate lending, a 18.0% increase in net loan charge offs in
fiscal 1996 compared to fiscal 1995, increased delinquencies, continued economic
weakness in the Association's market area, declining real estate values
collateralizing much of the Association's loan portfolio, and management's
evaluation of the prospects in the Association's market areas. In addition, as
noted above, the Association became aware that as of the end of fiscal 1996 a
significant number of its non-performing residential one- to four- family loans
were past due on the payment of property taxes collateralizing its loans. For a
discussion of the factors considered by the Association in determining the
provision for loan losses, see "Business - Delinquencies and Non-Performing
Assets."
Other Income. Other income decreased by $282,000 or 72.1% to $109,000
in fiscal year 1996 from $392,000 for fiscal year 1995. This decrease was
primarily due to fiscal year 1995 including net gains on sales of securities
available for sale of $204,000 and a gain on the sale of premises and equipment
of $86,000.
Other Expense. Other expenses increased $772,000 or 35.1% to $3.0
million in fiscal year 1996 from $2.2 million in fiscal year 1995. Compensation
and benefits expenses decreased by
41
<PAGE>
$42,000 or 4.8% to $826,000 for fiscal year 1996 from $868,000 for fiscal year
1995. The decrease in compensation and benefits expenses in fiscal year 1996 was
the result of the fiscal year 1995 expense including an expense of approximately
$64,000 related to the termination of the Association's defined benefit pension
plan. Special one-time FDIC assessment increased $415,000 due to the previously
mention SAIF recapitalization. Advertising expense increased $48,000 or 52.2% to
$140,000 in fiscal year 1996 from $92,000 in fiscal year 1995 associated with
the implementation of a new logo and brochures and initial use of television
advertising in fiscal year 1996. Directors fees increased $34,000 or 82.3% from
$42,000 in fiscal year 1995 to $76,000 in fiscal year 1996 due to increases in
per meeting fees and meeting frequency. Other real estate expenses decreased
$100,000 or 78.6% to $27,000 as fiscal year 1995 included several large Other
Real Estate Owned ("OREO") writedowns. Occupancy expense increased $55,000 or
35.3% in fiscal 1996, which is the result of additional depreciation and
expenses related to the Gloversville drive-thru. Equipment and data processing
expenses increased $28,000 or 9.9% in fiscal 1996 as the result of additional
costs incurred attributable to the Association's system conversion. As
previously mentioned, included in the fiscal year 1996 other operating expenses
was an expense of approximately $318,000 for delinquent property taxes on the
property securing certain non-performing residential one-to-four-family loans.
Accordingly, other operating expenses increased $346,000 or 71.1% in fiscal year
1996 from $487,000 in fiscal year 1995 to $833,000 in fiscal year 1996.
Income Taxes. The provision for income taxes decreased $325,000 from a
fiscal year 1995 expense of $102,000 to a fiscal year 1996 benefit of $222,000
which was primarily the result of a $1.6 million increase in the loss before
income taxes, offset by a $248,000 increase in the valuation allowance for
deferred tax assets. In 1996, as a result of experiencing a significant loss
before taxes of $1.3 million, combined with the significant reduction in the
amount of historical taxes available for carryback, the Association increased
its deferred tax valuation allowance by $248,000 to $352,000. As of September
30, 1996, the net deferred tax asset is considered to be more likely than not
realizable based upon the remaining amount of historical taxes available for
carryback, amounting to $90,000, the reversal of temporary taxable items, and
reliance on future taxable income amounting to approximately $380,000.
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<PAGE>
The following table presents, for the periods indicated, the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances. Non-accruing loans
have been included in the average loan amounts.
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------------------------------------
1997 1996 1995
-------------------------- --------------------------- ----------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate Balance Paid Yield/Rate
------- ---- ---------- ------- ---- ---------- ------- ---- ----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable, net of deferred loan fees.. $51,303 $4,409 8.59% $49,222 $4,132 8.39% $48,708 $3,928 8.06%
Securities at amortized cost ................ 7,337 459 6.26 7,764 467 6.01 12,616 701 5.56
Interest-earning deposits.................... 1,113 37 3.32 2,298 134 5.83 3,130 187 5.97
-------- -------- -------- -------- -------- -------
Total earning assets....................... 59,753 4,905 8.21 59,284 4,733 7.98 64,454 4,816 7.47
------- ------- -------
Non-interest earning assets.................. 1,954 1,866 2,158
-------- -------- --------
Total assets............................... $61,707 $61,150 $66,612
======= ======= =======
Interest-earning liabilities:
Savings deposits............................. $12,503 401 3.21 $13,724 433 3.16 $13,655 413 3.02
Demand and NOW............................... 5,316 65 1.22 4,805 69 1.44 4,520 85 1.88
MMDA......................................... 10,676 437 4.09 7,287 247 3.39 7,353 232 3.16
Time deposits................................ 28,704 1,522 5.30 30,358 1,667 5.49 35,848 1,797 5.01
Borrowings................................... 391 22 5.63 6 -- 5.56 -- -- --
--------- -------- -------- --------- -------- --------
Total interest-bearing liabilities......... 57,590 2,447 4.25% 56,180 2,416 4.30% 61,376 2,527 4.12%
------- ------- -------
Non-interest-bearing liabilities............. 541 306 499
--------- -------- --------
Total liabilities.......................... 58,131 56,486 61,875
Total equity............................... 3,576 4,664 4,737
--------- -------- --------
Total liabilities and equity............... $61,707 $61,150 $66,612
======= ======= =======
Net interest/spread............................ $2,458 3.96% $2,317 3.68% $2,289 3.35%
====== ==== ====== ==== ====== ====
Margin......................................... 4.11% 3.91% 3.55%
==== ==== ====
Assets to liabilities.......................... 103.76% 105.53% 105.01%
====== ====== ======
</TABLE>
43
<PAGE>
The following table presents the weighted average contractual yields
earned on loans and securities, the combined weighted average yield on
interest-earning assets, the weighted average rates paid on deposits and
borrowings, the combined weighted average rate paid on interest-bearing
liabilities and the resultant interest rate spreads at the date indicated.
Weighted Average Yields Earned/Rates Paid
September 30, 1997
- --------------------------------------------------------------------------------
Weighted average yield on:
Loans receivable, net of deferred fees.................. 8.73%
Securities at amortized cost............................ 6.18
Combined weighed average yield on interest-earning
assets.............................................. 8.43
Weighted average rate paid on:
Savings ................................................ 3.24
Demand and NOW.......................................... 1.35
MMDA.................................................... 4.03
Time deposits........................................... 5.46
Borrowings.............................................. 5.80
Combined weighted average rate paid
on interest-bearing liabilities...................... 4.24
----
Spread..................................................... 4.19%
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<PAGE>
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended September 30, Year Ended September 30,
1997 vs. 1996 1996 vs. 1995
-------------------------------------- -----------------------------------
Increase Total Increase Total
(Decrease) Increase (Decrease) Increase
Due to (Decrease) Due to (Decrease)
------------------------ ---------- ----------------------- ----------
Volume Rate Volume Rate
------------- ---------- ----------- -----------
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable, net of deferred loan fees $ 178 $ 99 $277 $41 $163 $ 204
Securities at amortized cost............... (27) 19 (8) (288) 54 (234)
Interest-bearing deposits................... (44) (53) (97) (50) (3) (53)
----- ----- ----- ------ ------ ------
Total interest-earning assets............ 107 65 172 (297) 214 (83)
----- ---- ---- ----- ---- ------
Interest-bearing liabilities:
Savings deposits.......................... (39) 7 (32) 2 18 20
Demand and NOW............................ 7 (11) (4) 5 (21) (16)
MMDA...................................... 132 58 190 (2) 17 15
Time Deposits.............................. (89) (56) (145) (291) 161 (130)
Borrowings................................. 22 --- 22 --- --- ---
------ ----- ----- ------- ------ -------
Total interest-bearing liabilities....... 33 (2) 31 (286) 175 (111)
------ ----- ----- ----- ---- -----
Net interest income......................... $ 74 $ 67 $141 $(11) $ 39 $ 28
====== ==== ==== ==== ===== =====
</TABLE>
45
<PAGE>
Liquidity and Capital Funds
The Association's primary sources of funds are deposits, principal and
interest payments on loans and securities, and to a lesser extent, borrowings.
While maturities and scheduled amortization of loans and securities provide an
indication of the timing of the receipt of funds, other sources of funds such as
loan prepayments and deposit inflows are less predictable due to the effects of
changes in interest rates, economic conditions and competition.
Liquidity may be adversely affected by the unexpected deposit outflows,
higher interest rates paid by competitors and similar matters. Further, the
disparity in insurance premiums as described herein could result in the
Association losing deposits to BIF members that have lower cost of funds and
therefore are able to pay higher rates of interest on deposits. See
"Regulation." Management monitors projected liquidity needs and determines the
level desirable, based in part on the Association's commitments to make loans
and management's assessment of the Association's ability to generate funds.
The primary investing activities of the Association are the origination
of real estate and other loans and the purchase of securities. During the years
ended September 30, 1997, 1996 and 1995, the Association's disbursements for
loan originations totaled $8.9 million, $8.8 million and $10.2 million,
respectively. The Association did not purchase any securities during the year
ended September 30, 1997. For the years ended September 30, 1996 and 1995,
purchases of securities totaled $4.6 million and $11.0 million, respectively.
These activities were funded primarily by net deposit inflows, borrowings and
principal repayments on loans and securities.
For years ended September 30, 1997, 1996 and 1995, net deposit inflows
(outflows) (including the effect of interest credited) were $401,000, ($2.2)
million and ($6.8) million. The increase in fiscal 1997 reflects the net effect
of a $1.1 million and $26,000 decline in savings and demand and NOW accounts,
respectively, offset by increases of $558,000 and $1.0 million for money market
accounts and time deposits, respectively. The decline in savings accounts is the
result of a general increase in market interest rates which made passbook
savings less attractive investment alternatives for the Association's customers.
Conversely, the increased market interest rates made deposit products, such as
money market accounts and shorter term time deposits, more attractive to the
Association's customers. During fiscal 1996, the net decrease of $2.2 million in
deposits was primarily driven by management's attempts to reduce the dependence
of funding with time deposits. During fiscal 1996, time deposits declined $6.9
million while non-time deposits increased $4.8 million. The non-time deposit
increase in fiscal 1996 was primarily the result of the introduction of new
deposit products such as a tiered money market account. During fiscal 1995,
deposit levels declined overall by $6.8 million. The decline was the result of
efforts by management to price deposit products to reduce overall cost of funds.
Short-term borrowings under repurchase agreements were $1.3 million at
September 30, 1997. The repurchase agreements were entered into to provide a
less expensive short-term funding source to meet immediate liquidity needs.
There were no outstanding repurchase agreement balances at September 30, 1996
and 1995.
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<PAGE>
The Association may borrow funds from the FHLB of New York subject to
certain limitations. Based on the level of qualifying collateral available to
secure advances at September 30, 1997, the Association's borrowing limit from
the FHLB of New York was approximately $9.2 million, with no advances
outstanding at that date. Proceeds from FHLB advances were $300,000 at September
30, 1996. There were no FHLB borrowings made in fiscal year 1995 (See note 7 of
the financial statements.).
The Association is required by OTS regulations to maintain an average
daily balance of liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings. The minimum required liquidity ratio is
currently 4.0%. The liquidity requirement may be changed from time to time by
the OTS to any amount within the range of 4% to 10%. The Association's liquidity
ratio at September 30, 1997 was 10.3%.
The Association's most liquid assets are cash and cash equivalents,
which include interest-bearing deposits and short-term highly liquid investments
(such as federal funds) with original maturities of less than three months that
are readily convertible to known amounts of cash. The level of these assets is
dependent on the Association's operating, financing and investing activities
during any given period. At September 30, 1997, 1996 and 1995, cash and cash
equivalents totaled $1.9 million, $1.2 million and $3.2 million, respectively.
The Association is required to maintain a compensating balance of
$500,000 at one of its correspondent banks at September 30, 1997. There were no
compensating balance requirements in prior fiscal years.
At September 30, 1997, the Association had outstanding loan origination
commitments, undisbursed construction loans in process and unadvanced lines of
credit of $3.1 million. The Association anticipates that it will have sufficient
funds available to meet its current loan origination and other commitments. Time
deposits scheduled to mature in one year or less from September 30, 1997 totaled
$23.3 million. Based on the Association's most recent experience and pricing
strategy, management believes that a significant portion of such deposits will
remain with the Association.
The Association is subject to federal regulations that impose certain
minimum capital requirements. At September 30, 1997, the Association had
tangible and core capital of $3.3 million compared to required levels of
$900,000 and $1.8 million, respectively. Total risk-based capital was $3.8
million compared to a required level of $3.0 million. See "Historical and Pro
Forma Capital Compliance" for a discussion of the Association's compliance with
OTS capital requirements.
Year 2000
The Association is aware of the issues associated with the programming
code in existing computer systems as the millennium (year 2000) approaches. The
"year 2000" problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
47
<PAGE>
Since the Association recently converted to a year 2000 compliant core
system, the Association does not anticipate significant additional year 2000
costs. It is anticipated that any additional reprogramming efforts will be
complete by December 31, 1998, allowing adequate time for testing. To date,
confirmations have been received from the Company's primary processing vendors
that plans are being developed to address processing of transactions in the year
2000.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
generally require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Association is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
interest rates, generally, have a more significant impact on a financial
institution's performance than does inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the prices of goods and
services.
Impact of New Accounting Standards
FASB Statement on Accounting for Mortgage Servicing Rights. In May,
1995, FASB issued SFAS No. 122, which became effective on a prospective basis,
for fiscal years beginning after December 31, 1995. This Statement requires
mortgage banking enterprises to recognize as separate assets rights to service
mortgage loans, however those servicing rights are acquired. When mortgage
loans, acquired either through a purchase transaction or by origination, are
sold or securitized with servicing rights retained, an allocation of the total
cost of the mortgage loans should be made between the mortgage servicing rights
and the loans based upon their relative fair values. In Subsequent periods, all
mortgage servicing rights capitalized must be periodically evaluated for
impairment based on the fair value of those rights, and any impairments
recognized through a valuation allowance. The impact of adopting this Statement
was not material to the Association's financial statements. Effective January 1,
1997, this Statement was superseded by SFAS No. 125, which is discussed below.
FASB Statement on Accounting for Stock Based Compensation. In October
1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. FASB encouraged all entities to adopt the fair value
based method, however it will allow entities to continue the use of the
"intrinsic value based method" prescribed by Accounting Principles Board ("APB")
Opinion No. 25. Under the intrinsic value based method, compensation cost is the
excess of the market price of the stock at the grant date over the amount an
employee must pay to acquire the stock. However most stock option plans have no
intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue the use of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Association expects to utilize the "intrinsic value based method"
as
48
<PAGE>
prescribed by APB Opinion No. 25. Accordingly, the impact of adopting this
Statement will not be material to the Association's financial statements.
FASB Statement on Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities. In June 1996, FASB issued SFAS No.
125, which became effective on a prospective basis for fiscal years beginning
after December 31, 1996. SFAS No. 125 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. SFAS No. 125 extends the "available for sale" and
"trading" approach of SFAS No. 115 to non-security financial assets that can be
contractually prepaid or otherwise settled in such a way that the holder of the
asset would not recover substantially all of its recorded investment. In
addition, SFAS No. 125 amends SFAS No. 115 to prevent a security from being
classified as held to maturity if the security can be prepaid or settled in such
a manner that the holder of the security would not recover substantially all of
its recorded investment. The extension of the SFAS No. 115 approach to certain
non-security financial assets and the amendment to SFAS No. 115 are effective
for financial assets held on or acquired after January 1, 1997. Effective
January 1, 1997, SFAS No. 125 superseded SFAS No. 122, which is discussed above.
The impact of adopting this Statement was not material to the Association's
financial statements.
In November 1993, the American Institute of Certified Public
Accountants ("AICPA"), issued SOP 93-6 Employers' Accounting for Employee Stock
Ownership Plans. SOP 93-6 addresses accounting for shares of stock issued to
employees by an employee stock ownership plan. SOP 93-6 requires that the
employer record compensation in an amount equal to the fair value of the shares
committed to be released from the ESOP to employees. SOP 93-6 is effective for
fiscal years beginning after December 15, 1993 and relates to shares purchased
by an ESOP after December 31, 1992. Management has determined that, assuming the
Common Stock appreciates over time, the adoption of SOP 93-6 will likely
increase compensation expense relative to the ESOP, as compared with prior
guidance that required recognition of compensation expense based on the cost of
the shares acquired by the ESOP. The amount of any such increase, however,
cannot be determined at this time because the expense will be based on the fair
value of the shares committed to be released to employees, which amount is not
determinable.
FASB Statement on Earnings Per Share. In February 1997, the FASB issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to all entities with
publicly held common stock or potential common stock. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Management does not believe that the impact of
adopting this Statement will be material to the Association's financial
statements.
FASB Statement on Capital Structure. In February 1997, the FASB issued
SFAS No. 129, "Disclosure of Information About Capital Structure" which
establishes standards for disclosure about a company's capital structure. In
accordance with SFAS No. 129, companies will be required to provide in the
financial statements a complete description of all aspects of their capital
structure, including call and put features, redemption requirements and
conversion options. The disclosure required by SFAS No. 129 are for financial
statements for periods ending after December 15, 1997.
49
<PAGE>
Management does not believe that the impact of adopting this Statement will be
material to the Association's financial statements.
FASB Statement on Comprehensive Income. In June 1997, the FASB issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 states that
comprehensive income includes the reported net income of a company adjusted for
items that are currently accounted for as direct entries to equity, such as the
mark to market adjustment on securities available for sale, foreign currency
items and minimum pension liability adjustments. This statement is effective for
fiscal years beginning after December 15, 1997. Management does not believe that
the impact of adopting this Statement will be material to the Association's
financial statements.
FASB Statement on Segment Reporting In June 1997, the FASB issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
SFAS No. 131 establishes standards for reporting by public companies about
operating segments of their business. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas and major
customers. This statement is effective for periods beginning after December 15,
1997. Management does not believe that the impact of adopting this Statement
will be material to the Association's financial statements.
BUSINESS
General
As a community-oriented financial institution, Gloversville Federal
seeks to serve the financial needs of the communities in its market area.
Gloversville Federal's business involves attracting deposits from the general
public and using such deposits, together with other funds, to originate
primarily one- to four-family residential mortgage loans, and, to a lesser
extent, multi-family and commercial real estate, commercial business, home
equity and other loans in its market area. The Association also invests in
mortgage-backed and other securities and other permissible investments. See
"Risk Factors."
The Association offers a variety of accounts having a range of interest
rates and terms. The Association's deposits include passbook, statement savings,
demand and NOW accounts, money market accounts and time deposit accounts with
terms of six months to five years. The Association solicits deposits only in its
primary market area.
Market Area
The Association conducts business through its main office located at 52
North Main Street, Gloversville, New York and a branch office located at 295
Broadway, Saratoga Springs, New York. The Association's market area for deposits
consists primarily of Fulton and Saratoga Counties. The Association's primary
market area for lending activities consist of communities within Fulton and
Saratoga Counties, as well as portions of Hamilton and Montgomery Counties, New
York.
50
<PAGE>
Gloversville, New York is located in Fulton County approximately 50
miles northwest of Albany, New York. Gloversville and the surrounding
communities include a population of low- and moderate-income neighborhoods.
Gloversville has undergone significant economic hardships as the major leather
industries that were once the focal point of industrial strength for the region
have relocated to other parts of the world. Gloversville, with its neighboring
city Johnstown, have recently experienced some revitalization as a number of
manufacturing entities have opened plants in the area, capitalizing on the
region's lower labor and operating costs. The housing in the Gloversville area
consists mainly of one- to four-family residences within the city limits.
Outside Gloversville, in the rural areas leading into the Adirondack Mountains,
there are many nonconforming properties which are generally used as summer homes
and camps. Real estate values in much of these areas have experienced a
significant decline in recent years.
Saratoga Springs, New York is located in Saratoga County approximately
30 miles north of Albany, New York. Saratoga Springs and the surrounding
communities include a diverse population of low income neighborhoods, as well as
middle class and more affluent neighborhoods. The housing market has been
relatively strong in much of Saratoga County. This part of the Association's
market also includes commercial areas supporting manufacturing, industrial and
professional service companies.
Lending Activities
General. Historically, the Association originated 30-year, fixed-rate
mortgage loans secured by one- to four-family residences. In fiscal 1995, the
Association began to diversify its portfolio by more actively originating
multi-family and commercial real estate and commercial business loans.
Currently, all loans originated by the Association are held as portfolio loans.
At September 30, 1997, the Association's loans receivable, net, totaled $49.5
million. See "- Origination of Loans" and "Use of Proceeds."
Under federal law, the aggregate amount of loans that the Association
is permitted to make to any one borrower is generally limited to the greater of
15% of unimpaired capital and surplus (25% if the security for such loan has a
"readily ascertainable" value or 30% for certain residential development loans)
or $500,000. At September 30, 1997, based on the above, the Association's
regulatory loans-to-one borrower limit was approximately $737,000. On the same
date, the Association had no borrowers with outstanding balances in excess of
this amount. As of September 30, 1997, the largest dollar amount outstanding or
committed to be lent to one borrower, or group of related borrowers, related to
a commercial real estate loan totaling $539,000 secured by a warehouse located
in Saratoga County, and food preparation and related equipment used by the
borrower. The Association's next largest loan as of September 30, 1997 totaled
$527,000 and was secured by an office building located in Saratoga Springs, New
York. At September 30, 1997, both of these loans were performing in accordance
with their terms. The Association has obtained personal guarantees (or direct
personal liability) from the principals in both these loans. As of the same
date, there were 11 other multi-family and commercial real estate or commercial
business loans with carrying values in excess of $300,000.
The Association has incurred significant problems in recent years on
its residential lending portfolio, in part due to inadequate loan underwriting
and monitoring procedures and policies. In
51
<PAGE>
order to address these issues, the Board of Directors revised the Association's
procedures and policies and hired new personnel to perform such functions. The
Association has also undertaken a review of its residential loan portfolio in
order to determine the full extent of the problems and is currently taking
action to address and work out these problems. All of the Association's current
lending is subject to its revised written underwriting standards and to loan
origination procedures.
Decisions on loan applications are made on the basis of detailed
applications and property valuations (consistent with the Association's
appraisal policy) by independent appraisers. Under the Association's loan
policy, the individual processing an application is responsible for ensuring
that all documentation is obtained prior to the submission of the application to
a loan officer for approval. In addition, the loan officer verifies that the
application meets the Association's underwriting guidelines described below.
Also, each application file is reviewed to assure its accuracy and completeness.
The President and the Vice President of Lending have been given lending
authority, and their lending limit authority has been defined, by the Board of
Directors of the Association. The lending authority limits are applied based on
aggregate loan balances due the Association, including any pending loan
requests. The approval of the Association's Board of Directors is required for
any loans where aggregate borrowings of the subject entity or individual exceed
$250,000. Loan Committee approval is required for all loans where the aggregate
borrowings of the subject entity or individual exceed $150,000 but are less than
$250,000. The Loan Committee includes the President and Chief Executive Officer,
the Vice President of Lending, two outside Board members and two other
Association officers.
For multi-family and commercial real estate and commercial business
loans, the President and Vice President of Lending each have the authority to
approve secured loans of up to $100,000 and unsecured loans of up to $50,000.
Joint approval by the President and Vice President of Lending is required for
multi-family and commercial real estate and commercial business loans greater
than $100,000 ($50,000 for unsecured loans) but not exceeding $150,000.
The President or the Vice President of Lending have the authority to
approve residential mortgages of up to $150,000. The President also has the
authority to approve secured consumer loans up to $150,000 and unsecured
consumer loans of up to $50,000. The Vice President of Lending has the authority
to approve secured consumer loans of up to $50,000 and unsecured consumer loans
of up to $10,000.
The Association requires title insurance on its mortgage loans, as well
as fire and extended coverage casualty insurance in amounts at least equal to
the principal amount of the loan or the value of improvements on the property,
depending on the type of loan. The Association also requires flood insurance to
protect the property securing its interest when the property is located in a
flood plain.
Since May 1995, the Association has required escrow for property taxes,
insurance and flood insurance (if required) on its one- to four-family mortgage
loans and multi-family and commercial real estate loans.
52
<PAGE>
The following table shows the composition of the Association's loan
portfolio by loan type at the dates indicated.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------
1997 1996 1995
----------------------- ------------------------ -------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C>
One- to four-family....................... $36,891 71.92% $40,262 78.80% $42,578 86.41%
Multi-family and commercial............... 7,950 15.50 4,635 9.07 1,712 3.47
One- to four-family construction.......... 539 1.05 938 1.84 742 1.51
------- -------- -------- -------- -------- --------
Total real estate loans................ 45,380 88.47 45,835 89.71 45,032 91.39
------ -------- ------ ------- ------ ------
Other loans:
Commercial business....................... 1,422 2.77 1,230 2.41 1,052 2.14
Home equity............................... 3,379 6.59 2,869 5.62 2,265 4.60
Other consumer............................ 1,111 2.17 1,154 2.26 920 1.87
------- -------- -------- -------- --------- --------
Total loans............................ 5,912 11.53 5,253 10.29 4,237 8.61
------- ------- -------- ------- -------- --------
Gross loans 51,292 100.00% 51,088 100.00% 49,269 100.00%
====== ====== ======
Less:
Net deferred loan fees.................... (153) (201) (251)
Allowance for loan losses................. (1,613) (1,251) (779)
-------- -------- --------
Total loans receivable, net............. $49,526 $49,636 $48,239
======= ======= =======
</TABLE>
September 30,
-----------------------------------------------
1994 1993
----------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans:
One- to four-family............ $42,973 91.89% $40,633 96.64%
Multi-family and commercial.... 878 1.88 -- --
One- to four-family
construction................. 701 1.50 139 0.33
-------- -------- --------- --------
Total real estate loans..... 44,552 95.27 40,772 96.97
------ ------- ------- -------
Other loans:
Commercial business............ -- -- -- --
Home equity.................... 1,352 2.89 -- --
Other consumer................. 861 1.84 1,276 3.03
-------- -------- -------- --------
Total loans................. 2,213 4.73 1,276 3.03
------- -------- -------- --------
Gross loans 46,765 100.00% 42,048 100.00%
====== ======
Less:
Net deferred loan fees......... (264) (277)
Allowance for loan losses...... (856) (875)
-------- --------
Total loans receivable, net.. $45,645 $40,896
======= =======
53
<PAGE>
The following table shows the composition of the Association's loan
portfolio by fixed and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------------
1997 1996 1995
--------------------------- ------------------------ ------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family.................. $31,732 61.86% $34,929 68.37% $37,356 75.82%
Multi-family and commercial.......... 1,206 2.35 924 1.81 1,527 3.10
One- to four-family construction..... 392 0.76 423 0.83 293 0.59
--------- -------- --------- -------- --------- --------
Total real estate loans............ 33,330 64.97 36,276 71.01 39,176 79.51
Commercial business.................... 283 0.55 23 0.05 -- --
Home equity............................ 1,244 2.43 645 1.26 14 0.03
Other consumer......................... 1,056 2.06 1,058 2.07 916 1.86
-------- -------- -------- -------- --------- --------
Total fixed-rate loans............. 35,913 70.01 38,002 74.39 40,106 81.40
Adjustable-Rate Loans
Real estate:
One-to four-family................... 5,159 10.06 5,333 10.44 5,222 10.60
Multi-family and commercial.......... 6,744 13.15 3,711 7.26 1,052 2.14
One- to four-family construction..... 147 0.29 515 1.01 449 0.91
--------- -------- --------- -------- --------- --------
Total real estate loans.......... 12,050 23.50 9,559 18.71 6,723 13.65
Commercial business.................... 1,139 2.22 1,207 2.36 185 0.38
Home equity............................ 2,135 4.16 2,224 4.35 2,251 4.56
Other consumer......................... 55 0.11 96 0.19 4 0.01
---------- -------- --------- ------- ---------- ---------
Total adjustable rate loans 15,379 29.99 13,086 25.61 9,163 18.60
Gross loans 51,292 100.00% 51,088 100.00% 49,269 100.00%
====== ====== ======
Less:
Net deferred loan fees............... (153) (201) (251)
Allowance for loan losses............ (1,613) (1,251) (779)
-------- --------- ---------
Total loans receivable, net....... $49,526 $49,636 $48,239
======= ======= =======
</TABLE>
September 30,
-----------------------------------------------
1994 1993
------------------------- ---------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
One- to four-family............ $39,632 84.75% $40,633 96.64%
Multi-family and commercial.... 878 1.88 -- --
One- to four-family
construction................. 485 1.04 139 0.33
---------- -------- --------- --------
Total real estate loans...... 40,995 87.67 40,772 96.97
Commercial business.............. -- -- -- --
Home equity...................... -- -- -- --
Other consumer................... 861 1.84 1,276 3.03
--------- -------- -------- --------
Total fixed-rate loans....... 41,856 89.51 42,048 100.00%
Adjustable-Rate Loans
Real estate:
One-to four-family............. 3,341 7.14 -- --
Multi-family and commercial.... -- -- -- --
One- to four-family
construction................. 216 0.46 -- --
--------- -------- ---------- --------
Total real estate loans.... 3,557 7.60 -- --
Commercial business.............. -- -- -- --
Home equity...................... 1,352 2.89 -- --
Other consumer................... -- -- -- --
---------- --------- ---------- --------
Total adjustable rate loans 4,909 10.49 -- --
Gross loans 46,765 100.00% 42,048 100.00%
====== ======
Less:
Net deferred loan fees......... (264) (277)
Allowance for loan losses...... (856) (875)
--------- ---------
Total loans receivable, net. $45,645 $40,896
======= =======
54
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Association's loan portfolio at September 30, 1997. Mortgages which have
adjustable or renegotiable interest rates are shown as maturing in the period
during which the contracts are due. The schedule does not reflect the effects of
possible prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------------------------
Multi-family One- to four-family Home Equity and
One- to four-family and Commercial Construction Commercial Business Other Consumer
------------------- ------------------- ------------------ ------------------- ------------------
Due During Weighted Weighted Weighted Weighted Weighted
Years Ending Average Average Average Average Average
September 30, Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
------------- ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998................. $ 710 8.59% $ -- -- $539 8.34% $ 173 9.15% $ 184 7.88%
1999................. 732 7.18 -- -- -- -- 367 9.76 127 10.26
2000................. 237 9.45 -- -- -- -- 56 10.00 192 10.46
2001 to 2002......... 1,072 8.79 11 8.50 -- -- 81 10.50 427 8.94
2003 to 2007......... 3,959 8.81 2,278 9.87 -- -- 656 9.86 420 8.77
2008 to 2022......... 22,158 8.51 5,661 9.42 -- -- 14 10.50 3,119 9.11
2023 and following... 8,023 8.09 -- -- -- -- 75 10.16 21 7.23
-------- --------- ------- -------- --------
Total............. $36,891 $7,950 $539 $1,422 $4,490
======= ====== ==== ====== ======
</TABLE>
The total amount of loans due after September 30, 1997 which have
predetermined interest rates is $35.9 million while the total amount of loans
due after such dates which have floating or adjustable interest rates is $15.4
million.
55
<PAGE>
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Association's lending program has historically been the origination of loans
secured by mortgages on owner-occupied one- to four-family residences. At
September 30, 1997, $36.9 million, or 71.9%, of the Association's total loan
portfolio consisted of mortgage loans secured by one- to four- family
residences. Until recently, the Association focused its residential lending
activities on fixed rate loans. with 30 year terms. Beginning in fiscal 1994,
the Association began to originate adjustable rate loans. Substantially all of
the Association's one- to four-family residential mortgage originations are
secured by properties located in its market area. All mortgage loans currently
originated by the Association are retained and serviced by it.
The Association currently offers conventional fixed-rate mortgage loans
with maturities up to 30 years. Interest rates and fees charged on these
fixed-rate loans are established on a regular basis according to market
conditions. The Association underwrites its fixed-rate one- to four-family loans
in accordance with Federal Home Loan Mortgage Corporation ("FHLMC") and Federal
National Mortgage Association ("FNMA") standards. As of September 30, 1997, the
Association had $31.7 million of fixed rate loans secured by one- to four-family
residential properties. During fiscal 1997, the Association began to accept
fixed and adjustable rate Federal Home Authority ("FHA") guaranteed loan
applications; however, at September 30, 1997, the Association had no FHA loans
outstanding. See "- Originations of Loans."
The Association also offers ARMs which carry interest rates which
adjust annually at a margin (generally 275 basis points) over the yield on the
One Year Average Monthly U.S. Treasury Constant Maturity Index ("one year CMT").
Such loans may carry terms to maturity of up to 30 years. The ARM loans
currently offered by the Association provide for up to 200 basis point annual
interest rate change cap and a lifetime cap generally 600 basis points over the
initial rate. Initial interest rates offered on the Association's ARMs may be
100 to 350 basis points below the fully indexed rate, although borrowers are
generally qualified at the fully indexed rate. As a result, the risk of default
on these loans may increase as interest rates increase. In addition, the
Association's ARMs typically do not adjust below the initial rate. At September
30, 1997, one- to four-family ARMs totaled $5.2 million or 10.1% of the
Association's total loan portfolio.
The Association also originates loans secured by non-conforming second
homes and vacation homes. The rates charged for these loans are generally higher
than that offered for conventional one-to four-family loans. Generally, the same
underwriting criteria is used when evaluating applications made for mortgages on
second homes and vacation homes as used for applications taken for mortgages on
one- to four-family residences.
Gloversville Federal will generally lend up to 97% of the lesser of the
sales price or appraised value of the security property on owner occupied one-
to four-family loans. For loans exceeding an 80% loan-to-value ratio, the
Association requires private mortgage insurance in amounts intended to reduce
the Association's exposure to 80% or less. Borrowers are required to purchase
the mortgage insurance protection provided by the FHA for FHA mortgages where
loan-to-value ratios exceed 80%. The maximum loan-to-value ratio for non-owner
occupied one-to four-family residences is 75% (65% where there is a cash out
refinancing). For mortgages on second homes and vacation homes, the
loan-to-value ratio cannot exceed 80% for one-family residences and 75% for two-
to four-family residences. Mortgages on non-owner occupied second homes and
vacation
56
<PAGE>
homes cannot exceed 70% loan-to-value and non-owner occupied cash out refinances
for non-conforming second homes and vacation homes cannot exceed 50%
loan-to-value.
In underwriting one- to four-family residential real estate loans, the
Association currently evaluates the borrower's ability to make principal,
interest, and escrow payments, and the value of the property that will secure
the loan.
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. Although the Association
currently originates mortgage loans only for its portfolio, the Association's
loans are now generally underwritten according to secondary market standards.
While the Association seeks to originate most of its one- to
four-family residential loans in amounts which are less than or equal to the
applicable FHLMC maximum, the Association may, on an exception basis, make one-
to four-family residential loans in amounts in excess of such maximum.
The Association's residential mortgage loans customarily include
due-on-sale clauses giving the Association the right to declare the loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the property subject to the mortgage.
Multi-family and Commercial Real Estate Lending. In order to increase
the yield of its loan portfolio and to complement residential lending
opportunities, since fiscal 1995, the Association has significantly increased
its originations of permanent multi-family and commercial real estate loans
secured by properties in its primary market area. At September 30, 1997, the
Association had multi-family and commercial real estate loans totaling $8.0
million, or 15.5% of the Association's total loan portfolio. See Management's
Discussion and Analysis of Financial Condition and Results of Operations - Asset
Liability Management."
The Association's multi-family and commercial real estate loan
portfolio includes loans secured by apartment buildings, office buildings,
warehouses and other income producing properties located in its market area. In
addition, at September 30, 1997, the Association had $891,000 of commercial
construction loans.
The Association's multi-family and commercial real estate loans
generally carry a maximum term of 20 years and, more often than not, have
interest rates which are fixed for three to five years and adjust periodically
thereafter.
The Association's multi-family and commercial real estate loans are
generally made in amounts up to 75% of the lesser of the appraised value or the
purchase price of the property, with a projected debt service coverage ratio
generally of at least 120%. The Association's current multi-family and
commercial real estate loan originations generally include operating covenants
requiring the borrower to maintain specified debt coverage, liquidity and other
ratios, although most multi-family and commercial real estate loans originated
in prior years did not have such operating covenants, which could reduce the
Association's leverage in the event of delinquency.
57
<PAGE>
Appraisals on properties securing multi-family and commercial real
estate loans are performed by independent appraisers designated by the
Association at the time the loan is made. All appraisals on multi-family and
commercial real estate loans are reviewed by the Association's management. In
addition, the Association's underwriting procedures require verification of the
borrower's credit history, income and financial statements, banking
relationships, references and income projections for the property. Where
feasible, the Association seeks to obtain personal guarantees on these loans and
key man life insurance on individuals critical to the success of the borrower's
business.
58
<PAGE>
Set forth below is a summary of the Association's multi-family and
commercial real estate loans which had an outstanding principal balance in
excess of $300,000 at September 30, 1997.
<TABLE>
<CAPTION>
Date of Collateral Interest Rate Maturity Personal Balance at
Origination Description Terms Date Guarantee September 30, 1997 Status
----------- ----------- ----- ---- --------- ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
July 1996 Warehouse located Interest rate July 2016 Yes 538,955 Current; $250,000 second lien on
in Saratoga County. adjusts every same collateral.
five years.
July 1996 Office building Interest rate July 2016 Yes 526,889 Current; new business commenced
located in Saratoga adjusts every March 1997; building fully
County. year. occupied with assignment of leases
to Association.
April 1997 Land located in Interest rate April 2017 Yes 448,848 Current; $760,000 mortgage on
Albany County. adjusts every building subordinated to
year. Association loan; direct
assignment of monthly rental
income, which is double amount
required for debt service.
July 1995 Trooper barracks in Interest rate July 2010 Yes 438,625 Current; loan represents a
Saratoga County adjusts every refinance of subject properties to
and 12 unit five years fund new venture which is not
residential complex subject to the Association's lien.
in Saratoga County
October 1996 Restaurant/marina Interest rate October 2008 Yes 432,179 Current; borrower prepaying
located in Fulton adjusts every principle; exclusive location on
County five years major lake.
June 1997 Warehouse/office Fixed interest Construction: Yes 411,000 Current; SBA second mortgage
located in Saratoga during June 1998 anticipated to reduce Association's
County and construction; Permanent: exposure $205,000 by the end of
warehouse in interest rate June 2018 March 1998.
Albany county adjusts every
three years,
thereafter
April 1996 3 story, 16 unit Interest rate April 2016 Yes 390,394 Current; "Of concern" due to
apartment complex adjusts every inadequate cash flow by subject
in Saratoga County five years property.
May 1996 Newly renovated Fixed Interest Construction: Yes 383,786 Current, "Of concern" due to
takeout restaurant during May 1997 collateral value concern and new
in Saratoga County construction, Permanent: venture; SBA second mortgage
interest rate May 2017 anticipated to reduce Association's
adjusts every exposure $160,000 by the end of
year thereafter March 1998.
January 1971 25+ residential Interest rate April 2003 No 363,200 Repaid in December 1997.
rental units located fixed
in Saratoga County
April 1994 Three residential Interest rate is April 2009 Yes 339,922 Current; full occupancy at
rental units located fixed September 30, 1997.
in Saratoga County
</TABLE>
59
<PAGE>
Multi-family and commercial real estate loans are generally believed to
present a higher level of risk than loans secured by one- to four-family
residences. This greater risk is due to several factors, including the
concentration of principal in a limited number of loans and borrowers, the
effects of general economic conditions (which are not particularly favorable in
much of the Association's market areas) on income producing properties and the
increased difficulty of evaluating and monitoring these types of loans.
Furthermore, the repayment of loans secured by multi-family and commercial real
estate is dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. In addition, the Association's multi-family and commercial real estate
and commercial business loans, particularly those originated when the
Association first expanded this product line, may be subject to additional risks
related to the Association's relative inexperience with this type of lending.
While the Association has not experienced any significant losses on its
multi-family and commercial real estate loans in recent years, this portfolio is
relatively unseasoned and no assurance can be given that it will continue to
perform as it has, especially based on the Association's intention to continue
to emphasize growth in this portfolio in the future. As a result of the above as
well as financial concerns with respect to the borrowers, the Association rated
$1.1 million of its multi-family and commercial real estate loans as "of
concern" as of September 30, 1997. See " - Market Area."
One- to Four-Family Residential Construction Lending. The Association
offers residential single family construction loans to persons who intend to
occupy the property upon completion of construction. Upon completion of
construction, these loans are automatically converted into permanent residential
mortgage loans and are classified as such. The proceeds of the construction loan
are advanced in stages on a percentage of completion basis as construction
progresses. The loans generally provide for a construction period of not more
than twelve months during which the borrower pays interest only. Loan terms and
underwriting criteria for construction loans are consistent with those for one-
to four-family residential mortgage loans. In recognition of the risks involved
with such loans, the Association carefully monitors construction through regular
inspections and the borrower must qualify for the permanent mortgage loan before
the construction loan is made. At September 30, 1997, the Association had
$539,000 in construction loans outstanding, or 1.1% of gross loans. There were
no nonperforming construction loans at September 30, 1997.
Construction lending is generally considered to involve a higher level
of credit risk than permanent one- to four-family residential lending. The
nature of these loans is such that they are more difficult to evaluate and
monitor. The Association's risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value upon
completion of the project and the essential cost (including interest) of the
project. If the cost estimate proves to be inaccurate, the Association may be
required to advance funds beyond the amount originally committed in order to
permit completion of the project.
Commercial Business Lending. Subject to the restrictions contained in
federal laws and regulations, the Association is authorized to make secured and
unsecured commercial business loans. At September 30, 1997, $1.4 million, or
2.8%, of the Association's total loan portfolio consisted of commercial business
loans. The Association has recently begun to emphasize commercial business
60
<PAGE>
lending to qualified individuals as part of its policy of servicing customers
and consolidating banking relationships, and also to further its asset/liability
management goals.
The Association's commercial business loans are generally structured as
short-term time notes and term loans. Time notes generally have terms of less
than one year to accommodate seasonal peaks and valleys in the borrower's
business cycle. Commercial business term loans generally have terms of ten years
or less and, more often than not, have adjustable interest rates.
The Association's commercial business loans generally are secured by
equipment, machinery or other corporate assets including real estate and
inventory. Like the multi-family and commercial real estate loans discussed
above, the Association's current commercial business loan originations generally
have covenants requiring the borrowers to maintain certain financial ratios,
although many loans originated in past years do not have such covenants, which
could reduce the Association's leverage in the event of a credit deterioration.
In addition, the Association generally obtains personal guarantees from the
principals of the borrower with respect to all commercial business loans.
Generally, the Association's commercial business lending has been limited to
borrowers headquartered, or doing business, in the Association's market area.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real property whose value tends to be
more easily ascertainable, commercial business 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 business loans may be substantially dependent on
the success of the business itself, which in turn may be dependent on the local
economy, which is currently not performing at a high level. Further, the
collateral securing the loans, if any, may depreciate over time, may be
difficult to appraise and may fluctuate in value based on the success of the
business. In addition, commercial business lending generally requires
substantially greater oversight efforts compared to residential real estate
lending. At September 30, 1997, all commercial business loans were performing
and none were rated "of concern."
Set forth below is a description of the Association's only commercial
business loan which had an outstanding principal balance in excess of $300,000
at September 30, 1997.
<TABLE>
<CAPTION>
Date of Collateral Interest Rate Maturity Personal Balance at
Origination Description Terms Date Guarantee September 30, 1997 Status
- ----------- ----------- ----- ---- --------- ------------------ ------
<S> <C> <C> <C> <C> <C> <C>
May 1997 11 fully equipped Interest adjusts May 1998 Yes $352,198 Current; insurance on vehicles
1998 29-foot daily based on with Association as beneficiary;
Coachman established quarterly inspections performed
Pathfinder RVs index on collateral by Association
</TABLE>
Consumer Lending. Management believes that offering consumer loan
products helps to expand the Association's customer base and to create stronger
ties to its existing customer base. In addition, because consumer loans
generally have shorter terms to maturity and carry higher rates of interest than
do residential mortgage loans, they can be valuable asset/liability management
tools. The Association originates a variety of different types of consumer
loans, including home equity
61
<PAGE>
loans and lines of credit, automobile and deposit account loans for household
and personal purposes. The Association has focused its recent consumer lending
activities on home equity lending. At September 30, 1997 consumer loans totaled
$4.4 million or 8.7% of total loans outstanding.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The Association's
consumer loans are made with fixed or adjustable interest rates, with terms of
up to 25 years.
The Association has offered home equity loans since fiscal year 1994.
Home equity loans are secured by second mortgages on one- to four-family
owner-occupied residences. The Association's home equity loans are written so
that the total commitment amount, when combined with the balance of the first
mortgage lien, may not exceed 80% of the appraised value of the property or
$50,000. These loans are written with fixed terms of up to 15 years and carry
fixed interest rates. Home equity lines of credit ("HELOCS") are written so that
the total commitment amount, when combined with the balance of the first
mortgage lien, may not exceed 80% of the appraised value of the property, with a
maximum of $100,000. HELOCs are written for terms up to 25 years (with the first
5 year period requiring only interest payments and the last 20 year period being
fully amortized) and carry a prime-based floating rate of interest after the
first year. At September 30, 1997, the Association's home equity loans and
HELOCS totaled $3.4 million, or 6.6% of the Association's total loan portfolio.
The Association also makes short-term, fixed-rate and adjustable-rate
consumer loans either unsecured or secured by savings and time accounts,
automobiles, or other consumer assets. These loans generally have an average
term of not more than five years and have interest rates higher than mortgage
loans. The shorter terms to maturity are helpful in managing the Association's
interest rate risk.
The underwriting standards employed by the Association for consumer
loans include a determination of the applicant's payment history on other debts
and ability to meet existing obligations and payments on the proposed loan.
Although creditworthiness of the applicant is of primary consideration, the
underwriting process also includes a comparison of the value of the security, if
any, in relation to the proposed loan amount. Consumer loans may entail greater
credit risk than do residential mortgage loans, particularly in the case of
consumer loans which are unsecured or are secured by rapidly depreciable assets,
such as automobiles. In such cases, any repossessed collateral for a defaulted
consumer loan may not provide an adequate source of repayment of the outstanding
loan balance as a result of the greater likelihood of damage, loss or
depreciation. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
affected by adverse personal circumstances. Furthermore, the application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans.
Originations of Loans
The lending activities of the Association are subject to written,
non-discriminatory, underwriting standards and loan origination procedures
established by the Association's Board of Directors and management. Loan
originations come from a number of sources. Residential loan
62
<PAGE>
originations can be attributed to depositors, retail customers, telephone
inquiries, advertising, the efforts of the Association's loan officers and
referrals from other borrowers, real estate brokers and builders. The
Association originates loans through its own efforts and does not compensate
mortgage brokers, mortgage bankers or other loan finders. However the
Association frequently obtains multi-family, commercial real estate and
commercial business loans through commercial loan brokers paid by the borrower.
Beginning with fiscal 1998, an Association employee will be assigned the sole
task of originating residential mortgages and home equity loans.
All loans held in portfolio at September 30, 1997 were originated by
the Association. The Association does not purchase whole loans. There have been
no loan sales made by the Association, and it is the Association's intention
that all loans originated be held in portfolio.
While the Association originates both fixed and adjustable rate loans,
its ability to originate loans is dependent upon the relative customer demand
for loans in its market. Demand is affected by the local economy and the
interest rate environment. From time to time, in order to supplement loan demand
in the Association's market area, the Association has acquired mortgage-backed
securities which are held in the "available for sale" portfolio. See "-
Investment Activities -Mortgage-Backed Securities" and Note 2 of the Notes to
Financial Statements.
63
<PAGE>
The following table shows the loan origination and repayment activities
of the Association for the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
-------------------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Fixed rate:
Real estate: One- to four-family......................... $1,577 $2,140 $1,900
Multi-family and commercial................. 978 955 923
One- to four-family construction............ 683 428 447
Non-real estate:Commercial business......................... 436 76 218
Home equity................................. 215 865 14
Other consumer.............................. 348 449 257
------- ------- ---------
Total fixed rate............................ 4,237 4,913 3,759
------ ------ --------
Adjustable rate:
Real estate: One- to four-family......................... 24 243 2,409
Multi-family and commercial................. 3,115 1,795 112
One- to four-family construction............ 40 125 527
Non-real estate: Commercial business........................ 456 1,078 1,493
Home equity................................. 773 530 1,906
Other consumer.............................. 206 97 4
------- -------- -----------
Total adjustable rate....................... 4,614 3,868 6,451
------ ------ --------
Total loans originated...................... 8,851 8,781 10,210
Principal repayments.......................................... (7,670) (6,173) (7,315)
Decrease in other terms, net.................................. (977) (552) (391)
------- ------- ---------
Net increase................................ $ 204 $2,056 $ 2,504
======= ====== =======
</TABLE>
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Association attempts to cause the deficiency to be cured
by contacting the borrower. Late notices are generally sent when a payment on a
residential or consumer loan is more than 15 days past due and a late charge is
generally assessed at that time. For multi-family and commercial real estate
loans and commercial business loans, the Association sends a late notice on the
11th day after payment is due and a late fee is assessed at that time. For
residential and consumer loans, the Association's asset review officer attempts
to contact personally any borrower who is more than 30 days past due. For
multi-family and commercial real estate loans and commercial business loans, the
Vice President of Lending telephones the borrower when payment is 15 days
delinquent. For all loans past due 60 days or more principal and interest, and,
beginning in July 1997, for all loans where the borrower is delinquent in the
payment of real estate taxes regardless of payment status, the asset review
officer or the Vice President of Lending contacts the borrower on a regular
basis to seek to cure the delinquency. If a loan becomes past due 90 days, the
Association refers the matter to an attorney, who first seeks to obtain payment
without litigation and, if unsuccessful, generally commences a foreclosure
action and other appropriate legal action to collect the loan. The Association
also seeks to recover any shortfall by pursuing the borrower on the note. A
foreclosure
64
<PAGE>
action, if the default is not cured, typically leads to a judicial sale of the
mortgaged real estate. The judicial sale is normally delayed if the borrower
files a bankruptcy petition because the foreclosure action cannot be continued
unless the Association first obtains relief from the automatic stay provided by
the Bankruptcy Code.
If the Association acquires the mortgaged property at foreclosure sale
or accepts a voluntary deed in lieu of foreclosure, the acquired property is
then classified as OREO until it is sold. When OREO is acquired, the property is
recorded at the lower of cost (defined as fair value of the foreclosed property
at initial foreclosure) or fair value of the asset acquired less estimated costs
to sell the property. The shortfall (if any) between the fair value of the
property and the carrying value of the loan is charged to the allowance for loan
losses. The Association also seeks to recover any shortfall by pursuing the
borrower on the note. Thereafter, changes in the value of the OREO are taken as
current expenses.
The Association is permitted to finance sales of OREO by "loans to
facilitate," which may involve a lower down payment or a longer repayment term
or other more favorable features than generally would be granted under the
Association's underwriting guidelines. At September 30, 1997, there was one
"loan to facilitate" outstanding for $128,000 which was classified as
substandard and non-accruing at September 30, 1997, as the new borrower was more
than 90 days delinquent as to payments. The "loan to facilitate" was originated
in December 1993 and has been classified as substandard since that time.
It is the Association's policy to discontinue accruing interest on a
loan when it becomes 90 days or more delinquent, regardless of the collateral
supporting the loan or sooner if management believes it is prudent to do so.
Once the accrual of interest is discontinued, the Association generally records
interest as and when received until the loan is restored to accruing status. The
loan generally remains on nonaccrual until such time that the borrower has
repaid all delinquency and has maintained the loan in a current status for at
least three consecutive months, provided management concludes that full payment
of principal and interest is reasonably assured in the future.
65
<PAGE>
The following table sets forth the Association's loan delinquencies as
to principal and interest payments by type, by number, amount and by percentage
of type at September 30, 1997.
<TABLE>
<CAPTION>
Loans Delinquencies at September 30, 1997
-------------------------------------------------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
-------------------------- --------------------------------- ------------------------------------
% of % of % of
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family............... 5 $215 0.58% 17 $993 2.69% 22 $1,208 3.27
Multi-family and commercial....... -- -- -- -- -- -- -- -- --
One- to four-family construction.. -- -- -- -- -- -- -- -- --
Other:
Commercial business............... -- -- -- -- -- -- -- -- --
Home equity -- -- -- 2 54 1.60 2 54 1.60
Other consumer.................... 2 18 1.63 -- -- -- 2 18 1.63
---- ----- ---- ----- ------ ---- -------
Total........................... 7 $233 0.45% 19 $1,047 2.04% 26 $1,280 2.49%
== ==== == ====== == ======
</TABLE>
66
<PAGE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. The Association classifies all of its loans monthly based on
delinquency status. Multi-family and commercial real estate and commercial
business loans are reviewed annually regardless of delinquency status. There are
three classifications for problem assets: Substandard, Doubtful and Loss.
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the Association will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the weaknesses of
Substandard assets, with the additional characteristics that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS. As of September 30, 1997, the Association had $2.6 million
of loans secured by one-to four-family residential property classified as
substandard. At that time, the Association also had $1.1 million of loans
secured by one- to four-family residential properties and $1.1 million of loans
secured by commercial real estate classified as "special mention." As of the
same date, the Association had no assets classified as doubtful or loss.
Non-Performing Assets. The table below sets forth the amounts and
categories of Association's non-performing assets. Foreclosed assets include
assets acquired in settlement of loans.
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Non-accruing loans:
<S> <C> <C> <C> <C> <C>
One- to four-family....................... $3,730(1) $2,212 $2,576 $3,438 $2,034
Home equity............................... 63 -- -- -- --
Other consumer............................ -- -- 5 80 69
---------- --------- --------- --------- --------
Total non-performing loans(2)........ 3,793 2,212 2,581 3,518 2,103
Foreclosed assets:
One- to four-family...................... 313 70 182 334 507
-------- --------- -------- -------- --------
Total non-performing assets................. $4,106 $2,282 $2,763 $3,852 $2,610
====== ====== ====== ====== ======
Total non-performing assets as a
percentage of total assets................ 6.73% 3.74% 4.38% 5.53% 4.22%
===== ==== ==== ==== ====
</TABLE>
(1) Includes $2.7 million of restructured or rewritten loans as to which real
estate taxes were previously delinquent but which were not otherwise
delinquent.
(2) There are no loans past due greater than 90 days and accruing interest or
restructured loans accruing interest.
67
<PAGE>
For the year ended September 30, 1997 gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $343,000. The amount that was included in
interest income on such loans was $304,000.
At September 30, 1997, the Association's non-performing loans portfolio
consisted of 78 loans secured by one- to four-family residences located in the
Association's market area which totaled $3.8 million. Four of these loans were
secured solely by second mortgages while the remaining 74 loans were secured, at
a minimum, by a first mortgage on the collateral. At September 30, 1997, there
were seven one- to four-family properties held as OREO with a net carrying value
of $313,000. All of these OREO properties were either sold or under contract for
sale by December 31, 1997 without material loss.
As indicated under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Comparison of Operating Results
for the Years Ended September 30, 1997 and 1996 - Other Expense," as of the end
of fiscal 1996, the Association discovered that the real estate taxes were
delinquent on a number of its delinquent one- to four-family residential loans.
Since all such loans were already classified as non-performing, this information
did not result in a change in non-performing assets. However, in fiscal 1997,
the Association noted delinquent real estate taxes on a number of loans which
were not previously classified as non-performing. The Association contacted all
of the borrowers of such loans and, in cases where the taxes were not promptly
paid by the borrower, advanced funds for the payment of the taxes and rewrote
such loans to add the advanced funds to the loan principal and to include tax
escrow provisions. Such rewritten loans were classified as troubled debt
structurings where deemed appropriate based on the financial position of the
borrower. As of September 30, 1997, the Association's troubled debt
restructurings were $1.6 million and the other loans rewritten for delinquent
taxes were $1.1 million. While all such loans were classified as non-performing
at September 30, 1997, none were 90 days or more delinquent as of such date.
Since these loans were written at market interest rates, it is anticipated that,
provided that these loans continue to perform in accordance with their new
terms, they will become performing loans in fiscal 1998, generally after one
year of performance. All current originations by the Association provide for tax
escrows.
Other Loans of Concern. In addition to the non-performing assets set
forth in the table above, as of September 30, 1997, there were $1.1 million of
other loans, all of which were multi-family and commercial real estate or
commercial business loans, with respect to which known information about the
possible credit problems of the borrowers or the cash flows of the security
properties have caused management to have concerns as to the ability of the
borrowers to comply with present loan repayment terms and which may result in
the future inclusion of such items in the non-performing asset categories. While
none of these loans were 60 days or more delinquent as of the date hereof, weak
or negative cash flows, failure to attain budgeted income projections or
declines in collateral values have been the primary reasons which have caused
the Association to monitor such loans more carefully. Set forth below is a
description of each of the Association's loans of concern at September 30, 1997
which had a net book value in excess of $300,000.
Apartment Loan, Saratoga Springs. This Loan represents a $390,000
commercial real estate loan made to an S-Corp secured by a 3-story, 16 unit
apartment complex. Although this loan has experienced no delinquency since
originated in April 1996, the Association has classified it as "of
68
<PAGE>
concern" because of its declining cash flow. The loan is guaranteed by the
S-Corp's principal shareholder.
Takeout Restaurant, Saragota County. This $384,000 loan, originated in
September 1997, is classified as "of concern" due to concerns regarding sales
projections, collateral value and the start-up nature of the business. The
borrower paid 15% of the cost of renovations made to the takeout restaurant
directly from personal funds, and there is a $160,000 SBA second mortgage
commitment, the proceeds of which will reduce the Association's exposure, to be
funded the first quarter of calendar year 1998. The loan is current at September
30, 1997.
Other loans of concern at September 30, 1997 consisted of two
multi-family and commercial real estate loans totaling $318,000. All the other
loans of concern were current at September 30, 1997 but were classified because
of lower than expected debt service coverage. The Association's loans of concern
have been considered by management in conjunction with the analysis of the
adequacy of the allowance for loan losses.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to earnings based on the Association's evaluation of the
risk inherent in its entire loan portfolio. Such evaluation, which includes a
review of all loans for which full collectibility may not be reasonably assured,
considers the market value of the underlying collateral, growth and composition
of the loan portfolio, delinquency trends, adverse situations that may affect
the borrower's ability to repay, prevailing and projected economic conditions
and other factors that warrant recognition in providing for an adequate
allowance for loan losses.
While the Association believes that it uses the best information
available to determine the allowance for loan losses, unforeseen economic and
market conditions could result in adjustments to the allowance for loan losses,
and net earnings could be significantly affected, if circumstances differ
substantially from the assumptions used in making the final determination.
Management believes its allowance for loan losses is adequate at September 30,
1997; however, future adjustments could be necessary and net income could be
adversely affected if circumstances differ substantially from the assumptions
used in the determination of allowance for loan losses.
69
<PAGE>
The following table sets forth an analysis of the Association's
allowance for loan losses.
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period....................... $1,251 $ 779 $ 856 $ 875 $ 258
Charge-offs:
One- to four-family................................ (417) (218) (160) (115) (199)
Commercial business................................ (7) (4) -- -- --
Home equity........................................ (10) -- -- -- --
Other consumer..................................... (32) (32) (50) (142) (70)
------- ------- ------ ------ ------
Total charge-offs................................ (466) (254) (210) (257) (269)
------ ------ ----- ------ -----
Recoveries:
One- to four-family................................ 21 3 1 13 34
Other consumer..................................... 15 9 3 14 9
------ --------- ------ ------ ------
Total recoveries................................ 36 12 4 27 43
------- -------- ------ ------ -----
Net charge-offs...................................... (430) (242) (206) (230) (226)
Provisions charged to operations..................... 792 714 129 211 843
------- -------- ----- ----- -----
Balance at end of period............................. $1,613 $1,251 $779 $856 $875
====== ====== ==== ==== ====
Ratio of net charge-offs during the period to
average gross loans outstanding during the period.. 0.84% 0.49% 0.42% 0.53% 0.52%
==== ==== ==== ==== ====
Ratio of net charge-offs during the period to
average non-performing assets...................... 13.46% 9.64% 6.23% 7.11% 7.16%
===== ==== ==== ==== ====
Ratio of allowance to gross loans outstanding at
end of period...................................... 3.14% 2.45% 1.58% 1.83% 2.08%
==== ==== ==== ==== ====
Allowance as a percentage of non-performing loans
(end of period).................................... 42.53% 56.53% 30.20% 24.34% 41.63%
===== ===== ===== ===== =====
</TABLE>
70
<PAGE>
Allocation of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance for loan
losses by category as prepared by the Association. This allocation is based on
management's assessment as of a given point in time of the risk characteristics
of each of the component parts of the total loan portfolio and is subject to
changes as and when the risk factors of each such component part change. The
allocation is not indicative of either the specific amounts or the loan
categories in which future charge-offs maybe taken, nor should it be taken as an
indicator of future loss trends. The allocation of the allowance to each
category does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------------------------- --------------------------------- -----------------------------------
Percent Percent Percent
of loans of loans of loans
Amount Loan in Each Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
------------ ---------- ---------- ----------- ----------- --------- ----------- ---------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family......... $ 932 $36,891 71.92% $ 770 $40,262 78.80% $ 592 $42,578 86.41%
Multi-family and commercial. 238 7,950 15.50 93 4,635 9.07 52 2,579 5.23
One- to four-family
construction.............. 3 539 1.05 4 938 1.84 3 742 1.51
Commercial business......... 43 1,422 2.77 27 1,230 2.41 4 185 .38
Home equity................. 36 3,379 6.59 19 2,869 5.62 9 2,265 4.60
Other consumer.............. 87 1,111 2.17 84 1,154 2.26 72 920 1.87
Unallocated................. 274 -- --- 254 -- -- 47 -- --
-------- -------- -------- -------- -------- ------- ------- -------- ---------
Total.................. $1,613 $51,292 100.00% $1,251 $51,088 100.00% $ 779 $49,269 100.00%
====== ======= ====== ====== ======= ====== ===== ======= ======
</TABLE>
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------------------------
1994 1993
-------------------------------------- --------------------------------------
Percent Percent
of loans of loans
Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans
------------ ---------- -------------- ----------- ----------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family......... $706 $42,973 91.89% $685 $40,633 96.64%
Multi-family and commercial. 18 878 1.88 -- -- --
One- to four-family
construction.............. 3 701 1.50 1 139 .33
Commercial business......... -- -- 2.89 -- -- --
Home equity................. 5 1,352 --- -- -- --
Other consumer.............. 108 861 1.84 101 1,276 3.03
Unallocated................. 16 -- --- 88 -- --
------ -------- -------- ----- --------- -------
Total.................. $856 $46,765 100.00% $875 $42,048 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
71
<PAGE>
Investment Activities
Generally, the investment policy of Gloversville Federal is to invest
funds among categories of investments and maturities based upon the
Association's asset/liability management policies, investment quality, loan and
deposit volume, liquidity needs and performance objectives. The Association's
securities must be classified into any of three categories: trading, held to
maturity and available for sale. Securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading
securities and are reported at fair value with unrealized gains and losses
included in trading account activities in the statement of operations.
Securities that Gloversville Federal has the positive intent and ability to hold
to maturity are classified as held to maturity and reported at amortized cost.
All other securities not classified as trading or held to maturity are
classified as available for sale. At September 30, 1997, Gloversville Federal
had no securities which were classified as trading or held to maturity.
Available for sale securities are reported at fair value with unrealized gains
and losses included, on an after-tax basis, in a separate component of total
equity. At September 30, 1997, all of the Association's mortgage-backed and
other securities (totaling $7.0 million, including FHLB stock) were classified
as available for sale.
General. Gloversville Federal must maintain minimum levels of
investments and other assets that qualify as liquid assets under OTS
regulations. Liquidity may increase or decrease depending upon the availability
of funds and comparative yields on investments in relation to the return on
loans. At September 30, 1997, Gloversville Federal's liquidity ratio for
regulatory purposes was 10.3%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Asset/Liability Management" and
"- Liquidity and Capital Resources."
72
<PAGE>
The following table sets forth the composition of the Association's
securities, and other earning assets at the dates indicated.
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ----------------------------- ----------------------------
Amortized % of Amortized % of Amortized % of
Cost Total Cost Total Cost Total
---- ----- ---- ----- ---- -----
(Dollars in Thousands)
Securities held to maturity:
<S> <C> <C> <C> <C> <C> <C>
U.S. Government agency obligations... $ -- --% $ -- --% $4,500 100.00%
---------- ---------- ---------- --------- ------ -------
Total securities held to maturity... -- -- -- -- 4,500 100.00
---------- ---------- ---------- --------- ------- -------
Securities available for sale:
US Government agency obligations...... 2,998 42.50 2,998 39.43 3,696 72.00
------ ------- ------- -------- ------- --------
Mortgage-backed securities
FNMA............................... 753 10.66 766 10.07 -- --
FHLMC.............................. 2,843 40.30 3,379 44.44 993 19.35
------ ------- ------- -------- -------- --------
Total mortgage-backed securities
available for sale............ 3,596 50.96 4,145 54.51 993 19.35
------ ------- ------- -------- -------- --------
FHLB Stock...................... 461 6.54 461 6.06 444 8.65
------- -------- -------- --------- -------- ---------
Total securities available for sale..... $7,054 100.00% $7,604 100.00% $5,133 100.00%
====== ====== ====== ====== ====== =======
Average remaining contractual life
of securities: 10.88 years 12.03 years 1.95 years
=========== =========== ==========
Other interest-earning assets:
Term deposit with FHLB................ $ -- -- $ -- -- $ 1,000 37.04
Federal funds sold.................... -- -- 100 100.00 1,700 62.96
-------------- ------------ ------------ ----------- ------------ ----------
Total............................... $ -- --% $ 100 100.00% $ 2,700 100.00%
============= ============ =========== =========== =========== =========
</TABLE>
73
<PAGE>
The following table sets forth the contractual maturities of the
Association's securities (excluding FHLB stock) at September 30, 1997.
<TABLE>
<CAPTION>
At September 30, 1997
------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Securities
----------- ----------- ----------- ------------ -----------------------
Amortized Amortized Amortized Amortized Amortized Market
Cost Cost Cost Cost Cost Value
---- ---- ---- ---- ---- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government agency obligations................ $ -- $2,000 $ -- $ 998 $2,998 $2,994
Mortgage-backed securities........................ 694 998 -- 1,904 3,596 3,562
----- -------- ---- ------ ------ ------
Total securities available for sale............... $694 $2,998 $ -- $2,902 $6,594 $6,556
==== ====== ==== ====== ====== ======
Weighted average yield............................ 5.90% 5.93% --% 6.65% 6.14%
</TABLE>
Mortgage-Backed Securities. In order to supplement its lending
activities and achieve its asset/liability management goals, the Association
from time to time invests in mortgage-backed securities. As of September 30,
1997, all of the mortgage-backed securities owned by the Association were
issued, insured or guaranteed either directly or indirectly by a federal agency.
However, it should be noted that, while a (direct or indirect) federal guarantee
may indicate a high degree of protection against default, they do not indicate
that the securities will be protected from declines in value based on changes in
interest rates or prepayment speeds.
The Association primarily invests in fixed rate mortgage-backed
securities with lives of seven years or less and variable rate mortgage-backed
securities with rate reset intervals not to exceed three years and average lives
of seven years or less. The average lives of the Association's mortgage-backed
securities are determined by reference to industry standard tables which take
into account historical prepayments on mortgage loans with specified interest
rates and terms to maturity. At September 30, 1997, the Association's
mortgage-backed securities portfolio totaled $3.6 million. At September 30,
1997, all of the Association's mortgage-backed securities were issued or
guaranteed by FHLMC or FNMA and all were pass- through securities. On such date,
$1.7 million of the mortgage-backed securities had fixed interest rates with a
weighted average rate of 5.79% and a weighted average life of 2.3 years. The
remaining $1.9 million of mortgage-backed securities had adjustable rates with a
weighted average rate of 6.33% and weighted average period to repricing of one
year.
Mortgage-backed securities generally have higher yields than investment
securities because of the longer terms and the uncertainties associated with the
timing of mortgage repayments. In addition, mortgage-backed securities are more
liquid than individual mortgage loans and may be used to collateralize
borrowings of the Association. However, these securities generally yield less
than the loans that underlie them because of the cost of payment guarantees or
credit enhancements that reduce credit risk. For information regarding the
Association's mortgage-backed securities portfolio, see Note 2 of the Notes to
the Financial Statements.
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<PAGE>
To assess price volatility, the Federal Financial Institutions
Examination Council ("FFIEC") adopted a policy in 1992 which requires an annual
"stress" test of mortgage derivative securities. This policy, which has been
adopted by the OTS, requires the Association to annually test its CMOs and other
mortgage-related securities to determine whether they are high-risk or
nonhigh-risk securities. Mortgage derivative products with an average life or
price volatility in excess of a benchmark 30-year, mortgage-backed, pass-through
security are considered high-risk mortgage securities. Under the policy, savings
institutions may generally only invest in low-risk mortgage securities in order
to reduce interest rate risk. In addition, all high-risk mortgage securities
acquired after February 9, 1992 which are classified as high risk at the time of
purchase must be carried in the institution's trading account or as securities
available for sale. At September 30, 1997, none of the Association's
mortgage-backed securities were classified as "high-risk."
As of September 30, 1997, the Association did not have any
mortgage-backed securities of a single issuer in excess of 10% of retained
earnings except for FNMA and FHLMC issues, amounting to $752,000 and $2.8
million, respectively.
75
<PAGE>
The following table shows mortgage-backed securities purchase, sale and
repayment activities of the Association for the periods indicated.
Years Ended September 30,
---------------------------------------
1997 1996 1995
---------- ------------- --------------
(In Thousands)
Purchases:
Adjustable-rate.................. $ -- $2,281 $ --
Fixed-rate....................... -- 1,301 993
--------- ------ ------
Total purchases............... -- 3,582 993
Sales:
Adjustable-rate.................. -- -- --
Fixed-rate....................... -- -- --
--------- -------- --------
Total sales.............. -- -- --
Principal repayments............. (551) (431) --
Discount/premium
Accretion/amortization......... 1 2 --
Fair value net change............ 67 (101) --
------- ----- --------
Net increase (decrease)... $ (483) $3,052 $993
===== ====== ====
The Association will evaluate mortgage-backed securities purchases in
the future based on its asset/liability objectives, market conditions and
alternative investment opportunities.
Investment Securities. Federally chartered savings institutions have
the authority to invest in various types of liquid assets, including United
States Treasury obligations, securities of various federal agencies, certain
certificates of deposit of insured banks and savings institutions, certain
bankers' acceptances, repurchase agreements and federal funds. Subject to
various restrictions, federally chartered savings institutions may also invest
their assets in commercial paper, investment grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally chartered
savings institution is otherwise authorized to make directly.
In order to complement its lending and mortgage-backed securities
investment activities and to increase its holdings of short and medium term
assets, the Association invests in liquidity investments and in high-quality
investments, such as U.S. Treasury and agency obligations. At September 30,
1997, the Association's securities portfolio totaled $3.0 million. At September
30, 1997, the Association did not own any investment securities of a single
issuer which exceeded 10% of the Association's retained earnings, other than
federal agency obligations. See Note 2 of the Notes to the Financial Statements
for additional information regarding the Association's securities portfolio.
76
<PAGE>
Sources of Funds
General. The Association's primary source of funds are deposits. In
addition, the Association derives funds for loans and investments from loan and
security repayments and prepayments, from cash flows from operations and, to a
lesser extent, from borrowings. Scheduled payments on loans and mortgage-backed
and investment securities are a relatively stable source of funds, while savings
inflows and outflows and loan and mortgage-backed and investment securities
prepayments are significantly influenced by general interest rates and money
market conditions. Borrowings are occasionally used to compensate for reductions
in other sources of funds and to take advantage of lower funding costs that
better match the Association's short-term needs.
Deposits. The Association offers a variety of deposit programs to its
customers, including money market deposit accounts, passbook and statement
savings accounts, NOW accounts, checking accounts and time deposits. Deposit
account terms vary according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other factors. The
Association's deposits are obtained predominantly from its Fulton and Saratoga
County market area. The Association relies primarily on customer service and
long-standing relationships with customers to attract and retain deposits;
however, market interest rates and rates offered by competing financial
institutions significantly affect the Association's ability to attract and
retain deposits. The Association does not generally pay premium rates for time
deposits in excess of $100,000, and for the last three years, the Association
generally has not used brokers to obtain deposits.
The Association prices its deposit offerings based upon market and
competitive conditions in its market area. Since fiscal 1995, the Association
has attempted to build core deposits by focusing its marketing efforts in money
market accounts. During the same period, the Association introduced improved
non-time deposit products, such as statement savings, tiered money market
accounts with checking and commercial checking accounts. Finally, in an effort
to reduce its cost of funds, over the same period of time, the Association has
priced its time deposit accounts less aggressively.
The following table indicates the amount of the Association's time
deposit and other deposits by time remaining until maturity as of September 30,
1997.
<TABLE>
<CAPTION>
Maturity
----------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------------ ------------ ----------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Time deposits less than $100,00 $ 8,552 $3,761 $8,697 $4,512 $25,522
Time deposits $100,000 or more 1,753 432 100 208 2,493
------- ------- -------- ------- --------
Total time deposits $10,305 $4,193 $8,797 $4,720 $28,015
======= ====== ====== ====== =======
</TABLE>
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<PAGE>
The following table sets forth the deposit flows at the Association
during the periods indicated.
Year Ended September 30,
-------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
Opening balance............... $ 55,716 $ 57,866 $ 64,703
Deposits...................... 143,875 116,344 87,068
Withdrawals................... (145,899) (120,910) (96,432)
Interest credited............. 2,425 2,416 2,527
----------- ----------- ----------
Ending balance.............. $ 56,117 $ 55,716 $ 57,866
========== ========= ========
Net increase (decrease)....... $ 401 $ (2,150) $ (6,837)
=========== =========== =========
Percent increase (decrease)... 0.72% (3.72)% (10.57)%
==== ===== ======
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<PAGE>
The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by the Association as of the dates
indicated.
<TABLE>
<CAPTION>
At September 30,
-------------------------------------------------------------------
1997 1996 1995
--------------------- ---------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Transaction and savings accounts
- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Passbook and statement savings ....................... $12,004 21.40% $13,140 23.58% $13,833 23.90%
Demand and NOW accounts .............................. 5,148 9.17 5,174 9.29 4,374 7.56
Money market accounts ................................ 10,950 19.51 10,392 18.65 5,709 9.87
------- ------ ------- ------ ------- ------
Total transaction and savings accounts ............... 28,102 50.08 28,706 51.52 23,916 41.33
------- ------ ------- ------ ------- ------
Time Deposits
- -------------
Under 4.00% .......................................... 3 0.01 -- -- 48 0.08
4.00 - 4.99% ......................................... 3,994 7.12 11,357 20.38 4,685 8.10
5.00 - 5.99% ......................................... 21,942 39.10 11,101 19.92 18,923 32.70
6.00 - 6.99% ......................................... 2,046 3.64 4,525 8.12 10,219 17.66
7.00 - 7.99% ......................................... -- -- -- -- 50 0.09
8.00 - and over ...................................... 30 0.05 27 0.05 25 0.04
------- ------ ------- ------ ------- ------
Total time deposits .................................. 28,015 49.92 27,010 48.48 33,950 58.67
------- ------ ------- ------ ------- ------
Total deposits ....................................... $56,117 100.00% $55,716 100.00% $57,866 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
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<PAGE>
The following table shows rate and maturity information for the
Association's time deposits as of September 30, 1997.
<TABLE>
<CAPTION>
Under 4.00 - 5.00 - 6.00 - 7.00 - 8.00 - Percent
4.00% 4.99% 5.99% 6.99% 7.99% 8.99% Total of Total
----- ----- ----- ----- ----- ----- ----- --------
(Dollars in Thousands)
Time deposit accounts maturing
in quarter ending:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997............ $ -- $2,504 $ 7,287 $ 514 $-- $ -- $10,305 36.78%
March 31, 1998............... 3 1,485 2,278 427 -- -- 4,193 14.97
June 30, 1998................ -- 5 3,236 100 -- -- 3,341 11.93
September 30, 1998........... -- -- 5,440 16 -- -- 5,456 19.48
December 31, 1998............ -- -- 1,180 92 -- -- 1,272 4.54
March 31, 1999............... -- -- 882 -- -- -- 882 3.15
June 30, 1999................ -- -- 689 -- -- -- 689 2.46
September 30, 1999........... -- -- 418 -- -- -- 418 1.49
December 31, 1999............ -- -- 44 247 -- -- 291 1.04
March 31, 2000............... -- -- 84 142 -- -- 226 0.81
June 30, 2000................ -- -- 40 173 -- -- 213 0.76
September 30, 2000........... -- -- -- 301 -- -- 301 1.07
December 31, 2000............ -- -- 85 34 -- -- 119 0.42
Thereafter................... -- -- 279 -- -- 30 309 1.10
------ ---------- --------- ---------- ---- ---- ---------- --------
Total.................... $ 3 $3,994 $21,942 $2,046 $-- $30 $28,015 100.00%
===== ====== ======= ====== === === ======= ======
Percent of total......... 0.01% 14.26% 78.32% 7.30% --% 0.11% 100.00%
</TABLE>
For additional information regarding the composition of the
Association's deposits, see Note 6 of the Notes to the Financial Statements.
80
<PAGE>
Borrowings. Although deposits are the primary source of funds for the
Association's lending and investment activities and for its general business
purposes, the Association has occasionally relied upon borrowed funds or
repurchase agreements to supplement them. The Association has borrowed funds,
either through direct borrowings or through the sale of securities under
agreements to repurchase, when the cost of borrowings was attractive when
compared to the rate required to be paid on deposits plus the deposit insurance
premium required to be paid. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital."
The Association may borrow under a line of credit agreement with the
FHLB of New York. FHLB advances typically are collateralized by all of the
assets of the Association. There were no FHLB advances outstanding at September
30, 1997.
Under an agreement with the Association's investment portfolio
safekeeping agent, the Association may from time to time enter into security
repurchase agreements brokered through such agent whereby the Association
obtains funds from the sale of securities held in the securities portfolio with
an agreement to repurchase the securities either the next day or a set number of
days following the sale. Total borrowings represented by repurchase agreements
at September 30, 1997 were $1.3 million. The Association undertook this
borrowing in order to provide needed funds at a time when the Association did
not want to increase the rates paid on time deposits to attract funds.
The following table sets forth the maximum month-end balance and
average balance of the Association's borrowings for the periods indicated.
Year Ended September 30,
------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
Maximum Balance:
FHLB borrowings........................ $ 850 $ 300 $ --
Securities sold under agreements
to purchase.......................... 1,300 -- --
Average Balance:
FHLB borrowings........................ $ 273 $ 6 $ --
Securities sold under agreements
to repurchase....................... 118 -- --
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<PAGE>
The following table sets forth the amount and rate of the Association's
borrowings at the dates indicated.
September 30,
----------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
FHLB borrowings.......................... $ -- $ 300 $ --
Securities sold under agreements
to repurchase............................ 1,300 -- --
------ --------- ---
Total borrowings...................... $1,300 $ 300 $--
====== ====== ===
Weighted average interest rate of
FHLB borrowings........................ -- 5.88% --
Weighted average interest rate of
securities sold under agreements
to repurchase......................... 5.80% -- --
Subsidiary Activities
As a federally chartered savings and loan association, Gloversville
Federal is permitted by OTS regulations to invest up to 2% of its assets in the
stock of, or loans to, service corporation subsidiaries, and may invest an
additional 1% of its assets in service corporations where such additional funds
are used for inner-city or community development purposes. In addition to
investments in service corporations, federal institutions are permitted to
invest an unlimited amount in operating subsidiaries engaged solely in
activities which a federal savings association may engage in directly. At
September 30, 1996, Gloversville Federal did not have any subsidiaries.
Competition
Gloversville Federal faces strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from commercial banks, credit unions, mortgage bankers and other
savings institutions, which also make loans secured by real estate located in
the Association's market area. Gloversville Federal competes for loans
principally on the basis of the interest rates and loan fees it charges, the
types of loans it originates and the quality of services it provides to
borrowers.
Competition for those deposits is principally from commercial banks,
credit unions, mutual funds, securities firms and other savings institutions
located in the same communities. The ability of the Association to attract and
retain deposits depends on its ability to provide an investment opportunity that
satisfies the requirements of investors as to rate of return, liquidity, risk,
convenient locations and other factors. The Association competes for these
deposits by offering competitive rates, maintaining close ties with its local
community, advertising and marketing programs, convenient business hours and a
customer-oriented staff.
The Association is subject to competition from other financial
institutions which may have much greater financial and marketing resources.
However, the Association believes that it benefits from its community
orientation.
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<PAGE>
Employees
At September 30, 1997, the Association had a total of 28 employees
including 2 part-time employees. None of the Association's employees are
represented by any collective bargaining agreement. Management considers its
employee relations to be good.
Properties
The following table sets forth information concerning the main office
and the branch office of the Association at September 30, 1997. At September 30,
1997, the Association's premises had an aggregate net book value of
approximately $839,000.
Year Owned or Net Book Value at
Location Acquired Leased September 30, 1997
- --------------------------------------------------------------------------------
(In Thousands)
Main Office:
52 North Main Street 1962 own 593,000
Gloversville, New York 12078
Full Service Branch:
295 Broadway 1983 own 246,000
Saratoga Springs, New York 12866
The Association believes that its current facilities are adequate to
meet the present and foreseeable future needs of the Association and the Holding
Company.
The Association's depositor and borrower customer files are maintained
in-house. The net book value of the data processing and computer equipment
utilized by the Association at September 30, 1997 was approximately $359,000.
Legal Proceedings
From time to time, Gloversville Federal is involved as plaintiff or
defendant in various legal proceedings arising in the normal course of its
business. While the ultimate outcome of these various legal proceedings cannot
be predicted with certainty, it is the opinion of management that the resolution
of these legal actions should not have a material effect on the Holding
Company's and Gloversville Federal's financial position or results of
operations.
83
<PAGE>
REGULATION
General
Gloversville Federal is a federally chartered savings and loan
association, the deposits of which are federally insured and backed by the full
faith and credit of the United States Government. Accordingly, Gloversville
Federal is subject to broad federal regulation and oversight extending to all
its operations. Gloversville Federal is a member of the FHLB of New York and is
subject to certain limited regulation by the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"). As the savings and loan holding
company of Gloversville Federal, the Holding Company also is subject to federal
regulation and oversight. The purpose of the regulation of the Holding Company
and other holding companies is to protect subsidiary savings associations.
Gloversville Federal is a member of the Savings Association Insurance Fund
("SAIF") and the deposits of Gloversville Federal are insured by the FDIC. As a
result, the FDIC has certain regulatory and examination authority over
Gloversville Federal.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, Gloversville Federal is required to
file periodic reports with the OTS and is subject to periodic examinations by
the OTS. The last regular OTS examination of Gloversville Federal was as of
February 1997. Under agency scheduling guidelines, it is likely that another
examination will be initiated in the near future. When these examinations are
conducted by the OTS, the examiners may require Gloversville Federal to provide
for higher general or specific loan loss reserves. All savings associations are
subject to a semi-annual assessment, based upon the savings association's total
assets, to fund the operations of the OTS. Gloversville Federal's OTS assessment
for the fiscal year ended September 30, 1997 was $16,000.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Gloversville Federal and the
Holding Company. This enforcement authority includes, among other things, the
ability to assess civil money penalties, to issue cease-and-desist or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of
Gloversville Federal is prescribed by federal laws and it is prohibited from
engaging in any activities not permitted by such laws. For instance, no savings
institution may invest in non-investment grade corporate debt securities. In
addition, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of total capital,
except with approval of the
84
<PAGE>
OTS. Federal savings associations are also generally authorized to branch
nationwide. Gloversville Federal is in compliance with the noted restrictions.
Gloversville Federal's general permissible lending limit for
loans-to-one-borrower is equal to the greater of $500,000 or 15% of unimpaired
capital and surplus (except for loans fully secured by certain readily
marketable collateral, in which case this limit is increased to 25% of
unimpaired capital and surplus). At September 30, 1997, Gloversville Federal's
lending limit under this restriction was $737,000. Assuming the sale of the
minimum number of shares in the Conversion at September 30, 1997, that limit
would be increased to $___ million. Gloversville Federal is in compliance with
the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action. The OTS and the other federal banking agencies have also proposed
additional guidelines on asset quality and earnings standards. No assurance can
be given as to whether or in what form the proposed regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
Gloversville Federal is a member of the SAIF, which is administered by
the FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action, and may terminate the deposit insurance if it determines that the
institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve
85
<PAGE>
ratio to that designated reserve level, or such higher reserve ratio as
established by the FDIC. The FDIC may also impose special assessments on SAIF
members to repay amounts borrowed from the United States Treasury or for any
other reason deemed necessary by the FDIC.
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted. At the time the FDIC revised
the BIF premium schedule, it noted that, absent legislative action (as discussed
below), the SAIF would not attain its designated reserve ratio until the year
2002. As a result, SAIF insured members would continue to be generally subject
to higher deposit insurance premiums than BIF insured institutions until, all
things being equal, the SAIF attains its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provided for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate was
established at .657% of deposits by the FDIC and the resulting assessment of
$415,000 was paid in November 1996. This special assessment significantly
increased non-interest expense and adversely affected the Association's results
of operations for the year ended September 30, 1996. As a result of the special
assessment, Gloversville Federal's deposit insurance premiums was reduced to
.03% based upon its current risk classification and the new assessment schedule
for SAIF insured institutions. These premiums are subject to change in future
periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions remain subject to a FICO assessment as a result
of this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, effective
January 1, 1997, that assessment was limited to 20% of the rate imposed on SAIF
assessable deposits until the earlier of December 31, 1999 or when no savings
association continues to exist, thereby imposing a greater burden on SAIF member
institutions such as Gloversville Federal. Thereafter, however, assessments on
BIF-member institutions will be made on the same basis as SAIF-member
institutions. The rates established by the FDIC to implement this requirement
for all FDIC-insured institutions are a 6.5 basis points assessment on SAIF
deposits and 1.5 basis points on BIF deposits until BIF insured institutions
participate fully in the assessment.
86
<PAGE>
Regulatory Capital Requirements
Federally insured savings associations, such as Gloversville Federal,
are required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At September 30, 1997, Gloversville Federal did not have any
intangible assets recorded as assets on its financial statements. [CONFIRM]
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
At September 30, 1997, Gloversville Federal had tangible capital of
$3.3 million, or 5.4% of adjusted total assets, which is approximately $2.4
million above the minimum requirement of 1.5% of adjusted total assets in effect
on that date. On a pro forma basis, after giving effect to the sale of the
minimum, midpoint and maximum number of shares of Common Stock offered in the
Conversion and investment of 50% of the net proceeds in assets not excluded for
tangible capital purposes, Gloversville Federal would have had tangible capital
equal to ____%, ____% and ____%, respectively, of adjusted total assets at
September 30, 1997, which is $____ million, $____ million and $____ million,
respectively, above the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At September 30, 1997,
Gloversville Federal had no intangibles which were subject to these tests.
[CONFIRM/REVISE]
At September 30, 1997, Gloversville Federal had core capital equal to
$3.3 million, or 5.4% of adjusted total assets, which is $___ million above the
minimum leverage ratio requirement of 3% as in effect on that date. On a pro
forma basis, after giving effect to the sale of the minimum, midpoint and
maximum number of shares of Common Stock offered in the Conversion and
87
<PAGE>
investment of 50% of the net proceeds in assets not excluded from core capital,
Gloversville Federal would have had core capital equal to ____%, ____% and
____%, respectively, of adjusted total assets at September 30, 1997, which is
$____ million, $____ million and $____ million, respectively, above the
requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At September 30, 1997, Gloversville
Federal had $486,000 of allowance for loan losses that qualify as supplementary
capital, which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Gloversville Federal had
no such exclusions from capital and assets at September 30, 1997.
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS determines otherwise. Based upon its capital level and assets size at
September 30, 1997, Gloversville Federal is subject to these requirements;
however the OTS has not required implementation of this regulation.
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On September 30, 1997, Gloversville Federal had total capital of $3.8
million (including $3.3 million in core capital and $486,000 in qualifying
supplementary capital) and risk-weighted assets of $37.8 million; or total
capital of 10.0% of risk-weighted assets. This amount was $762,000 above the 8%
requirement in effect on that date. On a pro forma basis, after giving effect to
the sale of the minimum, midpoint and maximum number of shares of Common Stock
offered in the Conversion, the infusion to Gloversville Federal of ___% of the
net Conversion proceeds and the investment of those proceeds to Gloversville
Federal in 20% risk-weighted government securities, Gloversville Federal would
have had total capital of ___%, ___% and ____%, respectively, of risk-weighted
assets, which is above the current 8% requirement by $___ million, $____ million
and $____ million, respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on
Gloversville Federal may have a substantial adverse effect on Gloversville
Federal's operations and profitability and the value of the Common Stock
purchased in the Conversion. Holding Company stockholders do not have preemptive
rights, and therefore, if the Holding Company is directed by the OTS or the FDIC
to issue additional shares of Common Stock, such issuance may result in the
dilution in the
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percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Association" and "- Restrictions on Repurchase of Stock."
Generally, savings associations, such as Gloversville Federal, that
before and after the proposed distribution meet their capital requirements, may
make capital distributions during any calendar year equal to the greater of 100%
of net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. Gloversville
Federal may pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
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Liquidity
All savings associations, including Gloversville Federal, are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. For a discussion of what
Gloversville Federal includes in liquid assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources." This liquid asset ratio requirement may vary from time to
time (between 4% and 10%) depending upon economic conditions and savings flows
of all savings associations. At the present time, the minimum liquid asset ratio
is 5%.
Penalties may be imposed upon associations for violations of the liquid
asset ratio requirement. At September 30, 1997, Gloversville Federal was in
compliance with this requirement, with an overall liquid asset ratio of 10.3%.
Accounting
An OTS policy statement applicable to all savings associations
clarifies and re-emphasizes that the investment activities of a savings
association must be in compliance with approved and documented investment
policies and strategies, and must be accounted for in accordance with GAAP.
Under the policy statement, management must support its classification of and
accounting for loans and securities (i.e., whether held-to-maturity,
available-for-sale or trading) with appropriate documentation. Gloversville
Federal is in compliance with these amended rules.
OTS regulations, which may be made more stringent than GAAP by the OTS,
require that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports must
incorporate any other accounting regulations or orders prescribed by the OTS.
Qualified Thrift Lender Test
All savings associations, including Gloversville Federal, are required
to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60% of its assets
specified in Section 7701(a)(19) of the Internal Revenue Code. Under either
test, such assets primarily consist of residential housing related loans and
investments. At September 30, 1997, Gloversville Federal met the test with 93.7%
of its portfolio assets in qualified thrift investments and has always met the
test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings
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association and a national bank, and it is limited to national bank branching
rights in its home state. In addition, the association is immediately ineligible
to receive any new FHLB borrowings and is subject to national bank limits for
payment of dividends. If such association has not requalified or converted to a
national bank within three years after the failure, it must divest of all
investments and cease all activities not permissible for a national bank. In
addition, it must repay promptly any outstanding FHLB borrowings, which may
result in prepayment penalties. If any association that fails the QTL test is
controlled by a holding company, then within one year after the failure, the
holding company must register as a bank holding company and become subject to
all restrictions on bank holding companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices 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 OTS, in connection with the examination of
Gloversville Federal, 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, such as a merger or the establishment of a branch, by
Gloversville Federal. An unsatisfactory rating may be used as the basis for the
denial of an application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Gloversville Federal may be required to devote additional
funds for investment and lending in its local community. Gloversville Federal
was examined for CRA compliance in March 1995 and received a rating of
satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of Gloversville Federal include the
Holding Company and any company which is under common control with Gloversville
Federal. In addition, a savings association may not lend to any affiliate
engaged in activities not permissible for a bank holding company or acquire the
securities of most affiliates.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
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Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Gloversville Federal
or any other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Gloversville Federal fails the QTL test, the Holding Company must
obtain the approval of the OTS prior to continuing after such failure, directly
or through its other subsidiaries, any business activity other than those
approved for multiple savings and loan holding companies or their subsidiaries.
In addition, within one year of such failure the Holding Company must register
as, and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
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Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At September 30, 1997, Gloversville Federal was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Association "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Association.
Federal Home Loan Bank System
Gloversville Federal is a member of the FHLB of New York, which is one
of 12 regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, Gloversville Federal is required to purchase and maintain
stock in the FHLB of New York. At September 30, 1997, Gloversville Federal had
$461,000 in FHLB stock, which was in compliance with this requirement. In past
years, Gloversville Federal has received substantial dividends on its FHLB
stock. Over the past five calendar years such dividends have averaged 8.1% and
were 6.46% for calendar year 1996. As a result of their holdings, the
Association could borrow up to $9.2 million from the FHLB.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Gloversville Federal's FHLB stock may result in a
corresponding reduction in Gloversville Federal's capital.
For the year ended December 31, 1996, dividends paid by the FHLB of New
York to Gloversville Federal totaled $22,000, which constitute a $4,000 increase
from the amount of dividends received in calendar year 1995. The $29,000
dividend received for the nine months ended September 30, 1997 reflects an
annualized rate of 8.4%, which is 30.0% greater than the rate for calendar 1996.
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Federal and State Taxation
In August 1996, legislation was enacted that repeals the reserve method
of accounting used by many thrifts to calculate their bad debt reserve for
federal income tax purposes. As a result, small thrifts such as the Association
must recapture that portion of the reserve that exceeds the amount that could
have been taken under the experience method for post-1987 tax years. The
legislation also requires thrifts to account for bad debts for federal income
tax purposes on the same basis as commercial banks for tax years beginning after
December 31, 1995. The recapture will occur over a six-year period, the
commencement of which will be delayed until the first taxable year beginning
after December 31, 1997, provided the institution meets certain residential
lending requirements. The management of the Company does not believe that the
legislation will have a material impact on the Company or the Association.
In addition to the regular income tax, corporations, including savings
associations such as Gloversville Federal, generally are subject to a minimum
tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on
alternative minimum taxable income, which is the sum of a corporation's regular
taxable income (with certain adjustments) and tax preference items, less any
available exemption. The alternative minimum tax is imposed to the extent it
exceeds the corporation's regular income tax and net operating losses can offset
no more than 90% of alternative minimum taxable income. For taxable years
beginning after 1986 and before 1996, corporations, including savings
associations such as Gloversville Federal, were also subject to an environmental
tax equal to 0.12% of the excess of alternative minimum taxable income for the
taxable year (determined without regard to net operating losses and the
deduction for the environmental tax) over $2 million.
To the extent earnings appropriated to a savings association's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the association's supplemental reserves
for losses on loans ("Excess"), such Excess may not, without adverse tax
consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1995, Gloversville Federal's Excess for tax purposes
totaled approximately $3.1 million.
Gloversville Federal files its federal and New York income tax returns
on a calendar year basis using the accrual method of accounting. The Holding
Company may file a consolidated federal income tax return with Gloversville
Federal.
Gloversville Federal was audited by the IRS with respect to
consolidated federal income tax returns in 1994, 1995 and 1996. With respect to
years examined by the IRS, all deficiencies have been satisfied.
New York Taxation. For New York income tax purposes, the Association is
taxed at an effective rate equal to 9.0% of New York taxable income. For these
purposes, "New York Taxable
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Income" generally means federal taxable income, subject to certain adjustments
(including the addition of interest income on state and municipal obligations
and the partial exclusion of interest income on United States Treasury as well
as New York and certain of its political subdivisions obligations).
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Holding Company and of the Association
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of six members. The
directors of the Holding Company are currently comprised of the directors of the
Association. See "- Board of Directors of the Association." Directors of the
Holding Company will serve three-year staggered terms so that one-third of the
directors will be elected at each annual meeting of stockholders. The terms of
the current directors of the Holding Company are the same as that of the
Association's board. The Holding Company does not intend to pay directors a fee
for board service. For information regarding stock options and restricted stock
proposed to be awarded to directors following stockholder ratification of such
plans, see "- Benefit Plans."
The executive officers of the Holding Company are elected annually and
hold office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company.
Name Title
---- -----
Lewis E. Kolar President and Chief Executive Officer
Menzo D. Case Executive Vice-President, Chief Financial Officer and
Secretary
The Holding Company does not initially intend to pay executive officers
any fees in addition to fees payable to such persons as executive officers of
the Association. For information regarding compensation of directors and
executive officers of the Association, see "Management - Director Compensation"
and "- Executive Compensation." For information regarding stock options and
restricted stock proposed to be awarded to directors and executive officers
following stockholder ratification of the Holding Company's stock-based plans,
see "- Benefit Plans."
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Board of Directors of the Association. Prior to the Conversion, the
direction and control of the Association, as a mutual savings institution, was
vested in its Board of Directors. Upon conversion of the Association to stock
form, each of the directors of the Association will continue to serve as a
director of the converted Association. The Board of Directors of the Association
currently consists of six members. Each Director of the Association has served
as such at least since January, 1995, except for Priscilla J. Bell, who was
elected in January, 1996. The directors serve three-year staggered terms so that
approximately one-third of the directors are elected at each annual meeting of
members. Because the Holding Company will own all of the issued and outstanding
shares of capital stock of the Association after the Conversion, directors of
the Holding Company will elect the directors of the Association.
The following table sets forth certain information regarding the
directors of the Association.
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held With the Association Age(1) Since Expires
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Priscilla J. Bell Director 48 1996 1999
Timothy E. Delaney Director 35 1993 1998
Lewis E. Kolar Director, President and Chief Executive 59 1995 1998
Officer
Donald I. Lee Director and Recording Secretary 70 1971 2000
Richard D. Ruby Chairman of the Board 48 1975 2000
Robert J. Sofarelli Director 52 1993 1998
</TABLE>
(1) At December 31, 1997.
The business experience of each director of the Holding Company and of
the Association for at least the past five years is set forth below.
Dr. Priscilla J. Bell. Dr. Bell has served as the President of Fulton
Montgomery Community College since 1995. From 1978 to 1995, Dr. Bell worked at
the Tacoma Community College, Tacoma, Washington, where she was Dean of Student
Services.
Timothy E. Delaney. Mr. Delaney is the President and Chief Financial
Officer of Delaney Construction Corporation, a company specializing in heavy
highway construction, which he founded in 1982.
Lewis E. Kolar. Mr. Kolar is the President and Chief Executive Officer
of the Association, a position he has held since October 1994. Mr. Kolar has
more than 20 years of commercial banking experience including service as a
Senior Vice-President and Regional Executive Officer at the National Bank &
Trust Company, Norwich, New York, from 1989 to 1994.
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Donald I. Lee. Mr. Lee is the President of Lee & Lee Associates,
Saratoga Springs, New York, and a partner in Lee's Deer Run Bed & Breakfast,
Stillwater, New York.
Richard D. Ruby. Mr. Ruby has been the owner and President of Ruby &
Quiri, Inc., a home furnishings center, located in Gloversville, New York, since
1969.
Dr. Robert J. Sofarelli. Dr. Sofarelli has been a veterinarian since
1971, and is the owner of Saratoga Veterinary Hospital, Planned Pets, a Saratoga
veterinary hospital and Paws & Claws, a distributor of pet foods located in
Wilton, New York.
Executive Officers Who Are Not Directors. Each of the executive
officers of the Association will retain his or her office in the converted
Association. Officers are elected annually by the Board of Directors of the
Association. The business experience of the executive officers who are not also
directors is set forth below.
Menzo D. Case, age 34. Mr. Case is a certified public accountant and
has served as the Association's Treasurer since December 1993. Mr. Case was
promoted to Executive Vice President and Chief Operating Officer in July 1994.
Previously, Mr. Case was an accountant with KPMG Peat Marwick from 1989 to 1993.
Michael J. Pepe, age 39. Mr. Pepe currently serves as the Association's
Vice-President of Lending, a position he has held since 1995. Mr. Pepe was an
Assistant Vice-President and Commercial Loan Officer for Amsterdam Savings Bank,
FSB from 1987 until he joined the Association.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in connection with his activities as a director or
officer or as a director or officer of another company, if the director or
officer held such position at the request of the Holding Company. Delaware law
requires that such director, officer, employee or agent, in order to be
indemnified, must have acted in good faith and in a manner reasonably believed
to be not opposed to the best interests of the Holding Company, and, with
respect to any criminal action or proceeding, did not have reasonable cause to
believe his or her conduct was unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
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These provisions may have the effect of deterring shareholder
derivative actions, since the Holding Company may ultimately be responsible for
expenses for both parties to the action. A similar effect would not be expected
for third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company may
obtain such insurance.
Meetings and Committees of Board of Directors
The Association. The Association's Board of Directors meets on a
monthly basis. The Board of Directors met 15 times during the year ended
September 30, 1997. During fiscal 1997, no director of the Association attended
fewer than 75% of the aggregate of the total number of Board meetings and the
total number of meetings held by the committees of the Board of Directors on
which he or she served.
The Association has standing Executive, Audit, Asset Liability, Loan,
Investment, Strategic Planning, Nomination and Community Reinvestment
Committees.
The Executive Committee provides oversight of Board-related matters
in-between regularly scheduled Board Meetings, provides informal counsel to the
President and is available to handle emergency or time critical situations. The
Executive Committee is comprised of Directors Richard D. Ruby, Donald I. Lee and
Timothy Delaney. This committee met approximately 15 times during fiscal year
1997.
The Audit Committee is comprised of four outside directors: Richard D.
Ruby, Donald I. Lee, Priscilla J. Bell and Timothy Delaney. This Committee
oversees and reviews the Association's financial and internal control matters.
The Audit Committee also reviews the Audited Financial Report with the
Association's outside auditors and the Report of the Examination with the OTS
examiners, either separately or with the full Board. This committee met four
times in fiscal 1997.
The Asset/Liability Management Committee is composed of Directors
Richard D. Ruby, and Priscilla J. Bell. This committee meets quarterly to handle
the investments for the Association and the implementation of the strategic and
business plans as they relate to interest rate risk and reinvestment options.
This committee also reviewed liquidity, interest rate risk and product pricing.
This committee met four times in fiscal 1997.
The Loan Committee reviews and approves loans which require the
committee's approval. This committee is composed of any two non-employee
directors and, met eight times in fiscal 1997.
The Investment Committee consists of Directors Richard D. Ruby and
Donald I. Lee. This committee reviews investments and assesses the current
investment portfolio. This committee did not meet in fiscal 1997.
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The Nominating Committee, composed of Directors Richard D. Ruby, Donald
I. Lee and Priscilla J. Bell, meets annually to select the nominees for the
Board of Directors and Board Committees.
The Community Reinvestment Committee consists of the entire Board and
reviews the Association's compliance with the Community Reinvestment Act. This
Committee met once during fiscal 1997.
The Holding Company. In ________ 1998, the Board of Directors of the
Holding Company established standing executive, audit and nominating Committees.
These committees did not meet during fiscal 1997.
Director Compensation
Directors of the Association are paid a monthly fee of $950 for service
on the Board of Directors, and the Chairman of the Board is paid a monthly fee
of $1,050. These fees are paid only to Board members, not to employees.
Directors do not receive any additional compensation for committee meetings
attended.
Executive Compensation
The following table sets forth information concerning the compensation
accrued for services in all capacities to Gloversville Federal for the fiscal
year ended September 30, 1997 for the Association's President and Chief
Executive Officer. No other executive officer's aggregate annual compensation
(salary plus bonus) exceeded $100,000 in fiscal 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long Term Compensation
Annual Compensation(1) Awards
------------------------------------- -------------------------------
Other Annual Restricted Stock Options/ All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($) SARs (#) Compensation($)
- --------------------------- ---- --------- -------- --------------- --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lewis E. Kolar 1997 $83,077 $8,400 -- N/A N/A $11,731(2)
</TABLE>
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted by
the SEC, as informally interpreted by the SEC's Staff, Summary Compensation
information is excluded for the fiscal years ended December 31, 1996 and
1995.
(2) Consists of use of a vehicle valued at $1,441, life insurance payments of
$1,998 and contributions to Mr. Kolar's 401(k) of $8,292.
Change in Control Severance Agreements
The Association intends to enter into change in control severance
agreements with Messrs. Kolar and Case. The agreements become effective upon
completion of the Conversion and provide for an initial term of 24 months and 12
months, respectively. The agreements provide for extensions of one year, on each
anniversary of the effective date of the agreement, subject to a formal
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performance evaluation performed by disinterested members of the Board of
Directors of the Association. The agreement provides for termination for cause
or in certain events specified by OTS regulations.
The agreements provide for a lump sum payment to Mr. Kolar and Mr. Case
200% and 100% of their respective annual base compensation and the continued
payment for the remaining term of the contract of life and health insurance
coverage maintained by the Association in the event there is a "change in
control" of the Association where employment terminates involuntarily following
such change in control. This termination payment is subject to reduction to the
extent non-deductible for federal income tax purposes. For the purposes of the
agreements, a "change in control" is defined as any event which would require
the filing of an application for acquisition of control or notice of change in
control pursuant to 12 C.F.R. ss. 574.3 or 4 or any successor regulation. Such
events are generally triggered prior to the acquisition of control of 10% of the
Company's Common Stock. See "Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions."
Benefit Plans
General. Gloversville Federal Savings and Loan Association currently
provides insurance benefits to its employees, including health and life
insurance, subject to certain deductibles and copayments.
Employee Severance Compensation Plan. The Association's Board of
Directors has established the Gloversville Federal Employee Severance
Compensation Plan ("Severance Compensation Plan") which will provide certain
employees with severance pay benefits in the event of a change in control of the
Association or the Holding Company following Conversion. Management personnel
with change in control severance agreements are not eligible to participate in
the Severance Compensation Plan. The purpose of the Severance Compensation Plan
is to recognize the valuable services and contributions of the Association's
employees and the uncertainties relating to continuing employment, reduced
employee benefits, management changes and relocations in the event of a change
in control. The Association believes that the Severance Compensation Plan will
assist it in attracting and retaining highly qualified individuals and reduce
the distractions and other adverse effects on the employees' performance in the
event of a change in control. The Severance Compensation Plan vests in each
participant a contractual right to the benefits such participant is entitled to
thereunder. Under the Severance Compensation Plan, in the event of a change in
control as defined in the Severance Compensation Plan, eligible employees who
are terminated or who voluntarily terminate employment (for reasons specified
under the Severance Compensation Plan), within one year of a change in control
will be entitled to receive a severance payment. Payments pursuant to the
Severance Compensation Plan are equal to the product of two weeks Annual
Compensation (as defined) times the number of years of service up to a maximum
of twelve years in the case of officers or seven years in the case of other
employees. Such payments may tend to discourage takeover attempts by increasing
costs to be incurred by the Association in the event of a takeover. As it is
management's belief that substantially all of the Association's employees would
be retained in the event of a change in control, and that any amount payable
under the Severance Compensation Plan, therefore, would be considerably less
than the total amount that could possibly be paid under the Severance
Compensation Plan, management cannot estimate the
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potential effect of the Severance Compensation Plan. The Severance Compensation
Plan may be amended or terminated by the Board of Directors by a majority vote
at any time prior to a change in control but may not be amended or terminated
thereafter.
Employee Stock Ownership Plan. The Boards of Directors of Gloversville
Federal Savings and Loan Association and the Holding Company have approved the
adoption of an ESOP for the benefit of employees of Gloversville Federal Savings
and Loan Association. The ESOP is also designed to meet the requirements of an
employee stock ownership plan as described at Section 4975(e)(7) of the Code and
Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and, as such, the ESOP is empowered to borrow in order to
finance purchases of the Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross Conversion
proceeds). The interest rate of the ESOP loan will be equal to the applicable
federal interest rate as determined by the Internal Revenue Service for the
month in which the loan is made, as calculated pursuant to Section 1274(d) of
the Code.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Financial Statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Holding Company or
the Association. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. Since the Holding Company will finance the ESOP debt, the
ESOP debt will be eliminated through consolidation and no liability will be
reflected on the Holding Company's financial statements. In addition, shares
purchased with borrowed funds will, to the extent of the borrowings, be excluded
from stockholders' equity, representing unearned compensation to employees for
future services not yet performed. Consequently, if the ESOP purchases
already-issued shares in the open market, the Holding Company's consolidated
liabilities will increase to the extent of the ESOP's borrowings, and total and
per share stockholders' equity will be reduced to reflect such borrowings. If
the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease, but per share
stockholders' equity and per share net income would decrease because of the
increase in the number of outstanding shares. In either case, as the borrowings
used to fund ESOP purchases are repaid, total stockholders' equity will
correspondingly increase.
All employees of the Association are eligible to participate in the
ESOP after they attain age 21 and complete one year of service. The
Association's contribution to the ESOP is allocated among participants on the
basis of their relative compensation. Each participant's account will be
credited with cash and shares of Holding Company Common Stock based upon
compensation earned during the year with respect to which the contribution is
made. Contributions credited to a participant's account become fully vested upon
such participant's completing five years of service. Credit will be given for
prior years of service for vesting purposes. ESOP participants are entitled to
receive distributions from their ESOP accounts only upon termination of service.
Distributions will be made in cash and in whole shares of the Holding Company's
Common Stock. Fractional shares will be paid in cash. Participants will not
incur a tax liability until a distribution is made.
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Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Gloversville Federal Savings
and Loan Association.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
401(k) Savings Plan. The Association has a qualified, tax-exempt
savings plan with a cash or deferred feature qualifying under Section 401(k)
(the "401(k) Plan") of the Internal Revenue Code of 1986, as amended (the
"Code"). All employees who have completed the service requirement, during which
they worked at least 1,000 hours, are eligible to participate.
Participants are permitted to make salary reduction contributions to
the 401(k) Plan of up to 5% of the participant's annual salary up to a maximum
of $10,000 for calendar year 1997 and the Association contributes 10% of the
employees salary, regardless of the employee's contribution. Employee
contributions are fully and immediately vested; contributions by the Association
vest 20% the third year, 50% the fourth year, and 100% the fifth year of
service. However, in the event of normal retirement, permanent disability or
death, a participant will automatically become 100% vested in the value of all
Association contributions and earnings thereon.
The Association intends to reduce its contribution under the 401(k)
Plan in order to offset in part the ESOP expense. In addition, the 401(k) Plan
is being amended to permit self-directed investments by participants into
Holding Company stock.
Stock Option and Incentive Plan. Among the benefits to the Association
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt a Stock
Option and Incentive Plan (the "Stock Option Plan"), subject to ratification by
stockholders of the Holding Company at a meeting to be held not earlier than six
months after completion of the Conversion. Under the terms of the proposed Stock
Option Plan, stock options covering shares representing an aggregate of up to
10% of the shares of Common Stock issued in the Conversion may be granted to
directors, officers and employees of the Holding Company or its subsidiaries
under the Stock Option Plan.
Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Association, and in an amount deemed
necessary to encourage the continued retention of the officers and directors who
are considered necessary for the continued success of the Association. In this
regard, all options are intended to vest in five equal annual installments
commencing one year from the date of grant, subject to the continued service of
the holder of such option.
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The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SARs") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SARs on the date exercised over the
exercise price. SARs generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by Stock Plan
Committee of the Holding Company which will consist of at least two
disinterested directors. The Stock Plan Committee will select the recipients and
terms of awards made pursuant to the Stock Option Plan. OTS regulations limit
the amount of shares that may be awarded pursuant to stock-based plans to each
individual officer, each non-employee director and all non-employee directors as
a group to 25%, 5% and 30%, respectively, of the total shares reserved for
issuance under each such stock-based plan.
The Stock Plan Committee, presently consisting of non-employee
Directors _______________ and ________________, intends to grant options in
amounts expressed as a percentage of the shares issued in the Conversion, as
follows: President Kolar - 2.0%, Officer Case - 2.0%, and to all executive
officers as a group (_ persons) - 6.6%. In addition, under the terms of the
Stock Option Plan, each non-employee director of the Holding Company at the time
of stockholder ratification of the Stock Option Plan will be granted an option
to purchase shares of Common Stock equal to .5% of the shares sold in the
Conversion. The remaining balance of the available awards is unallocated and
reserved for future use. All options will expire 10 years after the date such
option was granted, which, for the option grants listed above, is expected to be
the date of stockholder ratification of the Stock Option Plan. All proposed
option grants to officers are subject to modification by the Stock Plan
Committee based upon its performance evaluation of the option recipients at the
time of stockholder ratification of the Stock Option Plan following completion
of the Conversion.
After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and
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immediately resell, which under the SEC regulations applies to stock option
plans in general, allows the optionee to realize the benefit of an increase in
the market price for the stock without the market risk which would be associated
with a required holding period for the stock after payment of the exercise
price. Under SEC regulations, the short-swing liability period now runs for six
months before and after the option grant. All grants are subject to ratification
of the Stock Option Plan by stockholders of the Holding Company following
completion of the Conversion.
Recognition and Retention Plan. The Holding Company intends to
establish the RRP in order to provide employees with a proprietary interest in
the Holding Company in a manner designed to encourage such persons to remain
with the Holding Company and the Association. The RRP will be subject to
ratification by stockholders at a meeting to be held not earlier than six months
after the completion of the Conversion. The Holding Company will contribute
funds to the RRP to enable it to acquire in the open market or from authorized
but unissued shares (with the decision between open market or authorized but
unissued shares based on the Holding Company's future stock price, alternate
investment opportunities and capital needs), following stockholder ratification
of such plan, an amount of stock equal to 4.0% of the shares of Common Stock
issued in the Conversion.
The Stock Plan Committee of the Board of Directors of the Holding
Company will administer the proposed RRP. Under the terms of the proposed RRP,
awards ("Awards") can be granted to key employees in the form of shares of
Common Stock held by the RRP. Awards are non-transferable and non-assignable.
OTS regulations limit the amount of shares that may be awarded pursuant to
stock-based plans to each individual officer, each non-employee director and all
non-employee directors as a group to 25%, 5% and 30%, respectively, of the total
shares reserved for issuance under each such stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time,
the shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five equal annual installments commencing one year from the date of
grant. Awards will be 100% vested upon termination of employment due to death or
disability. When shares become vested and are actually distributed in accordance
with the RRP, but in no event prior to such time, the participants will also
receive amounts equal to any accrued dividends with respect thereto. Earned
shares are distributed to recipients as soon as practicable following the date
on which they are earned.
The Stock Plan Committee presently intends to grant restricted stock
awards at the Purchase Price, in amounts expressed as a percentage of the shares
sold in the Conversion, as follows: to President Kolar - 1.0%, Executive Vice
President Case - .6%, and to all executive officers as a group (_ persons) -
2.4%. Pursuant to the terms of the proposed RRP, each non-employee director of
the Holding Company at the time of stockholder ratification of the RRP will be
awarded an amount of shares equal to .1% of the shares sold in the Conversion.
All proposed RRP awards to officers of the Association are subject to
modification by the Stock Plan Committee based upon its performance evaluation
of the award recipients at the time of stockholder ratification of the RRP
following completion of the Conversion.
After stockholder ratification, the RRP will be funded either with
shares purchased in the open market or with authorized but unissued shares of
Common Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the
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RRP purchases stock in the open market at prices above the initial Purchase
Price, the total RRP expense may be above that disclosed under the caption "Pro
Forma Data." In no event will the RRP acquire an amount of shares which, in the
aggregate, represent more than 4.0% of the shares issued in the Conversion.
Certain Transactions
The Association follows a policy of granting loans to the Association's
directors, officers and employees. The loans to executive officers and directors
are made in the ordinary course of business and on the same terms and conditions
as those of comparable transactions prevailing at the time, in accordance with
the Association's underwriting guidelines and do not involve more than the
normal risk of collectibility or present other unfavorable features. Loans to
all directors and executive officers and their associates, including outstanding
balances and commitments totaled $382,000 at September 30, 1997, which was 11.6%
of the Association's retained earnings at that date.
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THE CONVERSION
The Board of Directors of the Association and the OTS have approved the
Plan of Conversion. OTS approval does not constitute a recommendation or
endorsement of the Plan of Conversion. Certain terms used in the following
summary of the material terms of the Conversion are defined in the Plan of
Conversion, a copy of which may be obtained by contacting Gloversville Federal.
General
The Board of Directors of the Association unanimously adopted the Plan,
subject to approval by the OTS and the members of the Association. Pursuant to
the Plan, the Association will convert from a federally chartered mutual savings
loan and association to a federally chartered stock savings and loan
association, with the concurrent formation of a holding company.
The Conversion will be accomplished through amendment of the
Association's federal charter to authorize capital stock, at which time the
Association will become a wholly owned subsidiary of the Holding Company. The
Conversion will be accounted for as a pooling of interests.
Subscription Rights have been granted to the Eligible Account Holders
as of September 30, 1996, Tax-Qualified Employee Plans of the Association and
Holding Company, Supplemental Eligible Account Holders as of ___________, 1998,
Other Members, and directors, officers, and employees of the Association.
Additionally, subject to the availability of shares and market conditions at or
near the completion of the Subscription Offering, the Common Stock may be
offered for sale in a Public Offering and Direct Community Offering to selected
persons on a best-efforts basis through Capital Resources. See "- Offering of
Holding Company Common Stock." Subscriptions for shares will be subject to the
maximum and minimum purchase limitations set forth in the Plan of Conversion.
Business Purposes
Gloversville Federal has several business purposes for the Conversion.
The sale of Holding Company Common Stock will have the immediate result of
providing the Association with additional equity capital in order to support the
expansion of its existing operations, subject to market conditions. See
"Business." The sale of the Common Stock is the most effective means of
increasing the Association's permanent capital and does not involve the high
interest cost and repayment obligation of subordinated debt. In addition,
investment of that part of the net Conversion proceeds paid by the Holding
Company to the Association is expected to provide additional operating income to
further increase the Association's capital on a continuing basis.
The Board of Directors of the Association believes that a holding
company structure could facilitate the acquisition of both mutual and stock
savings institutions in the future as well as other companies. If a multiple
holding company structure is utilized in a future acquisition, the acquired
savings institution would be able to operate on a more autonomous basis as a
wholly owned subsidiary of the Holding Company rather than as a division of the
Association. For example, the acquired savings institution could retain its own
directors, officers and corporate name as well as
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having representation on the Board of Directors of the Holding Company. As of
the date hereof, there are no plans or understandings regarding the acquisition
of any other institutions.
The Board of Directors of the Association also believes that a holding
company structure can facilitate the diversification of the Association's
business activities. While diversification will be maximized if a unitary
holding company structure is utilized because the types of business activities
permitted to a unitary holding company are broader than those of a multiple
holding company, either type of holding company may engage in a broader range of
activities than may a thrift institution directly. Currently, there are no plans
that the Holding Company engage in any material activities apart from holding
the shares of the Association and investing the remaining net proceeds from the
sale of Common Stock in the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has no plans with respect to future issuances of
equity securities, the more flexible operating structure provided by the Holding
Company and the stock form of ownership is expected to assist the Association in
competing more aggressively with other financial institutions in its principal
market area.
The Conversion will structure the Association in the stock form used in
the United States by all commercial banks, most major business corporations and
an increasing number of savings institutions. The Conversion will permit the
Association's members to become stockholders of the Holding Company, thereby
allowing members to own stock in the financial organization in which they
maintain deposit accounts or with which they have a borrowing relationship. Such
ownership should encourage stockholders to promote the Association to potential
customers, thereby further contributing to the Association's earnings potential.
The Association is also expected to benefit from its management and
employees owning stock, because stock ownership is viewed as an effective
performance incentive and a means of attracting, retaining and compensating
personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association
Voting Rights. Deposit account holders will have no voting rights in
the converted Association or the Holding Company and will therefore not be able
to elect directors of either entity or to control their affairs. These rights
are currently accorded to deposit account holders with regard to the
Association. Subsequent to Conversion, voting rights will be vested exclusively
in the Holding Company as the sole stockholder of the Association. Voting rights
as to the Holding Company will be held exclusively by its stockholders. Each
purchaser of Holding Company Common Stock shall be entitled to vote on any
matters to be considered by the Holding Company stockholders. A stockholder will
be entitled to one vote for each share of Common Stock owned, subject to certain
limitations applicable to holders of 10% or more of the shares of the Common
Stock. See "Description of Capital Stock."
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Deposit Accounts and Loans. The general terms of the Association's
deposit accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with the Association.
Tax Effects. The Association has received an opinion from Silver,
Freedman & Taff, L.L.P. with regard to federal income taxation, and an opinion
from KPMG Peat Marwick LLP with regard to New York taxation, to the effect that
the adoption and implementation of the Plan of Conversion set forth herein will
not be taxable for federal or New York tax purposes to the Association or the
Holding Company. See "- Income Tax Consequences."
Liquidation Rights. The Association has no plans to liquidate, either
before or subsequent to the completion of the Conversion. However, if there
should ever be a complete liquidation, either before or after Conversion,
deposit account holders would receive the protection of insurance by the FDIC up
to applicable limits. Subject thereto, liquidation rights before and after
Conversion would be as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Association, each holder of a deposit account
in the Association in its present mutual form would receive his or her pro
rata share of any assets of the Association remaining after payment of
claims of all creditors (including the claims of all depositors in the
amount of the withdrawal value of their accounts). Such holder's pro rata
share of such remaining assets, if any, would be in the same proportion of
such assets as the balance in his or her deposit account was to the
aggregate balance in all deposit accounts in the Association at the time of
liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of the
Association, would have a claim of the same general priority as the claims
of all other general creditors of the Association in addition to the
protection of FDIC insurance up to applicable limits. Therefore, except as
described below, the deposit account holder's claim would be solely in the
amount of the balance in his or her deposit account plus accrued interest.
The holder would have no interest in the assets of the Association above
that amount.
The Plan of Conversion provides that there shall be established, upon the
completion of the Conversion, a special "liquidation account" for the
benefit of Eligible Account Holders (i.e., eligible depositors at September
30, 1996) and Supplemental Account Holders (eligible depositors at
___________, 1998) in an amount equal to the net worth of the Association
as of the date of its latest consolidated statement of financial condition
contained in the final prospectus relating to the sale of shares of Holding
Company Common Stock in the Conversion. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account held in the Association on the
qualifying
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date. An Eligible Account Holder and Supplemental Eligible Account Holder's
interest as to each deposit account would be in the same proportion of the
total liquidation account as the balance in his or her account on September
30, 1996 and ___________, 1998, respectively, was to the aggregate balance
in all deposit accounts of Eligible Account Holders and Supplemental
Eligible Account Holders on such dates. However, if the amount in the
deposit account of an Eligible Account Holder or Supplemental Eligible
Account Holder on any annual closing date of the Association is less than
the lowest amount in such account on September 30, 1996 or ___________,
1998 and on any subsequent closing date, then the account holder's interest
in this special liquidation account would be reduced by an amount
proportionate to any such reduction, and the account holder's interest
would cease to exist if such deposit account were closed.
In addition, the interest in the special liquidation account would never be
increased despite any increase in the balance of the account holders'
related accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders were satisfied would be
distributed to the Holding Company as the sole stockholder of the
Association.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether the
Association, as converted, or another SAIF-insured institution is the
surviving institution, is deemed to be a complete liquidation for purposes
of distribution of the liquidation account and, in any such transaction,
the liquidation account would be assumed to the full extent authorized by
regulations of the OTS as then in effect. The OTS has stated that the
consummation of a transaction of the type described in the preceding
sentence in which the surviving entity is not a SAIF-insured institution
would be reviewed on a case-by-case basis to determine whether the
transaction should constitute a "complete liquidation" requiring
distribution of any then remaining balance in the liquidation account.
While the Association believes that such a transaction should not
constitute a complete liquidation, there can be no assurance that the OTS
will not adopt a contrary position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Association will continue, immediately after completion of the
Conversion, to provide its services to depositors and borrowers pursuant to its
existing policies and will maintain the existing management and employees of the
Association. Other than for payment of certain expenses incident to the
Conversion, no assets of the Association will be distributed in the Conversion.
Gloversville Federal will continue to be a member of the FHLB System,
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and its deposit accounts will continue to be insured by the FDIC. The affairs of
Gloversville Federal will continue to be directed by the existing Board of
Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, up to 575,000 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the Offering. Federal conversion regulations require,
with certain exceptions, that all shares offered in a conversion be sold in
order for the conversion to become effective.
The Subscription Offering will expire at noon, Gloversville, New York
time, on ______ __, 1998 (the "Subscription Expiration Date") unless extended by
the Association and the Holding Company. Depending on the availability of shares
and market conditions at or near the completion of the Subscription Offering,
the Holding Company may effect a Public Offering of shares to selected persons
through Capital Resources. To order Common Stock in connection with the Public
Offering and Direct Community Offering, if any, an executed stock order and
account withdrawal authorization and certification must be received by Capital
Resources prior to the termination of the Public Offering and Direct Community
Offering. The date by which orders must be received in the Public Offering, if
any, will be set by the Holding Company at the time of such offering. OTS
regulations require that all shares to be offered in the Conversion be sold
within a period ending not more than 45 days after the Subscription Expiration
Date (or such longer period as may be approved by the OTS) or, despite approval
of the Plan of Conversion by members, the Conversion will not be effected and
Gloversville Federal will remain in mutual form. This period expires on _______
__, 1998, unless extended with the approval of the OTS. In addition, if the
Offering is extended beyond ________ __, 1998, all subscribers will have the
right to modify or rescind their subscriptions and to have their subscription
funds returned promptly with interest. In the event that the Conversion is not
effected, all funds submitted and not previously refunded pursuant to the
Offering will be promptly refunded to subscribers with interest at the
Association's current passbook rate and all withdrawal authorizations will be
terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation. RP
Financial, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Association to prepare an appraisal of the estimated pro forma
market value of the Association and the Holding Company upon Conversion.
RP Financial will receive a fee of approximately $12,500 for its
appraisal in addition to its reasonable out-of-pocket expenses incurred in
connection with the appraisal. RP Financial has also agreed to assist in the
preparation of the Association's business plan for a separate fee of $2,500. The
Association has agreed to indemnify RP Financial under certain circumstances
against liabilities and expenses (including legal fees) arising out of, related
to, or based upon the Conversion.
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RP Financial has prepared an appraisal of the estimated pro forma
market value of the Association as converted. The RP Financial appraisal
concluded that, at ________ __, 1997, an appropriate range for the estimated pro
forma market value of the Association and the Holding Company was from a minimum
of $4.3 million to a maximum of $5.8 million with a midpoint of $5.0 million.
Assuming that the shares are sold at $10.00 per share in the Conversion, the
estimated number of shares to be issued in the Conversion is expected to be
between 425,000 and 575,000. The Purchase Price of $10.00 was determined by
discussion among the Boards of Directors of the Association, the Holding Company
and RP Financial, taking into account, among other factors, (i) the requirement
under OTS regulations that the Common Stock be offered on a manner that would
achieve the widest distribution of shares and (ii) liquidity in the Common Stock
subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Association with those of other thrift institutions.
The appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in New York, which affect the operations of thrift institutions, the
competitive environment within which the Association operates and the effect of
the Association becoming a subsidiary of the Holding Company. No detailed
individual analysis of the separate components of the Holding Company's and the
Association's assets and liabilities was performed in connection with the
evaluation. The Plan of Conversion requires that all of the shares subscribed
for in the Offering be sold at the same price per share. The Board of Directors
reviewed the appraisal, including the methodology and the appropriateness of the
assumptions utilized by RP Financial and determined that in its opinion the
appraisal was not unreasonable. The Estimated Valuation Range may be amended
with the approval of the OTS in connection with changes in the financial
condition or operating results of the Association or market conditions
generally. As described below, an amendment to the Estimated Valuation Range
above $6,612,500 would not be made without a resolicitation of subscriptions
and/or proxies except in limited circumstances.
If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, RP Financial, after taking into account factors
similar to those involved in its prior appraisal, will determine its estimate of
the pro forma market value of the Association and the Holding Company upon
Conversion, as of the close of the Offering.
If, based on the estimate of RP Financial, the aggregate pro forma
market value is not within the Estimated Valuation Range, RP Financial, upon the
consent of the OTS, will determine a new Estimated Valuation Range ("Amended
Valuation Range"). If the aggregate pro forma market value of the Association as
converted and the Holding Company has increased in the Amended Valuation Range
to an amount that does not exceed $6,612,500 (i.e., 15% above the maximum of the
Estimated Valuation Range), then the number of shares to be issued may be
increased to accommodate such increase in value without a resolicitation of
subscriptions and/or proxies. In such event the Association and the Holding
Company do not intend to resolicit subscriptions and/or proxies unless the
Association and the Holding Company then determine, after consultation with the
OTS, that circumstances otherwise require such a resolicitation. If, however,
the aggregate pro forma market value of the Holding Company and the Association,
as converted, at that time is less than $4,250,000 or more than $6,612,500, a
resolicitation of subscribers and/or proxies may be made, the Plan of Conversion
may be terminated or such other actions as the OTS may permit may be taken. In
the
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event that upon completion of the Offering, the pro forma market value of the
Holding Company and Association, as converted, is below $4,250,000 or above
$6,612,500 (15% above the maximum of the Estimated Valuation Range), the Holding
Company intends to file the revised appraisal with the SEC by post-effective
amendment to its Registration Statement on Form SB-2. See "Additional
Information." If the Plan of Conversion is terminated, all funds would be
returned promptly with interest at the rate of the Association's current
passbook rate, and holds on funds authorized for withdrawal from deposit
accounts would be released. If there is a resolicitation of subscriptions,
subscribers will be given the opportunity to cancel or change their
subscriptions and to the extent subscriptions are so canceled or reduced, funds
will be returned with interest at the Association's current passbook rate and
holds on funds authorized for withdrawal from deposit accounts will be released
or reduced. Stock subscriptions received by the Holding Company and the
Association may not be withdrawn by the subscriber and, if accepted by the
Holding Company and the Association, are final. If the Conversion is not
completed prior to ________ __, 2000 (two years after the date of the Special
Meeting), the Plan of Conversion will automatically terminate.
Any increase in the total number of shares of Common Stock to be
offered in the Conversion will dilute a subscriber's percentage ownership
interest and will reduce the pro forma net income and net worth on a per share
basis. A decrease in the number of shares to be issued in the Conversion will
increase a subscriber's proportionate ownership interest and will increase both
pro forma net income and net worth on a per share basis while decreasing that
amount on an aggregate basis.
No sale of the shares will take place unless, prior thereto, RP
Financial confirms to the OTS that, to the best of RP Financial's knowledge and
judgment, nothing of a material nature has occurred which would cause RP
Financial to conclude that the actual Purchase Price on an aggregate basis is
incompatible with its estimate of the aggregate pro forma market value of the
Holding Company and the Association as converted at the time of the sale. If,
however, the facts do not justify such a statement, the Offering or other sale
may be canceled, a new Estimated Valuation Range set and new offering held.
In preparing its valuation of the pro forma market value of the
Association and the Holding Company upon Conversion, RP Financial relied upon
and assumed the accuracy and completeness of all financial and statistical
information provided by the Association and the Holding Company. RP Financial
also considered information based upon other publicly available sources which it
believes are reliable. However, RP Financial does not guarantee the accuracy and
completeness of such information and did not independently verify the financial
statements and other data provided by the Association and the Holding Company or
independently value the assets or liabilities of the Association and the Holding
Company. The appraisal is not intended to be, and must not be interpreted as, a
recommendation of any kind as to the advisability of voting to approve the
Conversion or of purchasing shares of Common Stock. The appraisal considers
Gloversville Federal and the Holding Company only as going concerns and should
not be considered as any indication of the liquidation value of Gloversville
Federal or the Holding Company. Moreover, the appraisal is necessarily based on
many factors which change from time to time. There can be no assurance that
persons who purchase shares in the Conversion will be able to sell such shares
at prices at or above the Purchase Price.
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Subscription Offering
In accordance with OTS regulations, non-transferable Subscription
Rights have been granted under the Plan of Conversion to the following persons
in the following order of priority: (1) Eligible Account Holders (deposit
account holders of the Association maintaining an aggregate balance of $50 or
more as of September 30, 1996), (2) the Holding Company and the Association's
Tax-Qualified Employee Plans; provided, however, that the Tax-Qualified Employee
Plans shall have first priority Subscription Rights to the extent that the total
number of shares of Common Stock sold in the Conversion exceeds the maximum of
the Estimated Valuation Range; (3) Supplemental Eligible Accounts Holders
(deposit account holders of the Association maintaining a balance of $50 or more
as of ___________, 1998), (4) Other Members (depositors of the Association at
the close of business on _______ __, 1998 and Borrowers of the Association on
________ __, 198_ and _______ __, 1998, the voting record date for the Special
Meeting) and (5) officers, directors and employees of the Association. All
subscriptions received will be subject to the availability of Holding Company
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.
Category No. 1 is reserved for the Association's Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Eligible Account Holders to permit each such depositor to
purchase shares in this Category in an amount equal to the greater of $150,000
of Common Stock, one-tenth of one percent (.10%) of the total shares offered in
the Conversion, or 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common Stock to be issued
by a fraction of which the numerator is the amount of the qualifying deposits of
the Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Association, in each
case on the Eligibility Record Date. To the extent shares are oversubscribed in
this category, shares shall be allocated first to permit each subscribing
Eligible Account Holder to purchase, to the extent possible, 100 shares and
thereafter among each subscribing Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total Qualifying Deposits of
all subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
However, such plans shall not, in the aggregate, purchase more than 10% of the
Holding Company Common Stock issued. The ESOP intends to purchase a total of 8%
of the Common Stock issued in the Conversion under this category. Subscription
Rights received pursuant to this category shall be subordinated to all rights
received by Eligible Account Holders to purchase shares pursuant to Category No.
1; provided, however, that notwithstanding any provision of the Plan of
Conversion to the contrary, the Tax-Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range.
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Category No. 3 is reserved for the Association's Supplemental Eligible
Account Holders. Subscription Rights to purchase shares under this category will
be allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $150,000 of Common Stock, one-tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Association in each case on
___________, 199_ (the "Supplemental Eligibility Record Date"), subject to the
overall purchase limitation after satisfying the subscriptions of Eligible
Account Holders and Tax Qualified Employee Plans. Any non-transferable
Subscription Rights received by an Eligible Account Holder shall reduce, to the
extent thereof, the subscription rights to be distributed to such person as a
Supplemental Eligible Account Holder. In the event of an oversubscription for
shares, the shares available shall be allocated first to permit each subscribing
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation (including the number
of shares, if any, allocated in accordance with Category No. 1) equal to 100
shares, and thereafter among each subscribing Supplemental Eligible Account
Holder pro rata in the same proportion that his Qualifying Deposit bears to the
total Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
Subscription Rights to Other Members to purchase in this Category up to the
greater of $150,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, the
shares available shall be allocated among the subscribing Other Members pro rata
in the same proportion that his number of votes on the Voting Record Date bears
to the total number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based on the
Association's mutual charter and bylaws in effect on the date of approval by
members of this Plan of Conversion.
Each depositor (including individual retirement accounts ("IRAs") and
Keogh account beneficiaries) as of __________ __, 1998 and Borrower as of
________ __, 199_ and _______ __, 1998 and the date of the Special Meeting is
entitled at the Special Meeting to cast one vote for each $100 or fraction
thereof, of the aggregate withdrawal value of all of such depositor's savings
accounts in the Association as of the applicable voting record date, up to a
maximum of 1,000 votes. However, no member may vote more than 1,000 votes. In
general, accounts held in different ownership capacities will be treated as
separate memberships for purposes of applying the 1,000 vote limitation. For
example, if two persons hold a $100,000 account in their joint names and each of
the persons also holds a separate account for $100,000 in his own name, each
person would be entitled to 1,000 votes for each separate account and they would
together be entitled to cast 1,000 votes on the basis of the joint account for a
total of 3,000 votes.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Association, to purchase in this
Category up to $150,000 of the Common Stock
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to the extent that shares are available after satisfying the subscriptions of
eligible subscribers in preference Categories 1, 2, 3 and 4. The total number of
shares which may be purchased in the conversion under this Category may not
exceed 24% of the number of shares of Holding Company Common Stock. In the event
of an oversubscription, the available shares will be allocated pro rata among
all subscribers in this category based on the number of shares ordered by each
subscriber.
Public Offering and Direct Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering and/or Direct Community Offering on a best-efforts basis through
Capital Resources in such a manner as to promote a wide distribution of the
Common Stock. Any orders received in connection with the Public Offering and
Direct Community Offerings if any, will receive a lower priority than orders
properly made in the Subscription Offering by persons properly exercising
Subscription Rights. In addition depending on market conditions, Capital
Resources may utilize selected broker-dealers ("Selected Dealers") in connection
with the sale of shares in the Public Offering, if any. Common Stock sold in the
Public Offering and Direct Community Offerings will be sold at $10.00 per share
and hence will be sold at the same price as all other shares in the Conversion.
The Holding Company and the Association have the right to reject orders, in
whole or in part, in their sole discretion in the Public Offering and Direct
Community Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $150,000 of Common Stock in the
Public Offering and Direct Community Offering. To order Common Stock in
connection with the Public Offering or Direct Community Offering, if any, an
executed stock order and account withdrawal authorization and certification must
be received by Capital Resources prior to the termination of such Offering. The
date by which orders must be received in the Public Offering and Direct
Community Offering will be set by the Holding Company at the time of
commencement of such offering; provided however, if the Offering is extended
beyond __________ __, 1998, each subscriber will have the opportunity to
maintain, modify or rescind his or her subscription. In such event, all
subscription funds will be promptly returned with interest to each subscriber
unless he or she affirmatively indicates otherwise.
Capital Resources may enter into agreements with Selected Dealers to
assist in the sale of shares in the Public Offering. Selected Dealers may only
solicit indications of interest from their customers to place orders with the
Holding Company as of a certain date ("Order Date") for the purchase of shares
of Conversion Stock with the authorization of Capital Resources. When and if
Capital Resources and the Holding Company believe that enough indications of
interest and orders have been received to consummate the Conversion, Capital
Resources will request, as of the Order Date, Selected Dealers to submit orders
to purchase shares for which they have received indications of interest from
their customers. Selected Dealers will send confirmation of the orders to such
customers on the next business day after the Order Date. Customers who authorize
Selected Dealers to debit their brokerage accounts are required to have the
funds for payment in their account on but not before the closing date of the
Conversion. On the closing date, Selected Dealers will remit funds to the
account that the Holding Company established for each Selected Dealer. Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will
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be insured up to the applicable legal limit. After payment has been received by
the Holding Company from Selected Dealers, funds will earn interest at the
Association's passbook rate until the completion of the Offering. In the event
the Conversion is not consummated as described above, funds with interest will
be returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage account.
In the event the Holding Company determines to conduct a Public
Offering and/or Direct Community Offering, persons to whom a prospectus is
delivered may subscribe for shares of Common Stock by submitting a completed
stock order and account withdrawal authorization (provided by Capital Resources)
and an executed certification along with immediately available funds (which may
be obtained by debiting a Capital Resources account) to Capital Resources by not
later than the public offering expiration date (as established by the Holding
Company). Promptly upon receipt of available funds, together with a properly
executed stock order and account withdrawal authorization and certification,
Capital Resources will forward such funds to Gloversville Federal to be
deposited in a subscription escrow account.
If a subscription in the Public Offering and/or Direct Community
Offering is accepted, promptly after the completion of the Conversion, a
certificate for the appropriate amount of shares will be forwarded to Capital
Resources as nominee for the beneficial owner. In the event that a subscription
is not accepted or the Conversion is not consummated, the Association will
promptly refund with interest the subscription funds to Capital Resources which
will then return the funds to subscribers' accounts. If the aggregate pro forma
market value of the Company and the Association, as converted, is less than
$4,250,000 or more than $6,612,500, each subscriber will have the right to
modify or rescind his or her subscription.
The opportunity to subscribe for shares of Common Stock in the Public
Offering and/or Direct Community Offering is subject to the right of the
Association and the Holding Company, in their sole discretion, to accept or
reject any such orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $150,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 34% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not
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include a Tax-Qualified Employee Plan. Moreover, any shares attributable to the
officers and directors and their associates, but held by a Tax-Qualified
Employee Plan (other than that portion of a plan which is self-directed) shall
not be included in calculating the number of shares which may be purchased under
the limitations in this paragraph. Shares purchased by employees who are not
officers or directors of the Association, or their associates, are not subject
to this limitation. The term "associate" is used above to indicate any of the
following relationships with a person: (i) any corporation or organization
(other than the Holding Company or the Association or a majority-owned
subsidiary of the Holding Company or the Association) of which a person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity security; (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; and (iii) any relative or
spouse of such person or any relative of such spouse who has the same home as
such person or who is a director or officer of the Holding Company or the
Association or any subsidiary of the Holding Company or the Association.
The Boards of Directors of the Holding Company and the Association, in
their sole discretion, may increase the maximum purchase limitations referred to
above up to 9.99% of the total shares to be offered in the Offering, provided
that orders for shares exceeding 5.0% of the shares being offered in the
Offering shall not exceed, in the aggregate, 10% of the shares being offered in
the Offering or decrease the maximum purchase limitation to one percent of the
Common Stock offered in the Conversion. Requests to purchase additional shares
of Common Stock under this provision will be allocated by the Boards of
Directors on a pro rata basis giving priority in accordance with the priority
rights set forth above. Depending on market and financial conditions, the Boards
of Directors of the Holding Company and the Association, with the approval of
the OTS and without further approval of the members, may increase or decrease
any of the above purchase limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the
Association or the Holding Company. See "- Restrictions on Transfer of
Subscription Rights and Shares."
Marketing Arrangements
Gloversville Federal has retained Capital Resources, a broker-dealer
registered with the Securities and Exchange Commission (the "SEC") and a member
of the National Association of Securities Dealers, Inc. (the "NASD"), to consult
with and advise the Association and to assist in the distribution of shares in
the Offering on a best-efforts basis. Capital Resources is headquartered in
Washington, D.C. and its phone number is (202) 466-5685. Among the services
Capital Resources will perform are (i) training and educating Gloversville
Federal employees, who will be performing certain ministerial functions in the
Offering, regarding the mechanics and regulatory requirements of the stock sale
process, (ii) keeping records of orders for shares of Common Stock, (iii)
targeting Gloversville Federal's sales efforts including preparation of
marketing materials, (iv) assisting in the
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collection of proxies from Members for use at the Special Meeting, and (v)
providing its registered stock representatives to staff the Stock Information
Center and meeting with and assisting potential subscribers. For its services,
Capital Resources will receive a fee of $90,000.
To the extent registered broker-dealers are utilized, the Holding
Company will pay a fee, to be negotiated, to such Selected Dealers, including
any sponsoring dealer fees. Fees paid to Capital Resources and to any other
broker-dealer may be deemed to be underwriting fees, and Capital Resources and
such other broker-dealers may be deemed to be underwriters. The Holding Company
has agreed to reimburse Capital Resources for its reasonable out-of-pocket
expenses (not to exceed $15,000 without management approval), and its legal fees
and expenses (not to exceed $20,000 without management approval) and to
indemnify Capital Resources against certain claims or liabilities, including
certain liabilities under the Securities Act.
In the event there is a Public Offering or Direct Community Offering,
procedures may be implemented to permit a purchaser to pay for his or her shares
with funds held by or deposited with Capital Resources or a "Selected Dealer."
See "- Public Offering and Direct Community Offering."
Directors and executive officers of the Holding Company and the
Association may, to a limited extent, participate in the solicitation of offers
to purchase Common Stock. Sales will be made from a Stock Information Center
located away from the publicly accessible areas (including teller windows) of
the Association's office. Other employees of the Association may participate in
the Offering in administrative capacities, providing clerical work in effecting
a sales transaction or answering questions of a potential purchaser provided
that the content of the employee's responses is limited to information contained
in this Prospectus or other offering document. Other questions of prospective
purchasers will be directed to executive officers or registered representatives
of Capital Resources. Such other employees have been instructed not to solicit
offers to purchase Common Stock or provide advice regarding the purchase of
Common Stock. To the extent permitted under applicable law, directors and
executive officers of the Holding Company and the Association may participate in
the solicitation of offers to purchase Common Stock, except in the State of
Texas where only a representative of Capital Resources will be able to offer and
sell securities to Texas residents. The Holding 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, directors and employees to
participate in the sale of Common Stock. No officer, director or employee of the
Holding Company or the Association 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.
A conversion center will be established at the Association's office, in
an area separated from the Association's banking operations. No sales activities
will be conducted in the public areas of the Association's offices, but persons
will be able to obtain a Prospectus and sales information at such places, and
employees will inform prospective purchasers to direct their questions to the
conversion center and will provide such persons with the telephone number of the
conversion center. Completed stock orders will be accepted at such places, and
will be promptly forwarded to the conversion center for processing.
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The Association and the Holding Company 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, pursuant to the Plan of Conversion,
reside. However, no shares will be offered or sold under the Plan of Conversion
to any such person who (1) resides in a foreign country or (2) resides in a
state of the United States in which a small number of persons otherwise eligible
to subscribe for shares under the Plan of Conversion reside or as to which the
Association and the Holding Company determine that compliance with the
securities law of such state would be impracticable for reasons of cost or
otherwise, including, but not limited to, a requirement that the Association or
the Holding Company or any of their officers, directors or employees register,
under the securities laws of such state, as a broker, dealer, salesmen or agent.
No payments will be made in lieu of the granting of Subscription Rights to any
such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed order form
and certification form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from the Association's deposit
account (which may be given by completing the appropriate blanks in the order
form), must be received by the Association by noon, Gloversville, New York time,
on ________ __, 1998. 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.
To order Common Stock in connection with the Public Offering and/or
Direct Community Offering, if any, an executed stock order and account
withdrawal authorization and certification must be received by Capital Resources
prior to the termination of such offering. The date by which orders must be
received in the Public Offering and Direct Community Offering will be set by the
Holding Company at the time of commencement of such offerings, if any; provided
however, if the Offering is extended beyond ________ __, 1998, each subscriber
will have the opportunity to maintain, modify or rescind his or her
subscription. In such event, all subscription funds will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise. In addition, the Holding Company and the Association are not
obligated to accept orders submitted on photocopies or facsimile order forms.
The Holding Company and the Association 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 order form or stock
order and account withdrawal authorization may not be modified, amended or
rescinded without the consent of the Holding Company and the Association unless
the Conversion has not been completed by _________ __, 1998.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Association, (ii) by check
or money order or (iii) by authorization of withdrawal from deposit accounts
maintained with the Association. Interest will be paid on payments made by cash,
check, bank draft or money order, whether or not the Conversion is complete or
terminated, at the Association's current passbook rate from the date payment is
received until the completion or termination of the Conversion. If payment is
made by authorization of withdrawal from deposit or time accounts, the funds
authorized to be withdrawn from such account
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will continue to accrue interest at the contractual rates until completion or
termination of the Conversion. Such funds will be unavailable to the depositor
until completion or termination of the Conversion.
If a subscriber authorizes the Association to withdraw the amount of
the Purchase Price from his certificate account, the Association will do so as
of the effective date of Conversion. The Association will waive any applicable
penalties for early withdrawal from time accounts at Gloversville Federal for
the purpose of purchasing Common Stock. 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
rate paid on the remaining balance of the certificate will earn interest at the
then-current passbook rate.
Owners of self-directed IRAs may under certain circumstances use the
assets of such IRAs to purchase shares of Common Stock in the Offering, provided
that such IRAs are self-directed and are not maintained at the Association.
Persons with IRAs maintained at the Association must have their accounts
transferred to an unaffiliated institution or broker to purchase shares of
Common Stock in the Offering. In addition, the provisions of the ERISA and
Internal Revenue Service regulations require that officers, directors and 10%
stockholders who use self-directed IRA funds to purchase shares of Common Stock
in the Offering make such purchases for the exclusive benefit of the IRAs.
If the ESOP subscribes for shares during the Subscription Offering,
such plan 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 the Purchase Price upon consummation of the Conversion, provided that there
is in force from the time of its subscription until such time, a loan commitment
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
For information regarding the submission of orders in connection with
the Public Offering and Direct Community Offering, see "- Public Offering and
Direct Community Offering."
All refunds and any interest due will be paid after completion of the
Conversion. Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Association, or to such other address as may be specified in
properly completed order forms, as soon as practicable following consummation of
the sale of all shares of Common Stock. Any certificates returned as
undeliverable will be disposed of in accordance with applicable law.
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under 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
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will only be distributed with a prospectus. The Association will
accept for processing only orders submitted on original order forms with the
form of certification. Photocopies or facsimile copies of order forms or
certifications will not be accepted. Payment by cash, check, money order, bank
draft or debit authorization to an existing account at the Association must
accompany the order form. No wire transfers will be accepted.
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In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (September 30,
1996), Supplemental Eligibility Record Date (___________, 1998) and/or the
Voting Record Date (_______ __, 1997) must list all accounts on the stock order
form giving all names on each account and the account number
as of the applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, 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 Association 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 who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed order forms and certifications 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 send order forms and funds to the Association for deposit in a segregated
account. If such alternative procedure is employed, purchasers' funds are not
required to be in their accounts with Selected Dealers until the debit date.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members and employees, officers and directors, from transferring
or entering into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Such rights may be
executed only by the person to whom they are granted and only for his account.
Each person exercising such subscription rights will be required to certify that
he is purchasing shares solely for his own account and that he has no agreement
or understanding regarding the sale or transfer of such shares. The OTS
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 Association and the Holding Company may pursue any and all legal
and equitable remedies in the event they become aware of the transfer of
subscription rights and will not honor orders known by them to involve the
transfer of such rights.
Except as to directors and executive officers of the Association and
the Holding Company, the shares of Common Stock sold in the Conversion will be
freely transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
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purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Association and the Holding Company will
give appropriate instructions to the transfer agent for the Common Stock with
respect to the applicable restriction upon transfer of any restricted shares.
Any shares issued at a later date as a stock dividend, stock split or otherwise,
to holders of restricted stock, shall be subject to the same restrictions that
may apply to such restricted stock. Holding Company stock (like the stock of
most companies) is subject to the requirements of the Securities Act.
Accordingly, Holding Company stock may be offered and sold only in compliance
with registration requirements or pursuant to an applicable exemption from
registration.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of Holding
Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Gloversville Federal have
indicated their intention to purchase in the Conversion an aggregate of $385,500
of Common Stock, equal to .90%, .77%, .67% or .58% of the number of shares to be
issued in the Offering, at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. The following table sets
forth information regarding Subscription Rights to Common Stock intended to be
exercised by each of the directors of the Association, including members of
their immediate family and their IRAs, and by all directors and executive
officers as a group. The following table assumes that 5.0 million shares, the
midpoint of the Estimated Valuation Range, of Common Stock are issued at the
Purchase Price of $10.00 per share and that sufficient shares will be available
to satisfy the subscriptions indicated. The table does not include shares to be
purchased through the ESOP (8.0% of shares issued in the Conversion) or awarded
under the proposed RRP (an amount of shares which may be acquired after
stockholder ratification of such plan equal to 4.0% of the shares sold in the
Conversion) or proposed Stock Option Plan (an amount of shares which may be
issued after stockholder ratification of such plan equal to 10.0% of the shares
sold in the Conversion).
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<TABLE>
<CAPTION>
Number
Aggregate of Shares Percent of
Purchase at $10.00 Shares at
Name Title Price per Share(1) Midpoint
---- ----- ----- ------------ --------
<S> <C> <C> <C> <C>
Priscilla J. Bell Director $10,000 1,000 .02%
Timothy E. Delaney Director 100,000 10,000 .20
Lewis E. Kolar Director, President and Chief
Executive Officer 75,000 7,500 .15
Donald I. Lee Director and Secretary 50,000 5,000 .10
Richard D. Ruby Chairman of the Board 100,000 10,000 .20
Robert J. Sofarelli Director 20,000 2,000 .04
All other executive officers
as a group 30,500 3,050 .07
All directors and executive
officers as a group (8 persons) 385,500 38,550 .77
</TABLE>
- ----------
(1) Does not include subscriptions by the ESOP, or options which are intended
to be granted under the proposed Stock Option Plan or restricted stock
awards which are intended to be granted under the proposed RRP, subject to
stockholder ratification of such plans.
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Association's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Association and the Holding Company
anticipate completing the sale of shares offered in the Conversion within this
period, if the Board of Directors of the Association and the Holding Company are
of the opinion that economic conditions generally or the market for publicly
traded thrift institution stocks make undesirable a sale of the Common Stock,
then the Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs of completing the Conversion. Significant changes in the
Association's operations and financial condition, the aggregate market value of
the shares to be issued in the Conversion and general market conditions may
occur during such material delay. In the event the Conversion is not consummated
within 24 months after the date of the Special Meeting of Members, the
Association would charge accrued Conversion costs to then current period
operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Association and the Holding Company and will
be final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the
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Boards of Directors of the Association and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the
Association and the Holding Company, as a result of comments from regulatory
authorities or otherwise, at any time with the concurrence of the OTS and the
SEC. In the event the Plan of Conversion is substantially amended, other than a
change in the maximum purchase limits set forth herein, the Holding Company
intends to notify subscribers of the change and to refund subscription funds
with interest unless subscribers affirmatively elect to increase, decrease or
maintain their subscriptions. The Plan of Conversion will terminate if the sale
of all shares is not completed within 24 months after the date of the Special
Meeting of Members. The Plan of Conversion may be terminated by the Boards of
Directors of the Holding Company and the Association with the concurrence of the
OTS, at any time. A specific resolution approved by a two-thirds vote of the
Boards of Directors of the Holding Company and the Association would be required
to terminate the Plan of Conversion prior to the end of such 24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company
may not repurchase any shares of its capital stock, except in the case of an
offer to repurchase on a pro rata basis made to all holders of capital stock of
the Holding Company. Any such offer shall be subject to the prior approval of
the OTS. Furthermore, the Holding Company may not repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory capital of the
Association below the amount required for the liquidation account to be
established pursuant to OTS regulations and (ii) except in compliance with the
requirements of the OTS' capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12- month period, (iii) the repurchases do
not cause the Association to become undercapitalized, and (iv) the Holding
Company provides notice to the OTS at lease 10 days prior to the commencement of
a repurchase program and the OTS does not object to such regulations. In
addition, the above limitations do not preclude repurchases of capital stock by
the Holding Company in the event applicable federal regulatory limitations are
subsequently liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Association of either a ruling from the IRS or an opinion of
Silver, Freedman & Taff, L.L.P. with respect to federal taxation, and an opinion
of KPMG Peat Marwick LLP with respect to New York taxation, to the effect that
consummation of the Conversion will not be taxable to the converted Association
or the Holding Company. The full text of the Silver, Freedman & Taff, L.L.P.
opinion, the RP Financial Letter (hereinafter defined) and the KPMG Peat Marwick
LLP opinion, which opinions are summarized herein, were filed with the SEC as
exhibits to the Holding Company's Registration Statement on Form SB-2. See
"Additional Information."
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An opinion which is summarized below has been received from Silver,
Freedman & Taff, L.L.P. with respect to the proposed Conversion of the
Association to the stock form. The Silver, Freedman Taff, L.L.P. opinion states
that (i) the Conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended, and no gain or
loss will be recognized to the Association in either its mutual form or its
stock form by reason of the proposed Conversion, (ii) no gain or loss will be
recognized to the Association in its stock form upon the receipt of money and
other property, if any, from the Holding Company for the stock of the
Association; and no gain or loss will be recognized to the Holding Company upon
the receipt of money for Common Stock of the Holding Company; (iii) the assets
of the Association in either its mutual or its stock form will have the same
basis before and after the Conversion; (iv) the holding period of the assets of
the Association in its stock form will include the period during which the
assets were held by the Association in its mutual form prior to Conversion; (v)
gain, if any, will be realized by the depositors of the Association upon the
constructive issuance to them of withdrawable deposit accounts of the
Association in its stock form, nontransferable subscription rights to purchase
Holding Company Common Stock and/or interests in the Liquidation Account (any
such gain will be recognized by such depositors, but only in an amount not in
excess of the fair market value of the subscription rights and Liquidation
Account interests received); (vi) the basis of the account holder's savings
accounts in the Association after the Conversion will be the same as the basis
of his or her savings accounts in the Association prior to the Conversion; (vii)
the basis of each account holder's interest in the Liquidation Account is
assumed to be zero; (viii) based on the RP Financial Letter, as hereinafter
defined, the basis of the subscription rights will be zero; (ix) the basis of
the Holding Company Common Stock to its stockholders will be the purchase price
thereof; (x) a stockholder's holding period for Holding Company Common Stock
acquired through the exercise of subscription rights shall begin on the date on
which the subscription rights are exercised and the holding period for the
Conversion Stock purchased in the Offering will commence on the date following
the date on which such stock is purchased; (xi) the Association in its stock
form will succeed to and take into account the earnings and profits or deficit
in earnings and profits, of the Association, in its mutual form, as of the date
of Conversion; (xii) the Association, immediately after Conversion, will succeed
to and take into account the bad debt reserve accounts of the Association, in
mutual form, and the bad debt reserves will have the same character in the hands
of the Association after Conversion as if no Conversion had occurred; and (xiii)
the creation of the Liquidation Account will have no effect on the Association's
taxable income, deductions or addition to reserve for bad debts either in its
mutual or stock form.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Association will receive a letter from RP Financial (the "RP Financial
Letter") which, based on certain assumptions, will conclude that the
Subscription Rights to be received by Eligible Account Holders, Supplemental
Eligible Account Holders and other eligible subscribers do not have any economic
value at the time of distribution or at the time the Subscription Rights are
exercised, whether or not a Public Offering takes place.
The Association has also received an opinion of Silver, Freedman &
Taff, L.L.P. to the effect that, based in part on the RP Financial Letter: (i)
no taxable income will be realized by depositors
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as a result of the exercise of non-transferable Subscription Rights to purchase
shares of Holding Company Common Stock at fair market value; (ii) no taxable
income will be recognized by borrowers, directors, officers and employees of the
Association on the receipt or exercise of Subscription Rights to purchase shares
of Holding Company Common Stock at fair market value; and (iii) no taxable
income will be realized by the Association or Holding Company on the issuance of
Subscription Rights to eligible subscribers to purchase shares of Holding
Company Common Stock at fair market value.
Notwithstanding the RP Financial Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Silver, Freedman & Taff, L.L.P.'s opinion that gain or income
will be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Association and/or the
Holding Company may be taxable on the distribution of the Subscription Rights.
With respect to New York taxation, the Association has received an
opinion from KPMG Peat Marwick LLP to the effect that the New York tax
consequences to the Association, in its mutual or stock form, the Holding
Company, eligible account holders, parties receiving Subscription Rights,
parties purchasing conversion stock, and other parties participating in the
Conversion will be the same as the federal income tax consequences described
above.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and KPMG Peat Marwick LLP, as well as the RP Financial Letter, have
no binding effect or official status, and no assurance can be given that the
conclusions reached in any of those opinions would be sustained by a court if
contested by the IRS or the Delaware or New York tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Association and the Holding
Company are not aware of any effort that might be made to obtain control of the
Holding Company after Conversion, the Board of Directors, as discussed below,
believe that it is appropriate to include certain provisions as part of the
Holding Company's certificate of incorporation to protect the interests of the
Holding Company and its stockholders from takeovers which the Board of Directors
of the Holding Company might conclude are not in the best interests of the
Association, the Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Association's proposed stock charter and
bylaws, reference should be made in each case to the document in question, each
of which is part of the Association's Conversion Application filed with the OTS
and the Holding Company's Registration Statement filed with the SEC. See
"Additional Information."
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Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of six directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws also pro
vide that any vacancy occurring in the Board of Directors, including a vacancy
created by an increase in the number of directors, shall be filled for the
remainder of the unexpired term by a majority vote of the directors then in
office. Finally, the bylaws impose certain notice and information requirements
in connection with the nomination by stockholders of candidates for election to
the Board of Directors or the proposal by stockholders of business to be acted
upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board. Stockholders are
not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of
the Holding Company authorizes 100,000 shares of serial preferred stock, $.01
par value. The Holding Company is authorized to issue preferred stock from time
to time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of preferred stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any preferred stock and does not intend to issue any preferred stock except on
terms which the Board deems to be in the best interests of the Holding Company
and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides 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
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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. This
limitation would not inhibit any person from soliciting (or voting) proxies from
other beneficial owners for more than 10% of the Common Stock or from voting
such proxies. Beneficial ownership is to be determined pursuant to Rule 13d-3 of
the General Rules and Regulations of the Exchange Act, and in any event includes
shares beneficially owned by any affiliate of such person, shares which such
person or his affiliates (as defined in the certificate of incorporation) have
the right to acquire upon the exercise of conversion rights or options and
shares as to which such person and his affiliates have or share investment or
voting power but shall not include shares beneficially owned by directors,
officers and employees of the Association or the Holding Company. This provision
will be enforced by the Board of Directors to limit the voting rights of persons
beneficially owning more than 10% of the stock and thus could be utilized in a
proxy contest or other solicitation to defeat a proposal that is desired by a
majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and executive officers (8
persons) intend to purchase approximately $385,500 of the shares offered in the
Conversion and may control the voting of additional shares through the ESOP and
proposed RRP and Stock Option Plan, the Board and management may be able to
block the approval of combinations requiring an 80% vote even where a majority
of the stockholders vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding Company's voting stock, provided, however, that approval by at least
80% of the outstanding voting stock is generally required for certain provisions
(i.e., provisions relating to number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of at least 80% of the total votes eligible to be voted
at a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the
Association believes that the provisions described above are prudent and will
reduce the Holding Company's vulnerability to takeover
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attempts and certain other transactions which have not been negotiated with and
approved by its Board of Directors. These provisions will also assist the
Association in the orderly deployment of the conversion proceeds into productive
assets during the initial period after the Conversion. The Board of Directors
believes these provisions are in the best interest of the Association and of the
Holding Company and its stockholders. In the judgment of the Board of Directors,
the Holding Company's Board will be in the best position to determine the true
value of the Holding Company and to negotiate more effectively for what may be
in the best interests of its stockholders. Ac cordingly, the Board of Directors
believes that it is in the best interests of the Holding Company and its
stockholders to encourage potential acquirors to negotiate directly with the
Board of Directors of the Holding Company and that these provisions will
encourage such negotiations and discourage hostile takeover attempts. It is also
the view of the Board of Directors that these provisions should not discourage
persons from proposing a merger or other transaction at prices reflective of the
true value of the Holding Company and which is in the best interests of all
stockholders.
Attempts to take over financial institutions and their holding
companies have recently become increasingly common. Takeover attempts which have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms which may be less favorable than
might otherwise be available. A transaction which is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the Holding
Company and its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Association and the Holding Company as to the
benefits to stock holders of these provisions of the Holding Company's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Holding Company's Board, but pursuant to 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 any opportunity to do so. Such provi sions will also render the removal
of the Holding Company's Board of Directors and of management more difficult.
The Board will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Association and the Holding Company, however, have concluded that the
potential benefits outweigh the possible disadvantages.
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<PAGE>
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Delaware corporation. The Holding Company and the Association
do not presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law
(the "DGCL") provides that buyers who acquire more than 15% of the outstanding
stock of a Delaware corporation, such as the Holding Company, are prohibited
from completing a hostile takeover of such corporation for three years. However,
the takeover can be completed if (i) the buyer, while acquiring the 15%
interest, acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
However, these provisions of the DGCL do not apply to Delaware
corporations with less than 2,000 stockholders or which do not have voting stock
listed on a national exchange or listed for quotation with a registered national
securities association. Gloversville Federal 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 this provision. At the
present time, the Board of Directors does not intend to propose any such
amendment.
Federal Regulation. A federal regulation prohibits any person prior to
the completion of a conversion from transferring, or entering into any agreement
or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition would be, the beneficial owner of more than 10% of such stock.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
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<PAGE>
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association's directors, or a determination by the OTS that the acquiror
has the power to direct, or directly or indirectly to exercise a controlling
influence over, the management or policies of the institution. Acquisition of
more than 10% of any class of a savings association's voting stock, if the
acquiror also is subject to any one of eight "control factors," constitutes a
rebuttable determination of control under the OTS regulations. Such control
factors include the acquiror being one of the two largest stockholders. The
determination of control may be rebutted by submission to the OTS, prior to the
acquisition of stock or the occurrence of any other circumstances giving rise to
such determination, of a statement setting forth facts and circumstances which
would support a finding that no control relationship will exist and containing
certain undertakings. The OTS regulations provide that persons or companies
which acquire beneficial ownership exceeding 10% or more of any class of a
savings association's stock must file with the OTS a certification that the
holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK
Holding Company Capital Stock
The 1,300,000 shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of
1,200,000 shares of Common Stock (par value $.01 per share) and 100,000 shares
of serial preferred stock (par value $.01 per share). The Holding Company
currently expects to issue between 425,000 and 575,000 shares (subject to
increase to 661,250) of Common Stock in the Conversion and no shares of serial
preferred stock. The aggregate par value of the issued shares will constitute
the capital account of the Holding Company on a consolidated basis. Upon payment
of the Purchase Price, all shares issued in the Conversion will be duly
authorized, fully paid and nonassessable. The balance of the purchase price of
Common Stock, less expenses of Conversion, will be reflected as paid-in capital
on a consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding
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<PAGE>
Company will represent non-withdrawable capital, will not be of an insurable
type and will not be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation,
dissolution or winding up of the Association, the Holding Company, as the sole
holder of the Association's capital stock would be entitled to receive, after
payment or provision for payment of all debts and liabilities of the Association
(including all deposit accounts and accrued interest thereon) and after
distribution of the balance in the special liquidation account to Eligible and
Supplemental Account Holders, all assets of the Association available for
distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Association." If preferred stock is issued subsequent to the Conversion, the
holders thereof may have a priority over the holders of Common Stock in the
event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the
Holding Company will be authorized to issue 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. Preferred
stock may rank prior to the Common Stock as to dividend rights, liquidation
preferences, or both, and may have full or limited voting rights. The holders of
preferred stock will be entitled to vote as a separate class or series under
certain circumstances, regardless of any other voting rights which such holders
may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein or as otherwise
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<PAGE>
required to approve the transaction in which the additional authorized shares of
common stock or authorized shares of preferred stock would be issued, no
stockholder approval will be required for the issuance of these shares.
Accordingly, the Board of Directors of the Holding Company, without stockholder
approval, can issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of
Stock and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a
policy of paying cash dividends on the Common Stock in the future. No decision
has been made, however, as to the amount or timing of such dividends, if any.
The declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Association to
pay dividends to the Holding Company. OTS regulations do not permit the
Association to declare or pay a cash dividend on its stock or repurchase shares
of its stock if the effect thereof would be to cause its regulatory capital to
be reduced below the amount required for the liquidation account or to meet
applicable regulatory capital requirements. See "Regulation - Limitations on
Dividends and Other Capital Distributions" for information regarding OTS
regulations governing the Association's ability to pay dividends to the Holding
Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Association and (ii) holding the stock of
Gloversville Federal, the Holding Company's ability to pay dividends will be
limited, in part, by the Association's ability to pay dividends, as set forth
above.
Earnings appropriated to the Association's "Excess" bad debt reserves
and deducted for federal income tax purposes cannot be used by the Association
to pay cash dividends to the Holding Company without adverse tax consequences.
See "Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for Gloversville Federal by
the firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue, NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has
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<PAGE>
consented to the references herein to its opinions. The New York income tax
consequences of the Conversion will be passed upon by KPMG Peat Marwick LLP.
KPMG Peat Marwick LLP has consented to references herein to its opinion. Capital
Resources has been represented in the Conversion by Serchuk & Zelermyer, LLP, 81
Main Street, White Plains, New York.
EXPERTS
The financial statements of Gloversville Federal as of September 30,
1997 and 1996 and for each of the years in the three year period ended September
30, 1997 appearing in this Prospectus have been audited by KPMG Peat Marwick
LLP, independent certified public accountants, as set forth in their report
thereon appearing elsewhere herein, and is included in reliance upon such
report, given upon the authority of such firm as experts in accounting and
auditing.
RP Financial has consented to the inclusion herein of the summary of
its letter to the Association setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Association as converted and
to the reference to its opinion that subscription rights received by Eligible
Account Holders, Supplemental Eligible Account Holders and other eligible
subscribers do not have any economic value.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement
under the Securities Act with respect to the Common Stock offered hereby. As
permitted by the rules and regulations of the SEC, this Prospectus does not
contain all the information set forth in the Registration Statement. However,
the prospectus does contain a description of the material provisions of the
documents contained therein. Such information can be examined without charge at
the public reference facilities of the SEC located at 450 Fifth Street, NW,
Washington, DC 20549, and copies of such material can be obtained from the SEC
at prescribed rates. In addition, the SEC maintains a Web site. The address of
the SEC's Web site is "http://www.sec.gov." The statements contained herein as
to the contents of any contract or other document filed as an exhibit to the
Registration Statement are, of necessity, brief descriptions thereof which
describe only the material provisions of such documents; each such statement is
qualified by reference to such contract or document.
The Association has filed an Application for Conversion with the OTS
with respect to the Conversion. Pursuant to the rules and regulations of the
OTS, this Prospectus omits certain information contained in that Application.
The Application may be examined at the principal offices of the OTS, 1700 G
Street, NW, Washington, DC 20552 and at the Chicago District Office of the OTS,
Suite 1300, 200 West Madison Street, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register
the Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common 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
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<PAGE>
Exchange Act. Under the Plan, the Holding Company has undertaken that it will
not terminate such registration for a period of at least three years following
the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Association.
136
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS
AND LOAN ASSOCIATION
Financial Statements
As of September 30, 1997 and 1996 and
for the years in the three-year period
ended September 30, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
[LETTERHEAD FOR KPMG PEAT MARWICK LLP]
Independent Auditors' Report
The Board of Directors
Gloversville Federal Savings and
Loan Association
Gloversville, New York
We have audited the accompanying statements of financial condition of
Gloversville Federal Savings and Loan Association (the Association) as of
September 30, 1997 and 1996, and the related statements of operations, changes
in equity and cash flows for each of the years in the three year period ended
September 30, 1997. These financial statements are the responsibility of the
Association'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 financial position of Gloversville Federal Savings
and Loan Association as of September 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three year period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
December 12, 1997
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Statements of Financial Condition
September 30,
------------------------------
Assets 1997 1996
---- ----
Cash and due from banks ...................... $ 1,922,386 1,098,081
Interest bearing time deposits ............... -- 100,000
------------ ------------
Total cash and cash equivalents .......... 1,922,386 1,198,081
Securities available for sale ................ 7,017,111 7,438,982
Net loans receivable ......................... 49,526,290 49,636,131
Accrued interest receivable .................. 332,122 329,991
Other real estate owned ...................... 312,892 69,548
Premises and equipment, net .................. 1,538,364 1,793,739
Prepaid expenses and other assets ............ 372,642 539,608
------------ ------------
Total assets ............................. $ 61,021,807 61,006,080
============ ============
Liabilities and Equity
Liabilities:
Deposits:
Demand and N.O.W. accounts ............... 5,147,684 5,174,015
Savings and money market accounts ........ 22,954,408 23,531,620
Time deposit accounts .................... 28,014,594 27,010,165
------------ ------------
Total deposits ........................... 56,116,686 55,715,800
Accrued expenses and other liabilities ...... 325,152 1,200,324
Borrowings .................................. 1,300,000 300,000
------------ ------------
Total liabilities ........................ 57,741,838 57,216,124
------------ ------------
Commitments and contingent liabilities
(note 10)
Equity:
Retained earnings .......................... 3,301,370 3,884,148
Net unrealized loss on securities
available for sale, net of taxes .......... (21,401) (94,192)
------------ ------------
Total equity ............................. 3,279,969 3,789,956
------------ ------------
Total liabilities and equity ............. $ 61,021,807 61,006,080
============ ============
See accompanying notes to financial statements.
2
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Statements of Operations
For the Years Ended
<TABLE>
<CAPTION>
September 30,
---------------------------------------
1997 1996 1995
---- ---- ----
Interest and dividend income:
<S> <C> <C> <C>
Interest and fees on loans ............. $ 4,409,006 4,131,580 3,928,591
Securities available for sale .......... 458,932 466,898 398,455
Securities held to maturity ............ -- -- 302,124
Interest bearing deposits .............. 36,714 134,345 186,839
----------- ----------- -----------
Total interest and dividend income .... 4,904,652 4,732,823 4,816,009
----------- ----------- -----------
Interest expense:
N.O.W. accounts ........................ 64,841 69,251 84,852
Savings and money market accounts ...... 837,803 679,589 645,219
Time deposit accounts .................. 1,522,058 1,667,030 1,796,706
Borrowings ............................. 21,777 178 --
----------- ----------- -----------
Total interest expense ................ 2,446,479 2,416,048 2,526,777
----------- ----------- -----------
Net interest income ................... 2,458,173 2,316,775 2,289,232
Provision for loan losses ............... 792,266 714,276 128,876
----------- ----------- -----------
Net interest income after provision
for loan losses ...................... 1,665,907 1,602,499 2,160,356
----------- ----------- -----------
Other income:
Fees and service charges ............... 140,309 118,499 96,130
Net (loss) gain on sale or writedown
of premises and equipment ............. -- (15,322) 86,379
Net gain on sale of securities available
for sale .............................. -- -- 204,285
Other .................................. 14,810 6,091 4,957
----------- ----------- -----------
Total other income ..................... 155,119 109,268 391,751
----------- ----------- -----------
Other expenses:
Compensation and employee benefits ..... 892,434 826,360 868,163
Occupancy expenses ..................... 224,598 212,054 156,802
Federal deposit insurance premiums ..... 56,665 130,387 143,696
Special one-time FDIC assessment ....... -- 414,835 --
Advertising expenses ................... 110,796 140,291 92,152
Directors' fees and expenses ........... 102,912 76,298 41,861
Equipment and data processing expenses . 319,110 310,218 282,206
Other real estate expenses ............. 73,030 27,039 126,719
Other operating expenses ............... 539,251 832,815 486,759
----------- ----------- -----------
Total other expenses .................. 2,318,796 2,970,297 2,198,358
----------- ----------- -----------
(Loss) income before income tax
(benefit) expense ...................... (497,770) (1,258,530) 353,749
Income tax expense (benefit) ............ 85,008 (222,324) 102,443
----------- ----------- -----------
Net (loss) income ..................... $ (582,778) (1,036,206) 251,306
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Statements of Changes in Equity
For the Years Ended September 30, 1997, 1996, and 1995
Net unrealized
gain(loss) on
securities
Retained available Total
earnings for sale equity
-------- -------- ------
Balance at October 1, 1994 ........ $ 4,669,048 35,609 4,704,657
Net income for 1995 ............... 251,306 -- 251,306
Change in valuation allowance
for securities available for
sale, net of income taxes ........ -- (101,943) (101,943)
----------- ----------- -----------
Balance at September 30, 1995 ..... 4,920,354 (66,334) 4,854,020
Net loss for 1996 ................. (1,036,206) -- (1,036,206)
Change in valuation allowance
for securities available for
sale, net of income taxes ........ -- (27,858) (27,858)
----------- ----------- -----------
Balance at September 30, 1996 ..... 3,884,148 (94,192) 3,789,956
Net loss for 1997 ................. (582,778) -- (582,778)
Change in valuation allowance
for securities available for
sale, net of income taxes ........ -- 72,791 72,791
----------- ----------- -----------
Balance at September 30, 1997 ..... $ 3,301,370 (21,401) 3,279,969
=========== =========== ===========
See accompanying notes to financial statements.
4
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Statements of Cash Flows
For the Years Ended
<TABLE>
<CAPTION>
September 30,
--------------------------------------
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income ....................... $ (582,778) (1,036,206) 251,306
Adjustments to reconcile net (loss)
income to net cash (used in)
provided by operating activities:
Depreciation expense ................... 291,086 227,646 179,412
Provision for loan losses .............. 792,266 714,276 128,876
Deferred tax expense (benefit) ......... 125,000 (55,651) 85,676
Writedown of other real estate owned ... 33,032 24,300 88,100
Net gain on sale of other real estate
owned ................................. (38,881) (76,847) (18,093)
Net loss (gain) on sale or writedown
of premises and equipment ............. -- 15,322 (86,379)
Net gain on sale of securities
available for sale .................... -- -- (204,285)
(Increase) decrease in accrued interest
receivable ............................ (2,131) 49,528 10,984
(Increase) decrease in prepaid expenses
and other assets ...................... (12,947) (4,536) (362,379)
(Decrease) increase in accrued expenses
and other liabilities ................. (875,172) 846,553 163,908
----------- ----------- -----------
Total adjustments .................... 312,253 1,740,591 (14,180)
Net cash (used in) provided by
operating activities ............... (270,525) 704,385 237,126
----------- ----------- -----------
Cash flows from investing activities:
Purchase of securities available for sale -- (4,601,592) (10,490,471)
Proceeds from sale of securities
available for sale .................... -- -- 13,636,976
Proceeds from principal repayment of
securities available for sale ......... 549,575 430,569 56,339
Proceeds from maturity and redemption
of securities available for sale ...... -- 3,700,000 1,500,000
Purchase of securities held to maturity . -- -- (500,000)
Proceeds from maturity and redemption
of securities held to maturity ........ -- 2,500,000 1,590,000
Net increase in loans receivable ........ (1,193,317) (2,409,148) (2,903,669)
Proceeds from sale of other real estate
owned ................................. 273,397 462,684 262,348
Capital expenditures .................... (35,711) (920,326) (287,053)
Net proceeds from sale of premises and
equipment ............................. -- -- 407,552
----------- ----------- -----------
Net cash (used in) provided by
investing activities ................ (406,056) (837,813) 3,272,022
----------- ----------- -----------
Cash flows financing activities:
Net increase (decrease) in deposits ..... 400,886 (2,149,816) (6,837,041)
Net increase in borrowings .............. 1,000,000 300,000 --
----------- ----------- -----------
Net cash provided by (used in)
financing activities ................ 1,400,886 (1,849,816) (6,837,041)
Net increase (decrease) in cash and
cash equivalents ...................... 724,305 (1,983,244) (3,327,893)
Cash and cash equivalents at
beginning of year ..................... 1,198,081 3,181,325 6,509,218
----------- ----------- -----------
Cash and cash equivalents at end
of year ............................... $ 1,922,386 1,198,081 3,181,325
=========== =========== ===========
</TABLE>
(Continued)
5
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Statements of Cash Flows, Continued
For the Years Ended
September 30,
-------------------------------------
1997 1996 1995
---- ---- ----
Additional disclosures relative
to cash flows:
Interest paid .......................... $ 2,446,479 2,416,048 2,526,955
=========== ========== ==========
(Refunds Received) Taxes paid .......... $ (165,891) (83,587) 330,699
=========== ========== ==========
Supplemental schedule of non-cash
investing and financing activities:
Transfers from loans to other real
estate owned ......................... $ 510,892 297,909 180,577
=========== ========== ==========
Securities held to maturity transferred
to securities available for sale under
the provisions of the FASBis Special
Report ............................... $ -- 2,000,000 --
=========== ========== ==========
Change in net unrealized loss on
securities available for sale,
net of $54,913, ($21,015) and
($76,904) tax effect at
September 30, 1997, 1996 and
1995, respectively ................... $ 72,791 (27,858) (101,943)
=========== ========== ==========
See accompanying notes to financial statements.
6
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements
September 30, 1997 and 1996
(1) Significant Accounting Policies
The accounting and reporting policies of Gloversville Federal Savings and
Loan Association (the Association) conform, in all material respects, to
generally accepted accounting principles and to general practice within the
thrift industry. The following is a description of the more significant of
those policies which the Association follows in preparing and presenting
its financial statements.
(a) Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
A substantial portion of the Association's loans are secured by real
estate in the Upstate New York area, primarily in Fulton, Montgomery
and Saratoga counties. In addition, the other real estate owned is
located in the same market area. Accordingly, the ultimate
collectibility of a substantial portion of the Association's loan
portfolio and the recovery of the carrying amount of other real estate
owned are susceptible to changes in market conditions in these areas.
The determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures in
satisfaction of loans are based on material estimates that are
susceptible to change based on such factors as economic conditions in
the market area serviced by the Association, financial conditions of
individual borrowers, and changes in underlying collateral values. In
connection with the determination of the allowance for loan losses and
the valuation of other real estate owned, management obtains
independent appraisals for significant properties.
Management believes that the allowance for loan losses and the
valuation of other real estate owned are adequate. While management
uses available information to recognize losses on loans and other real
estate owned, future additions to valuation allowances may be
necessary based on changes in economic conditions, particularly in the
Association's market area. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review
the Association's allowance for loan losses and other real estate
owned. Such agencies may require the Association to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination which may not be
currently available to management.
(b) Cash and Cash Equivalents
For purposes of reporting cash flows, the Association considers all
cash and due from bank balances and interest bearing time deposits
with maturities of less than three months to be cash and cash
equivalents.
7
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(1), Continued
(c) Securities
The Association accounts for securities in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No.
115, "Accounting for Certain Investments in Debt and Equity
Securities". SFAS No. 115 requires classification of securities into
three categories: trading, available for sale, or held to maturity.
The Association classifies its debt securities, including mortgage
backed securities, as either available for sale or held to maturity,
as the Association does not hold any securities for trading purposes.
Held to maturity securities are those debt securities for which the
Association has the positive intent and the ability to hold until
maturity. All other securities are classified as available for sale.
As of September 30, 1997 and 1996 all securities were classified as
available for sale.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at amortized cost, adjusted for the
amortization of premiums and accretion of discounts. Unrealized
holding gains and losses, net of the related tax effect, on available
for sale securities are excluded from earnings and are reported as a
separate component of equity until realized. Federal Home Loan Bank of
New York stock, a non-marketable equity security, is included in
securities available for sale at cost since there is no readily
available fair value. This investment is required for membership.
A decline in the fair value of any available for sale or held to
maturity security below cost that is deemed other than temporary is
charged to earnings, resulting in the establishment of a new cost
basis for the security.
Interest income includes interest earned on the securities and the
amortization of premiums and accretion of discounts. Amortization and
accretion is recorded using a method that approximates the level-yield
method. Realized gains or losses on securities sold are recognized on
the trade date using the specific identification method.
(d) Reclassification of Investment Securities
In November 1995, the staff of the Financial Accounting Standards
Board released a Special Report, iA Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities.i The Special Report contained a unique provision that
allowed entities to, as of one date between November 15, 1995 and
December 31, 1995, reassess the appropriateness of the classifications
of all securities held at that time. In conjunction with the
provisions of the Special Report, dated December 31, 1995, the
Association transferred securities with an amortized cost of
$2,000,000 and an estimated fair value of $1,985,000 from securities
held to maturity to securities available for sale.
8
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(1), Continued
(e) Loans Receivable
Loans are carried at the principal amount outstanding less net
deferred loan fees and the allowance for loan losses. Loan fees
received and certain direct loan origination costs are deferred, and
the net fee or cost is amortized into income so as to provide for a
level-yield of interest on the underlying loans. Amortization of
related net deferred fees is suspended when a loan is placed on
nonaccrual status.
Interest on loans is recognized on an accrual basis. Loans are
generally placed on nonaccrual status when principal or interest
becomes 90 days or more past due or sooner if management believes it
is prudent to do so. Unpaid interest previously recognized is reversed
when a loan is placed on nonaccrual status. Loans generally remain on
nonaccrual status until past due principal and interest payments are
brought current through cash collections or when, in the opinion of
management, the loans are estimated to be fully collectible as to
principal and interest.
An allowance for loan losses is established through a provision
charged to operations. Losses on loans are charged to the allowance
for loan losses when all or a portion of a loan is deemed to be
uncollectible. Recoveries of loans previously charged off are credited
to the allowance when realized. Management's periodic evaluation of
the adequacy of the allowance for loan losses considers known and
inherent risks in the portfolio, adverse situations which may affect
the borrowers' ability to repay, estimated value of underlying
collateral, results of reviews performed on specific problem loans,
and current and prospective economic conditions in the Association's
lending area.
Impaired loans are identified and measured in accordance with SFAS No.
114, iAccounting by Creditors for Impairment of a Loani, and SFAS No.
118, iAccounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures.i These Statements prescribe recognition
criteria for loan impairment, and measurement methods for impaired
loans and loans whose terms are modified in troubled-debt
restructurings subsequent to the adoption of these Statements. The
adoption of these Statements on October 1, 1995 did not have a
material effect on the Associationis financial statements.
(f) Other Real Estate Owned
Other real estate owned is recorded at the lower of cost (defined as
fair value at initial foreclosure) or fair value of the asset
acquired, less estimated costs to dispose of the property. Costs of
developing and improving such properties are capitalized, where
appropriate. Subsequent declines in the value of other real estate
owned and expenses relating to holding such real estate are charged to
operations as incurred. Other real estate owned consists primarily of
residential properties
(g) Premises and Equipment
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is computed on the straight-line method
over the estimated useful lives of the related assets.
9
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(1), Continued
(h) Income Taxes
The Association accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes". Under the asset and liability
method of SFAS 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets are
recognized subject to management's judgment that those assets will
more likely than not be realized. A valuation allowance is recognized
if, based on an analysis of available evidence, management believes
that all or a portion of deferred tax assets will not be realized.
Adjustments to increase or decrease the valuation allowance are
charged or credited, respectively, to income tax expense. Deferred tax
assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(i) Financial Instruments
In the normal course of business, the Association is a party to
certain financial instruments with off-balance-sheet risk, such as
commitments to extend credit, unused lines of credit, and standby
letters of credit. The Association's policy is to record such
instruments when funded.
(j) Transfers of Financial Assets and Extinguishment of Liabilities
In June 1996, the Financial Accounting Standards Board issued SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which 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. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. Certain aspects of SFAS
No. 125 were amended by SFAS No. 127 "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125." The adoption of SFAS
No. 125, as amended, did not have a material impact on the
Association's financial statements.
(k) Reclassification
Amounts in the prior periods' financial statements are reclassified
whenever necessary to conform with the current periodis presentation.
10
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(1), Continued
(l) Recent Accounting Pronouncement
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. "SFAS No. 130",
"Reporting Comprehensive Income". SFAS No. 130 states that
comprehensive income includes the reported net income of a company
adjusted for items that are currently accounted for as direct entries
to equity, such as the mark to market adjustment on securities
available for sale, foreign currency items and minimum pension
liability adjustments. This statement is effective for fiscal years
beginning after December 15, 1997. Management does not believe that
the impact of adopting this Statement will be material to the
Association's financial statements.
(2) Securities Available for Sale
The amortized cost, gross unrealized gains and losses, and estimated fair
values of securities available for sale at September 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Debt securities:
<S> <C> <C> <C> <C>
U.S. Government agency obligations ....... $2,998,160 1,867 (6,020) 2,994,007
Mortgage backed securities ............... 3,595,397 14,059 (47,452) 3,562,004
---------- ---------- ---------- ----------
Total debt securities ............. 6,593,557 15,926 (53,472) 6,556,011
Non-marketable equity securities:
Stock in FHLB ............................ 461,100 -- -- 461,100
---------- ---------- ---------- ----------
Total securities available for sale $7,054,657 15,926 (53,472) 7,017,111
========== ========== ========== ==========
September 30, 1996
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Debt securities:
U.S. Government agency obligations ....... $2,998,160 -- (64,726) 2,933,434
Mortgage backed securities ............... 4,144,972 -- (100,524) 4,044,448
---------- ---------- ---------- ----------
Total debt securities ............. 7,143,132 -- (165,250) 6,977,882
Non-marketable equity securities:
Stock in FHLB ............................ 461,100 -- -- 461,100
---------- ---------- --------- ----------
Total securities available for sale $7,604,232 -- (165,250) 7,438,982
========== ========== ========= ==========
</TABLE>
At September 30, 1997 and 1996, mortgage backed securities consisted of
Federal Home Loan Mortgage Corporation (FHLMC) and Federal National
Mortgage Association (FNMA) securities.
11
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(2), Continued
The following sets forth information with regard to remaining contractual
maturities of debt securities available for sale as of September 30, 1997
(mortgage backed securities are included based on the final contractual
maturity date):
Estimated
Amortized Fair
Cost Value
---- -----
Within one year .......................... $ 693,867 671,834
From one to five years ................... 2,997,587 2,971,146
From five to ten years ................... -- --
After ten years .......................... 2,902,103 2,913,031
---------- ----------
$6,593,557 6,556,011
========== ==========
Actual maturities may differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
There were no security sales for the years ended September 30, 1997 and
1996. Proceeds from the sale of securities available for sale for the year
ended September 30, 1995 totaled $13,720,234. Gross gains and losses
realized on the sale of securities available for sale for the year ended
September 30, 1995 were $410,762 and $206,477, respectively.
(3) Net Loans Receivable
Net loans receivable at September 30, 1997 and 1996 are summarized as
follows:
1997 1996
---- ----
Loans secured by real estate:
Residential one-to-four family .............. $ 36,890,541 40,262,375
Multi-family and commercial ................. 7,949,702 4,635,401
Residential one-to-four family construction . 539,284 937,994
------------ ------------
Total loans secured by real estate ...... 45,379,527 45,835,770
------------ ------------
Other loans:
Commercial business ......................... 1,421,581 1,229,279
Home equity ................................. 3,379,775 2,868,795
Other consumer .............................. 1,111,559 1,154,440
------------ ------------
Total other loans ....................... 5,912,915 5,252,514
------------ ------------
Gross loans receivable .................. 51,292,442 51,088,284
Less:
Net deferred loan fees ...................... (153,171) (201,543)
Allowance for loan losses ................... (1,612,981) (1,250,610)
------------ ------------
Net loans receivable .................... $ 49,526,290 49,636,131
============ ============
12
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(3), Continued
Activity in the allowance for loan losses is summarized as follows for the
years ended September 30, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Balance at beginning of year ......... $ 1,250,610 779,417 856,480
Charge-offs .......................... (466,182) (254,364) (209,660)
Recoveries ........................... 36,287 11,281 3,721
Provision charged to operations ...... 792,266 714,276 128,876
----------- ----------- -----------
Balance at end of year ............... $ 1,612,981 1,250,610 779,417
=========== =========== ===========
Non-performing loans consist of loans on nonaccrual status at September 30,
1997 and 1996 amounting to $3,792,873 and $2,212,425, respectively. There
were no loans past due as to principal or interest greater than 90 days and
still accruing interest or accruing loans in a trouble debt restructuring
as of September 30, 1997 or 1996. Included in nonaccrual loans at September
30, 1997 are approximately $1.6 million of loans restructured in trouble
debt restructurings. At September 30, 1996, a number of substandard
classified residential loans were past due as to property taxes on property
collateralizing the loans. The total amount of the related past due taxes
on these substandard loans was approximately $318,000 at September 30,
1996.
During 1997, certain loans with past due property taxes were either
rewritten to provide the borrowers with amounts necessary to pay past due
property taxes or the loans were restructured in trouble debt restructuring
(but generally at market rates) to provide the borrowers with amounts
necessary to pay past due property taxes. Loans rewritten or restructured
due to past due property taxes at September 30, 1997 totaled $1.1 million
and $1.6 million, respectively.
Interest income which would have been recorded under the original terms of
nonaccrual loans for the years ended September 30, 1997, 1996 and 1995 was
approximately $343,000, $230,000 and $241,000, respectively. Interest
income recognized on nonaccrual loans for the years ended September 30,
1997, 1996 and 1995 was approximately, $304,000, $84,000 and $54,000. There
are no commitments to extend further credit on nonaccrual loans.
Under SFAS No. 114, a loan (generally commercial-type loans) is considered
impaired when it is probable that the borrower will be unable to repay the
loan according to the original contractual terms of the loan agreement or
when a loan (of any loan type) is restructured in a trouble debt
restructuring. The allowance for loan losses related to impaired loans is
based on discounted cash flows using the loanis initial effective interest
rate or the fair value of the collateral for loans where repayment of the
loan is expected to be provided solely by the underlying collateral
(collateral dependent loans).
As of September 30, 1997, there were no commercial-type loans on nonaccrual
status or classified as impaired. At September 30, 1997, there were
approximately $1.6 million in consumer loan related troubled debt
restructurings which are considered to be impaired. Approximately $334,700
of the allowance for loan losses has been allocated to these impaired loans
at September 30, 1997. As of September 30, 1997, there were no impaired
loans which did not have an allowance for loan losses determined in
accordance with SFAS No. 114. The average recorded investment in impaired
loans during the year ended September 30, 1997 was approximately $799,000.
For the year ended September 30, 1997, the Association has recognized
interest income of approximately $153,000 on impaired loans. There were no
impaired loans at September 30, 1996.
13
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(3), Continued
The Association's lending activities are conducted principally in Fulton
and Saratoga Counties of New York State. The Association grants single
family and multi-family residential loans, commercial real estate,
commercial business loans, and a variety of consumer loans. In addition,
the Association grants loans for the construction of residential homes,
multi-family properties, and for commercial development. Most loans granted
by the Association are secured by related real estate. The ability and
willingness of borrowers to honor their repayment commitments generally
depends on the level of overall economic activity within the borrowers'
geographic areas and real estate values.
Certain directors and executive officers of the Association have had loan
transactions with the Association in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as
comparable loans made to others. Total loans to directors and executive
officers amounted to approximately $381,000 and $406,000 at September 30,
1997 and 1996, respectively. During the year ended September 30, 1997, new
loans of approximately $9,000 were made to directors or executive officers,
and repayments totaled approximately $34,000.
(4) Accrued Interest Receivable
A summary of accrued interest receivable at September 30, 1997 and 1996 is
as follows:
1997 1996
---- ----
Loans .......................................... $271,986 272,944
Securities available for sale .................. 60,136 57,047
-------- --------
Total ........................................ $332,122 329,991
======== ========
(5) Premises and Equipment
Premises and equipment at September 30, 1997 and 1996 are summarized by
major classifications as follows: 1997 1996
1997 1996
---- ----
Land ....................................... $ 140,215 140,215
Buildings .................................. 1,278,156 1,276,656
Furniture and fixtures ..................... 1,124,289 1,098,750
----------- -----------
Total .................................. 2,542,660 2,515,621
Less accumulated depreciation .............. (1,004,296) (721,882)
----------- -----------
Premises and equipment, net ............ $ 1,538,364 1,793,739
=========== ===========
Amounts charged to non-interest expense for depreciation of premises and
equipment amounted to $291,086, $227,646 and $179,412 in 1997, 1996 and
1995, respectively.
14
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(6) Deposits
Deposit account balances at September 30, 1997 and 1996 are summarized as
follows:
1997 1996
---- ----
Demand accounts (non-interest bearing) ......... $ 1,021,123 835,929
----------- -----------
N.O.W. accounts (1.75%) ........................ 4,126,561 4,338,086
----------- -----------
Passbook and statement savings
accounts (up to 4.00%) ....................... 12,004,406 13,139,454
Money market accounts (up to 4.88%) ............ 10,950,002 10,392,166
----------- -----------
22,954,408 23,531,620
----------- -----------
Time deposit accounts:
Under - 4.00% ......................... 2,624 10
4.00 - 4.99% ......................... 3,993,984 11,356,698
5.00 - 5.99% ......................... 21,942,237 11,101,230
6.00 - 6.99% ......................... 2,045,965 4,524,833
7.00 and over ........................ 29,784 27,394
----------- -----------
28,014,594 27,010,165
----------- -----------
$56,116,686 55,715,800
=========== ===========
At September 30, 1997 and 1996, the aggregate amount of time deposit
accounts with a balance equal to or in excess of $100,000 was $2,492,469
and $2,239,057, respectively. At September 30, 1997 and 1996, the aggregate
amount of escrow deposits was not significant, and are included in savings
and money market accounts.
Contractual maturities of time deposit accounts at September 30, 1997 are
as follows:
Years ending September 30,
1998 $23,295,264
1999 3,260,840
2000 1,030,752
Thereafter 427,738
-----------
$28,014,594
===========
Certain executive officers and directors of the Association, as well as
certain affiliates of these officers and directors, were customers of and
had deposit balances with the Association in the ordinary course of
business. The aggregate of such deposits was approximately $681,000 as of
September 30, 1997.
(7) Borrowings
The Association had approximately $9.2 million of available lines of credit
with the FHLB as of September 30, 1997 and 1996. Substantially all of the
assets of the Association have been pledged as collateral related to this
line of credit.
15
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(7), Continued
Information concerning FHLB borrowings in 1997 and 1996 follows:
1997 1996
---- ----
Amount outstanding at September 30 ................. $ -- 300,000
Maximum amount outstanding at any month end ........ 850,000 300,000
Average amount outstanding ......................... 272,726 6,027
Weighted average interest rate:
For the year .................................. 5.56% 5.56%
As of year end ................................ -- 5.88%
Information concerning securities sold under agreements to repurchase in
1997 and 1996 follows:
1997 1996
---- ----
Amount outstanding at September 30, ................ $1,300,000 --
Maximum outstanding at any month end ............... 1,300,000 --
Average amount outstanding ......................... 118,274 --
Weighted average interest rate:
For the year .................................. 5.78% --
As of year end ................................ 5.80% --
Securities underlying the repurchase agreements remain under the control of
the Association. Repurchase agreements are typically entered into for one
to three day periods.
(8) Income Taxes
The components of the income tax expense (benefit) for the years ended
September 30, 1997, 1996 and 1995 are as follows:
1997 1996 1995
---- ---- ----
Current tax (benefit) expense:
Federal .......................... $ (40,248) (166,929) 16,511
State ............................ 256 256 256
Deferred tax (benefit) expense ........ 125,000 (55,651) 85,676
--------- --------- ---------
$ 85,008 (222,324) 102,443
========= ========= =========
The actual tax expense (benefit) for the years ended September 30, 1997,
1996 and 1995 differs from expected tax expense (benefit), computed by
applying the Federal corporate tax rate of 34% to income (loss) before
taxes as follows:
1997 1996 1995
---- ---- ----
Expected tax expense (benefit) ....... $(169,242) (427,900) 120,275
Change in valuation allowance
for deferred tax asset .............. 273,510 248,426 --
New York State tax ................... (22,107) (45,443) 256
Other items .......................... 2,847 2,593 (18,088)
--------- --------- ---------
$ 85,008 (222,324) 102,443
========= ========= =========
16
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(8), Continued
The tax effects of temporary differences that give rise to the
Association's deferred tax assets and liabilities at September 30, 1997 and
1996 are presented below:
1997 1996
---- ----
Deferred tax assets:
Differences in reporting the provision
for loan losses and the tax bad debt
deduction ................................... $ 628,792 461,788
Deferred net loan origination fees ............ 61,268 80,617
Differences in reporting accrued expenses ..... 73,393 81,200
Other ......................................... 14,010 2,120
--------- ---------
Total gross deferred tax assets ........... 777,463 625,725
Valuation allowance ....................... (625,052) (351,542)
--------- ---------
Deferred tax assets, net of valuation
allowance ............................... 152,411 274,183
--------- ---------
Deferred tax liabilities:
Depreciation .................................. (9,540) (4,902)
Net effect of other real estate
owned transactions .......................... (22,871) (24,281)
--------- ---------
Total gross deferred tax liabilities ...... (32,411) (29,183)
--------- ---------
Net deferred tax asset at
end of year ............................. 120,000 245,000
Net deferred tax asset at
beginning of year ....................... 245,000 189,349
--------- ---------
Deferred tax expense (benefit)
for the year ............................ $ 125,000 (55,651)
========= =========
In addition to the deferred tax assets described above, the Association had
a deferred tax asset of $16,145 and $71,058 at September 30, 1997 and 1996,
respectively, related to the net unrealized loss on securities available
for sale.
In assessing whether deferred tax assets will more likely than not be
realized, management considers the historical level of taxable income, the
time period over which the temporary differences are expected to reverse,
as well as estimates of future taxable income. As a result of the
Association experiencing a second year of significant losses before taxes,
continued economic weakness in the Association's market area, including
declining real estate values collateralizing much of the Association's loan
portfolio, reduced expectations of earnings in the future, as well as a
reduction in the amount of historical taxes available for carryback in
1997, the Association increased the deferred tax valuation allowance in
1997 by $273,510 to $625,052. As of September 30, 1997, the net deferred
tax asset is considered to be more likely then not realizable based upon
the historical level of taxable income available for carryback, amounting
to approximately $50 thousand, the reversal of temporary taxable items and
reliance on future taxable income amounting to approximately $175 thousand.
As a result of the 1996 loss before taxes of approximately $1.3 million,
and the significant reduction in the amount of historical taxes available
for carryback, the Association increased the valuation allowance in 1996 by
$248,426 to $351,542. As of September 30, 1996, the net deferred tax asset
is considered to be more likely than not realizable based upon the amount
of historical taxable income available for carryback, amounting to
approximately $90 thousand, the reversal of temporary taxable items and
reliance on future taxable income, amounting to approximately $380
thousand.
17
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(8), Continued
As a thrift institution, the Association is subject to special provisions
in the Federal and New York State tax laws regarding its allowable tax bad
debt deductions and related tax bad debt reserves. These deductions
historically have been determined using methods based on loss experience or
a percentage of taxable income. Tax bad debt reserves are maintained equal
to the excess of allowable deductions over actual bad debt losses and other
reserve reductions. These reserves consist of a defined base-year amount,
plus additional amounts ("excess reserves") accumulated after the base
year. SFAS No. 109 requires recognition of deferred tax liabilities with
respect to such excess reserves, as well as any portion of the base-year
amount which is expected to become taxable (or "recaptured") in the
foreseeable future.
Certain amendments to the Federal and New York State tax laws regarding bad
debt deductions were enacted in July and August 1996. The Federal
amendments include elimination of the percentage of taxable income method
for tax years beginning after December 31, 1995, and imposition of a
requirement to recapture into taxable income (over a period of
approximately six years) the bad debt reserves in excess of the base-year
amounts. The Association previously established, and will continue to
maintain, a deferred tax liability with respect to such excess Federal
reserves. The New York State amendments redesignate the Association's state
bad debt reserves at December 31, 1995 as the base-year amount and also
provide for future additions to the base-year reserve using the percentage
of taxable income method.
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the Federal and state base-year reserves since
the Association does not expect that these reserves will become taxable in
the foreseeable future. At September 30, 1997, the Federal base year
reserve was approximately $1.3 million and the state base-year reserve was
not significant. Under New York State tax law, as amended, events that
would result in taxation of the state reserves include the failure of the
Association to maintain a specified qualifying assets ratio or meet other
thrift definition tests for tax purposes. The unrecognized tax liability at
September 30, 1997 with respect to the Federal base-year reserve was
approximately $440 thousand.
(9) Employee Benefits
Effective January 1, 1995, the Association established a defined
contribution plan (ithe Plani) that is intended to qualify under section
401(k) of the Internal Revenue Code. The Plan covers all employees with at
least six months of service. The Associationis contributions to the Plan
are discretionary and determined annually by the Board of Directors.
Employee contributions are voluntary. Employees vest immediately in their
own contributions, and vest in the Associationis contributions based on
years of service. For the years ended September 30, 1997, 1996 and 1995,
the Associationis contributions to the Plan were approximately $57,219,
$45,070 and $38,023, respectively.
Effective December 31, 1994, the Association terminated its defined benefit
pension plan. As of that date all participants in the plan were immediately
vested. Subsequent to termination date, no additional benefit obligations
accrued to the plan participants. In order to settle the benefit
obligations to plan participants, assets were liquidated and distributed.
The plan's termination resulted in a settlement loss of approximately
$64,000 which is included in compensation and employee benefits in the year
ended September 30, 1995.
18
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(10) Commitments and Contingent Liabilities
(a) Legal Proceedings
The Association is, from time to time, be a defendant in legal
proceedings relating to the conduct of its business. In the best
judgment of management, the financial position of the Association will
not be affected materially by the outcome of any pending legal
proceedings.
(b) Off-Balance Sheet Financing and Concentrations of Credit
The Association is a party to certain financial instruments with
off-balance sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
the Association's commitments to extend credit and commercial lines of
credit. Financial instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized on the statements of
financial condition. The contract amounts of these instruments reflect
the extent of involvement the Association has in particular classes of
financial instruments.
The Association's exposure to credit loss in the event of
nonperformance by the other party to the commitments to extend credit
is represented by the contractual notional amount of those
instruments. The Association uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Commitments to extend credit may be written on a fixed rate basis
exposing the Association to interest rate risk given the possibility
that market rates may change between commitment and actual extension
of credit.
Unless otherwise noted, the Association does not require collateral or
other security to support off-balance-sheet financial instruments with
credit risk.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being fully drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Association evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral, if
any, required by the Association upon the extension of credit is based
on management's credit evaluation of the customer. Mortgage
commitments are secured by a first lien on real estate. Collateral on
extensions of credit for commercial loans varies but may include
property, plant and equipment, and income producing commercial
property.
19
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(10), Continued
Contract amounts of financial instruments that represent the future
extension of credit as of September 30, 1997 and 1996 at fixed and
variable interest rates are as follows:
1997
----
Fixed Variable Total
----- -------- -----
Financial instruments whose contract
amounts represent credit risk:
Residential (one-to-four-family) ....... $ 387,400 -- 387,400
Multi-family and commercial ............ -- 1,008,939 1,008,939
Construction ........................... 306,260 3,006 309,266
Commercial business .................... -- 375,604 375,604
Home equity ............................ -- 942,202 942,202
Other consumer ......................... 114,527 -- 114,527
---------- ---------- ----------
$ 808,187 2,329,751 3,137,938
========== ========== ==========
1996
----
Fixed Variable Total
----- -------- -----
Financial instruments whose contract
amounts represent credit risk:
Residential (one-to-four-family) ....... $ 194,928 43,000 237,928
Multi-family and commercial ............ -- 1,561,000 1,561,000
Construction ........................... 98,800 -- 98,800
Commercial business .................... -- 122,000 122,000
Home equity ............................ -- 1,591,000 1,591,000
Other consumer ......................... 131,500 -- 131,500
---------- ---------- ----------
$ 425,228 3,317,000 3,742,228
========== ========== ==========
The range of interest on fixed rate commitments was 7.625% to 10.250%
at September 30, 1997 and 7.90% to 9.25% at September 30, 1996. The
range of interest on adjustable rate commitments was 7.00% to 11.00%
at September 30, 1997 and 7.00% to 10.25% at September 30, 1996,
respectively.
At September 30, 1997, the Bank was required to maintain a $500,000
compensating balance with a correspondent bank. There were no
compensating balance requirements at September 30, 1996.
(c) Interest Rate Risk
The principal assets of the Association are long-term, fixed rate
first mortgage loans which have been primarily funded by deposits.
Accordingly, increases in interest rates paid on deposit accounts will
have an adverse effect on the Association's overall interest margins.
In response to this situation, the Association has begun programs
offering one year adjustable rate mortgages, three to five year
adjustable rate multi-family and commercial loans, commercial business
loans, home equity loans, and variable rate line of credit accounts to
loan customers in order to more closely match the pricing of earning
assets with their sources of funds on a prospective basis.
20
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(11) Savings Association Insurance Fund - Special Assessment
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the
Act) was enacted into law. The Act included, among other things,
provisions to recapitalize the Savings Association Insurance Fund
(SAIF) through a special assessment, as well as provisions calling for
a future merger of the SAIF with the Bank Insurance Fund.
As a result of the Act, SAIF members were required to pay a special
assessment to recapitalize the SAIF based on insured deposits held on
March 31, 1995. The amount of the special SAIF assessment as
determined by the FDIC was 65.7 basis points. Based upon the
Associationis insured deposits on March 31, 1995, the special
assessment amounted to $414,835.
(12) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires that the Association disclose estimated fair values for
certain financial instruments. SFAS No. 107 defines fair value of
financial instruments as the amount at which the instrument could be
exchanged in a current transaction between willing parties other than
in a forced or liquidation sale.
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Association's
entire holdings of a particular financial instrument. Because no
market exists for a significant portion of the Association's financial
instruments, fair value estimates are based on judgments regarding
future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on-and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets and
liabilities that are not considered financial assets or liabilities
include the deferred tax asset and bank premises and equipment. In
addition, the tax ramifications related to the realization of the
unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in the estimates of fair
value under SFAS No. 107.
In addition there are intangible assets that SFAS No. 107 does not
recognize, such as the value of "core deposits," the Association's
branch network and other items generally referred to as "goodwill."
Securities Available for Sale
-----------------------------
Securities available for sale are financial instruments which are
usually traded in broad markets. Fair values are based upon bid
quotations received from either quotation services or securities
dealers. The estimated fair value of stock in the Federal Home Loan
Bank of New York is assumed to be its cost given the lack of a public
market available for this investment.
21
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(12), Continued
Loans
-----
Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as single
family loans, consumer loans and commercial loans. Each loan category
is further segmented into fixed and adjustable rate interest terms and
by performing and nonperforming categories.
The fair value of performing loans, is calculated by discounting
scheduled cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk
inherent in the loan. The estimate of maturity is based on the
contractual term of the loans to maturity taking into consideration
certain prepayment assumptions.
Fair value for significant non-performing loans may be based on recent
external appraisals or discounting of cash flows. Estimated cash flows
are discounted using a rate commensurate with the risk associated with
the estimated cash flows. Assumptions regarding credit risk, cash
flows, and discount rates are judgmentally determined using available
market information and specific borrower information.
Deposit Liabilities
-------------------
Under SFAS No. 107, the fair value of deposits with no stated
maturity, such as non-interest bearing demand deposit, savings
accounts, NOW accounts, and money market accounts, must be stated at
the amount payable on demand as of September 30, 1997 and 1996. The
fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
Other Items
-----------
The following items are considered to have a fair value equal to
carrying value due to the nature of the financial instrument and the
period within which it will be settled: cash and cash equivalents,
accrued interest receivable, accrued interest payable, and borrowings.
22
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(12), Continued
Table of Financial Instruments
------------------------------
The carrying values and estimated fair values of financial instruments
as of September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------------ -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents ... $ 1,922,386 1,922,386 1,198,081 1,198,081
Securities available for sale 7,017,111 7,017,111 7,438,982 7,438,982
Net Loans ................... 49,526,290 49,959,626 49,636,131 50,137,989
Accrued interest receivable . 332,122 332,122 329,991 329,991
Financial liabilities:
Deposits:
Demand, savings,
money market, and
NOW accounts ........... 28,102,092 28,102,092 28,705,635 28,705,635
Time deposits ........... 28,014,594 28,014,594 27,010,165 27,010,165
Borrowings .................. 1,300,000 1,300,000 300,000 300,000
</TABLE>
Commitments to Extend Credit
----------------------------
The fair value of commitments to extend credit is estimated using the
fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present credit
worthiness of the counterparties. For fixed rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates. Fees, such as these are not a
major part of the Association's business and in the Association's
business territory are not a "normal business practice." Therefore,
based upon the above facts the Association believes that book value
equals fair value and the amounts are not significant.
23
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(13) Regulatory Capital Requirements
OTS capital regulations require savings institutions to maintain
minimum levels of regulatory capital. Under the regulations in effect
at September 30, 1997 and 1996, the Association was required to
maintain a minimum ratio of tangible capital to tangible assets of
1.5%; a minimum leverage ratio of core (Tier I) capital to total
adjusted tangible assets of 3.0%; and a minimum ratio of total capital
(core capital and supplementary capital) to risk weighted assets of
8.0%, of which 4.0% must be core (Tier I) capital.
Under its prompt corrective action regulations, the OTS is required to
take certain supervisory actions (and may take additional
discretionary actions) with respect to an undercapitalized
institution. Such actions could have a direct material effect on an
institution's financial statements. The regulations establish a
framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, under
capitalized, significantly under capitalized, and critically under
capitalized. Generally an institution is considered well capitalized
if it has a core (Tier I) capital ratio of at least 5.0% (based on
average total assets); a core (Tier I) risk based capital ratio of at
least 6.0%; and a total risk based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific
quantitative measures of assets, liabilities and certain off-balance
sheet items as calculated under regulatory accounting practices.
Capital amounts and classifications are also subject to qualitative
judgments by the OTS about capital components, risk weightings and
other factors.
Management believes that, as of September 30, 1997 and 1996, the
Association meets all capital adequacy requirements to which it is
subject. Further, the most recent OTS notification categorized the
Association as a well-capitalized institution under the prompt
corrective action regulations. There have been no conditions or events
since that notification that management believes have changed the
Association's capital classification.
The following is a summary of the Association's actual capital amounts
and ratios as of September 30, 1997 and 1996 compared to the OTS
minimum capital adequacy requirements and the OTS requirements for
classification as a well-capitalized institution.
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------------------------------------------
Minimum
Capital For Classification
Actual Adequacy as Well Capitalized
------ -------- -------------------
Amount Ratio Ratio Ratio
------ ----- ----- -----
<S> <C> <C> <C> <C>
Tangible capital ........................ $3,301,370 5.41% 1.50%
Core (Tier I) capital ................... 3,301,370 5.41% 3.00% 5.00%
Core (Tier I) risk-based capital ........ 3,301,370 8.48% 6.00%
Total risk-based capital ................ 3,787,762 10.01% 8.00% 10.00%
</TABLE>
24
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(13), Continued
<TABLE>
<CAPTION>
September 30, 1996
-------------------------------------------------------------------
Minimum
Capital For Classification
Actual Adequacy as Well Capitalized
------ -------- -------------------
Amount Ratio Ratio Ratio
------ ----- ----- -----
<S> <C> <C> <C> <C>
Tangible capital ........................ $3,827,023 6.26% 1.50%
Core (Tier I) capital ................... 3,827,023 6.26% 3.00% 5.00%
Core (Tier I) risk-based capital ........ 3,827,023 10.26% 6.00%
Total risk-based capital ................ 4,293,161 11.73% 8.00% 10.00%
</TABLE>
The OTS may reduce an institution's regulatory capital for interest
rate risk exposure (as determined by the OTS) if the institution's
risk-based capital ratio is less than 12% and the OTS notifies the
institution of such reduction. The Association has not been notified
by the OTS of any reduction to its regulatory capital for interest
rate risk exposure.
(14) Adoption of Plan of Conversion
On November 19, 1997, the Board of Directors of the Association,
subject to regulatory approval and approval by the members of the
Association, unanimously adopted a Plan of Conversion to convert from
a federally chartered mutual savings bank to a federally chartered
stock savings bank with the concurrent formation of a holding company.
The transaction is expected to be accomplished through amendment of
the Association's federal charter and the sale of the holding
company's common stock in an amount equal to the pro forma market
value of the Association after giving effect to the conversion. A
subscription offering of the sale of the Association's common stock
will be offered initially to the Association's depositors, then to
other members and directors, officers and employees of the
Association. Any shares of the Association's common stock not sold in
the subscription offering will be offered for sale to the general
public in the Association's market area.
At the time of the conversion, the Association will establish a
liquidation account in an amount equal to its total net worth as of
the date of the latest balance sheet appearing in the final
prospectus. The liquidation account will be maintained for the benefit
of eligible depositors who continue to maintain their accounts at the
Association after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced
their qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In the
event of a complete liquidation, each eligible depositor will be
entitled to receive a distribution from the liquidation account in an
amount proportionate to the current adjusted qualifying balances for
accounts then held. The Association may not pay dividends that would
reduce stockholders' equity below the required liquidation account
balance.
25
<PAGE>
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Notes to Financial Statements, Continued
(14), Continued
Under Office of Thrift Supervision (OTS) regulations, limitations have
been imposed on all "capital distributions" by savings institutions,
including cash dividends. The regulation establishes a three-tiered
system of restrictions, with the greatest flexibility afforded to
thrifts which are both well-capitalized and given favorable
qualitative examination ratings by the OTS. For example, a thrift
which is given one of the two highest examination ratings and has
"capital" (as defined) equal to its fully phased-in regulatory capital
requirements could, after prior notice but without the prior approval
of the OTS, make capital distributions in any year that would reduce
by one-half the amount of its capital which exceeds its fully
phased-in capital requirement, as adjusted to reflect net income to
date during the year. Other thrifts would be subject to more stringent
procedural and substantive requirements, the most restrictive being
prior OTS approval of any capital distribution.
Conversion costs will be deferred and deducted from the proceeds of
the shares sold in the conversion. If the conversion is not completed,
all costs will be charged to expense. No conversion costs were
incurred as of September 30, 1997.
26
<PAGE>
No 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 the Holding
Company or the Association. 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 the Holding Company or the Association since
any of the dates as of which information is furnished herein or since the date
hereof.
--------------
TABLE OF CONTENTS
Page
----
Prospectus Summary........................................
Selected Financial Information............................
Recent Financial Data.....................................
Risk Factors..............................................
Adirondack Financial Services Bancorp, Inc................
Gloversville Federal......................................
Use of Proceeds...........................................
Dividends.................................................
Market for Common Stock...................................
Pro Forma Data............................................
Pro Forma Regulatory Capital Analysis.....................
Capitalization............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Business .................................................
Regulation................................................
Management ...............................................
The Conversion............................................
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions..........................
Description of Capital Stock..............................
Legal and Tax Matters.....................................
Experts...................................................
Additional Information....................................
Index to Financial Statements.............................
Until the later of ________, 1998 or 25 days after commencement of the
offering of Common Stock, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
5,750,000
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
(Proposed Holding Company for Gloversville Federal Savings and Loan Association)
COMMON STOCK
----------
PROSPECTUS
----------
CAPITAL RESOURCES, INC.
_____________, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
- ---------------------------------------------------
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including attorneys' fees; and under certain
circumstances, such persons may be indemnified against expenses actually and
reasonably incurred in connection with the defense or settlement of a proceeding
by or in the right of such other corporation or enterprise. Indemnification is
permitted where such person (i) was acting in good faith; (ii) was acting in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation or other corporation or enterprise, as appropriate; (iii) with
respect to a criminal proceeding, has no reasonable cause to believe his conduct
was unlawful; and (iv) was not adjudged to be liable to the corporation or other
corporation or enterprise (unless the court where the proceeding was brought
determines that such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
II-1
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
- -----------------------------------------------------
Set forth below is an estimate of the amount of fees and expenses (other
than underwriting discounts and commissions) to be incurred in connection with
the issuance of the shares.
SEC registration fee.................................................. $ 1,951
NASD fee.............................................................. 1,100
OTS filing fees....................................................... 8,400
Counsel fees and expenses............................................. 75,000
Accounting fees and expenses.......................................... 165,000
Appraisal and business plan fees and expenses......................... 16,000
Conversion agent fees and expenses.................................... 12,000
Marketing agent's expenses............................................ 15,000
Marketing agent's fee................................................. 90,000
Marketing agent's counsel fees and expenses........................... 20,000
Printing, postage and mailing......................................... 60,000
Blue sky fees and expenses............................................ 14,000
Other expenses........................................................ 30,000
--------
TOTAL............................................................ $508,451
========
- ---------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 26. Recent Sales of Unregistered Securities
- -------------------------------------------------
The Registrant is newly incorporated, solely for the purpose of acting as
the holding company of First Security Federal Savings Bank pursuant to the Plan
of Conversion (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date, other than the sale of one share of the Registrant's stock to
its incorporator for the purpose of qualifying the Registrant to do business in
Illinois.
II-2
<PAGE>
Item 27. Exhibits and Financial Statement Schedules
- ----------------------------------------------------
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services with
Capital Resources, Inc.*
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of First Security Federal Savings Bank in stock form
3.4 Bylaws of First Security Federal Savings Bank in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of
stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of KPMG Peat Marwick LLP with respect to New York income tax
consequences of the Conversion*
8.3 RP Financial, LC. Letter with respect to estimated pro forma market
value and Subscription Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Proposed Recognition and Retention Plan
10.3 Form of Change-In-Control Severance Agreement with Lewis E. Kolar
10.4 Form of Change-In-Control Severance Agreement with Menzo D. Case
10.5 Employee Stock Ownership Plan*
21 Subsidiaries
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to Gloversville
Federal Savings and Loan Association account holders
99.3 Stock Order Form and Order Form Instructions*
99.4 Question and Answer Brochure*
99.5 Advertising, Training and Community Informational Meeting Materials*
- ---------
* To be filed by amendment.
II-3
<PAGE>
Item 28. Undertakings
- ----------------------
The undersigned Registrant hereby undertakes:
(i) 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; and
(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 it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Gloversville, State of New York on January 2, 1998.
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
By: /s/ Lewis E. Kolar
--------------------------------------
Lewis E. Kolar, President,
Chief Executive Officer and Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lewis E. Kolar, his 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
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all said attorney-in-fact and agent or his substitutes
or substitute may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Lewis E. Kolar /s/ Priscilla J. Bell
- -------------------------------------- --------------------------------------
Lewis E. Kolar Priscilla J. Bell
President, Chief Executive Officer and Director
Director
(Principal Executive Officer)
Date: January 2, 1998 Date: January 2, 1998
-------------------------------- --------------------------------
/s/ Timothy E. Delaney /s/ Richard D. Ruby
- -------------------------------------- --------------------------------------
Timothy E. Delaney Richard D. Ruby
Director Chairman of the Board
Date: January 2, 1998 Date: January 2, 1998
-------------------------------- --------------------------------
II-6
<PAGE>
/s/ Donald I. Lee /s/ Robert J. Sofarelli
- -------------------------------------- --------------------------------------
Donald I. Lee Robert J. Sofarelli
Recording Secretary and Director Director
Date: January 2, 1998 Date: January 2, 1998
-------------------------------- --------------------------------
/s/Menzo D. Case
- --------------------------------------
Menzo D. Case
Executive Vice-President, Chief Operating
Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
Date: January 2, 1998
--------------------------------
II-7
<PAGE>
As filed with the Securities and Exchange Commission on January 2, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
EXHIBITS TO THE
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
-------------
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
52 North Main Street
Gloversville, New York 12078-3084
================================================================================
<PAGE>
Exhibits:
- ---------
1.1 Letter Agreement regarding marketing and consulting services with
Capital Resources, Inc.*
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of First Security Federal Savings Bank in stock form
3.4 Bylaws of First Security Federal Savings Bank in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of
stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal
income tax consequences of the Conversion
8.2 Opinion of KPMG Peat Marwick LLP with respect to New York income tax
consequences of the Conversion*
8.3 RP Financial, LC. Letter with respect to estimated pro forma market
value and Subscription Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Proposed Recognition and Retention Plan
10.3 Form of Change-In-Control Severance Agreement with Lewis E. Kolar
10.4 Form of Change-In-Control Severance Agreement with Menzo D. Case
10.5 Employee Stock Ownership Plan*
21 Subsidiaries
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of RP Financial, LC.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Proxy Statement and form of proxy to be furnished to Gloversville
Federal Savings and Loan Association account holders
99.3 Stock Order Form and Order Form Instructions*
99.4 Question and Answer Brochure*
99.5 Advertising, Training and Community Informational Meeting Materials*
- ---------
* To be filed by amendment.
Gloversville Federal Savings & Loan Association
Gloversville, New York
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On November 19, 1997, the Board of Directors of Gloversville Federal
Savings & Loan Association (the "Bank") adopted a Plan of Conversion whereby the
Bank would convert from a mutual savings institution to a stock savings
institution. The Plan includes, as part of the conversion, the concurrent
formation of a holding company, to be named in the future. The Plan provides
that non-transferable subscription rights to purchase Holding Company Conversion
Stock will be offered first to Eligible Account Holders of record as of the
Eligibility Record Date, then to the Bank's Tax-Qualified Employee Plans, then
to Supplemental Eligible Account Holders of record as of the Supplemental
Eligibility Record Date, then to Other Members, and then to directors, officers
and employees. Concurrently with, at any time during, or promptly after the
Subscription Offering, and on a lowest priority basis, an opportunity to
subscribe may also be offered to the general public in a Direct Community and/or
Public Offering. The price of the Holding Company Conversion Stock will be based
upon an independent appraisal of the Bank and will reflect its estimated pro
forma market value, as converted. It is the desire of the Board of Directors of
the Bank to attract new capital to the Bank in order to increase its capital,
support future savings growth and increase the amount of funds available for
residential and other mortgage lending. The Converted Bank is also expected to
benefit from its management and other personnel having a stock ownership in its
business, since stock ownership is viewed as an effective performance incentive
and a means of attracting, retaining and compensating management and other
personnel. No change will be made in the Board of Directors or management as a
result of the Conversion.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in ss.574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
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 Bank or a majority-owned subsidiary of the Holding Company)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten 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, and (iii) any relative or spouse of
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such Person, or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Holding Company or the Bank or any
subsidiary of the Holding Company; provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an associate of any
director or officer of the Holding Company or the Bank, to the extent provided
in Section V hereof.
Bank: Gloversville Federal Savings & Loan Association or such other
name as the institution may adopt.
Conversion: Change of the Bank's charter and bylaws to federal stock
charter and bylaws; sale by the Holding Company of Holding Company Conversion
Stock; and issuance and sale by the Converted Bank of Converted Bank Common
Stock to the Holding Company, all as provided for in the Plan.
Converted Bank: The federally chartered stock savings institution
resulting from the Conversion of the Bank in accordance with the Plan.
Deposit Account: Any withdrawable or repurchasable account or deposit
in the Bank including Savings Accounts and demand accounts.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
Eligibility Record Date: The close of business on September 30, 1996.
Eligible Account Holder: Any Person holding a Qualifying Deposit in the
Bank on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holding Company: A corporation which upon completion of the Conversion
will own all of the outstanding common stock of the Converted Bank, and the name
of which will be selected in the future.
Holding Company Conversion Stock: Shares of common stock, par value
$.01 per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
Local Community: The geographic area encompassing Fulton, Montgomery
and Saratoga Counties, New York.
Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities
2
<PAGE>
issued by another Person) who, with respect to a particular security, (i)
regularly publishes bona fide, competitive bid and offer quotations in a
recognized inter-dealer quotation system; or (ii) furnishes bona fide
competitive bid and offer quotations on request; and (iii) is ready, willing,
and able to effect transactions in reasonable quantities at his quoted prices
with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the Bank
pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust does not meet the requirements to be "qualified" under Section
401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury, and its
successors.
Officer: An executive officer of the Holding Company or the Bank,
including the Chairman of the Board, President, Executive Vice Presidents,
Senior Vice Presidents in charge of principal business functions, Secretary and
Treasurer.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Bank, including any amendment
approved as provided in this Plan.
Public Offering: The offering for sale to selected members of the
general public of any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering or the Direct Community Offering, if any.
Public Offering Price: The price per share at which any unsubscribed
shares of Holding Company Conversion Stock are initially offered for sale in the
Public Offering.
Qualifying Deposit: The aggregate balance of $50 or more of each
Deposit Account of an Eligible Account Holder as of the Eligibility Record Date
or of a Supplemental Eligible Account Holder as of the Supplemental Eligibility
Record Date.
SAIF: Savings Association Insurance Fund.
3
<PAGE>
Savings Account: The term "Savings Account" means any withdrawable
account in the Bank except a demand account.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose
of considering and voting upon the Plan of Conversion.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights
of the Bank's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members, and directors, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Bank (other than an officer or director and their associates) on
the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, 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.
Voting Record Date: The date set by the Board of Directors in
accordance with federal regulations for determining Members eligible to vote at
the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR
APPROVAL
Prior to submission of the Plan of Conversion to its Members for
approval, the Bank must receive from the OTS approval of the Application for
Approval of Conversion to convert to the federal stock form of organization. The
following steps must be taken prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in
each community in which the Bank maintains an office.
4
<PAGE>
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Bank.
D. The Bank will promptly cause an Application for Approval of Conversion
on Form AC to be prepared and filed with the OTS, an Application on
Form H-(e)1 (or other applicable form) to be prepared and filed with
the OTS and a Registration Statement on Form S-1 to be prepared and
filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the Bank shall notify
its Members that it has filed the Application for Approval of
Conversion by posting notice in each of its offices and by publishing
notice in a newspaper having general circulation in each community in
which the Bank maintains an office.
IV. CONVERSION PROCEDURE
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Bank will take all other necessary steps
pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Bank, prior to or
within 45 days after the date of the Special Meeting. The Bank may, either
concurrently with, at any time during, or promptly after the Subscription
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community and/or Public Offering;
provided that the Bank's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members and directors, Officers and
employees shall have the priority rights to subscribe for Holding Company
Conversion Stock set forth in Section V of this Plan. However, the Holding
Company and the Bank may delay commencing the Subscription Offering beyond such
45-day period in the event there exist unforeseen material adverse market or
financial conditions. If the Subscription Offering commences prior to the
Special Meeting, subscriptions will be accepted subject to the approval of the
Plan at the Special Meeting.
The period for the Subscription Offering and Direct Community Offering
and/or Public Offering will be not less than 20 days nor more than 45 days
unless extended by the Bank. If for any reason all of the Conversion shares are
not sold in the Subscription Offering and Direct Community and/or Public
Offering, the Holding Company and the Bank will use their best efforts to obtain
other purchasers, subject to OTS approval. Completion of the sale of all shares
of Holding Company Conversion Stock not sold in the Subscription Offering and
Direct Community and/or Public Offering is required within 45 days after
termination of the Subscription Offering, subject to extension of such 45-day
period by the Holding Company and the Bank with the approval of the OTS. The
Holding Company and the Bank may jointly seek one or more extensions of such
45-day
5
<PAGE>
period if necessary to complete the sale of all shares of Holding Company
Conversion Stock. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders to the extent required by the OTS in approving
the extensions. Completion of the sale of all shares of Holding Company
Conversion Stock is required within 24 months after the date of the Special
Meeting.
V. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock
The total number of shares of Holding Company Conversion Stock to be
issued and sold in the Conversion will be determined jointly by the
Boards of Directors of the Holding Company and the Bank prior to the
commencement of the Subscription Offering, subject to adjustment if
necessitated by market or financial conditions prior to consummation
of the Conversion. The total number of shares of Holding Company
Conversion Stock shall also be subject to increase in connection with
any oversubscriptions in the Subscription Offering or Direct Community
and/or Public Offering.
The aggregate price for which all shares of Holding Company Conversion
Stock will be issued will be based on an independent appraisal of the
estimated total pro forma market value of the Holding Company and the
Converted Bank. Such appraisal shall be performed in accordance with
OTS guidelines and will be updated as appropriate under or required by
applicable regulations.
The appraisal will be made by an independent investment banking or
financial consulting firm experienced in the area of thrift
institution appraisals. The appraisal will include, among other
things, an analysis of the historical and pro forma operating results
and net worth of the Converted Bank and a comparison of the Holding
Company, the Converted Bank and the Conversion Stock with comparable
thrift institutions and holding companies and their respective
outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of the
Holding Company and the Bank will jointly fix the Maximum Subscription
Price.
The Actual Subscription Price for each share of Holding Company
Conversion Stock will be determined by dividing the estimated
appraised aggregate pro forma market value of the Holding Company and
the Converted Bank, based on the independent appraisal as updated upon
completion of the Subscription Offering and Direct Community Offering
and/or Public Offering, if any, or other sale of all of the Holding
Company Conversion Stock, by the total number of shares of Holding
Company Conversion Stock to be issued and sold by the Holding Company
upon Conversion. Such appraisal will then be expressed in terms of a
specific aggregate dollar amount rather than as a range.
6
<PAGE>
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other Members
and directors, Officers and employees of the Bank as set forth below.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock in an amount equal to the greater of $150,000,
or one-tenth of one percent (.10%) of the total offering of
shares, or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
common stock to be issued by a fraction of which the numerator is
the amount of the qualifying deposit of the Eligible Account
Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in the converting Bank
in each case on the Eligibility Record Date.
If sufficient shares are not available, shares shall be allocated
first to permit each subscribing Eligible Account Holder to
purchase to the extent possible 100 shares and thereafter among
each subscribing Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total
Qualifying Deposits of all subscribing Eligible Account Holders
whose subscriptions remain unsatisfied.
Non-transferable Subscription Rights to purchase Holding Company
Conversion Stock received by directors and Officers of the Bank
and their Associates, based on their increased deposits in the
Bank in the one-year period preceding the Eligibility Record
Date, shall be subordinated to all other subscriptions involving
the exercise of non-transferable Subscription Rights of Eligible
Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to receive
non-transferable Subscription Rights to purchase up to 10% of the
shares of Holding Company Conversion Stock, provided that singly
or in the aggregate such plans (other than that portion of such
plans which is self-directed) shall not purchase more than 10% of
the shares of the Holding Company Conversion Stock. Subscription
Rights received pursuant to this Category shall be subordinated
to all rights received by Eligible Account Holders to purchase
shares pursuant to Category No. 1; provided, however, that
notwithstanding any other provision of this Plan to the contrary,
the Tax-Qualified Employee Plans shall have a first priority
Subscription Right to the extent that the total number of shares
of Holding Company Conversion Stock sold in the Conversion
exceeds the maximum of the appraisal range as set forth in the
subscription prospectus.
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3. Preference Category No. 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of
Holding Company Conversion Stock in an amount equal to the
greater of $150,000, or one-tenth of one percent (.10%) of the
total offering of shares, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total
number of shares of common stock to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of
the Supplemental Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Supplemental
Eligible Account Holders in the converting Bank in each case on
the Supplemental Eligibility Record Date.
Subscription Rights received pursuant to this category shall be
subordinated to all Subscription Rights received by Eligible
Account Holders and Tax-Qualified Employee Plans pursuant to
Category Nos. 1 and 2 above.
Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with
Category No. 1 shall reduce to the extent thereof the
Subscription Rights to be distributed to such person pursuant to
this Category.
In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated first to permit each subscribing Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of
shares sufficient to make his total allocation (including the
number of shares, if any, allocated in accordance with Category
No. 1) equal to 100 shares, and thereafter among each subscribing
Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total
Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unsatisfied.
8
<PAGE>
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable Subscription
Rights to subscribe for shares of Holding Company Conversion
Stock remaining after satisfying the subscriptions provided for
under Category Nos. 1 through 3 above, subject to the following
conditions:
a. Each Other Member shall be entitled to subscribe for an
amount of shares equal to the greater of $150,000, or
one-tenth of one percent (.10%) of the total offering of
shares of common stock in the Conversion, to the extent that
Holding Company Conversion Stock is available.
b. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall
be allocated among the subscribing Other Members pro rata in
the same proportion that his number of votes on the Voting
Record Date bears to the total number of votes on the Voting
Record Date of all subscribing Other Members on such date.
Such number of votes shall be determined based on the Bank's
mutual charter and bylaws in effect on the date of approval
by members of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and Employees
Each director, Officer and employee of the Bank as of the date of
the commencement of the Subscription Offering shall be entitled
to receive non-transferable Subscription Rights to purchase
shares of the Holding Company Conversion Stock to the extent that
shares are available after satisfying subscriptions under
Category Nos. 1 through 4 above. The shares which may be
purchased under this Category are subject to the following
conditions:
a. The total number of shares which may be purchased under this
Category may not exceed 24% of the number of shares of
Holding Company Conversion Stock.
b. The maximum amount of shares which may be purchased under
this Category by any Person is $150,000 of Holding Company
Conversion Stock. In the event of an oversubscription for
shares under the provisions of this subparagraph, the shares
available shall be allocated pro rata among all subscribers
in this Category.
9
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C. Public Offering and Direct Community Offering
1. Any shares of Holding Company Conversion Stock not subscribed for
in the Subscription Offering may be offered for sale in a Direct
Community Offering. This will involve an offering of all
unsubscribed shares directly to the general public with a
preference to those natural persons residing in the Local
Community. The Direct Community Offering, if any, shall be for a
period of not less than 20 days nor more than 45 days unless
extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription
Offering. The purchase price per share to the general public in a
Direct Community Offering shall be the same as the Actual
Subscription Price. The Holding Company and the Bank may use an
investment banking firm or firms on a best efforts basis to sell
the unsubscribed shares in the Subscription and Direct Community
Offering. The Holding Company and the Bank may pay a commission
or other fee to such investment banking firm or firms as to the
shares sold by such firm or firms in the Subscription and Direct
Community Offering and may also reimburse such firm or firms for
expenses incurred in connection with the sale. The Holding
Company Conversion Stock will be offered and sold in the Direct
Community Offering, in accordance with OTS regulations, so as to
achieve the widest distribution of the Holding Company Conversion
Stock. No person, by himself or herself, or with an Associate or
group of Persons acting in concert, may subscribe for or purchase
more than $150,000 of Holding Company Conversion Stock in the
Direct Community Offering.
In the event of an oversubscription for shares in the Direct
Community Offering, shares may be allocated (to the extent shares
remain available) first to cover orders of natural persons
residing in the Local Community, then to cover the orders of any
other person subscribing for shares in the Direct Community
Offering so that each such person may receive 1,000 shares, and
thereafter, on a pro rata basis to such persons based on the
amount of their respective subscriptions.
The Bank and the Holding Company, in their sole discretion, may
reject subscriptions, in whole or in part, received from any
Person under this Section V.C. Further, the Bank and the Holding
Company may, in their sole discretion, elect to forego a Direct
Community Offering and instead effect a Public Offering as
described below.
2. Any shares of Holding Company Conversion Stock not sold in the
Subscription Offering and the Direct Community Offering, if any,
may be sold to selected members of the general public in the
Public Offering. The Public Offering shall be completed within 45
days after the termination of the Subscription Offering, unless
such period is extended as provided in Section IV hereof. The
Holding Company and the Bank may, in their sole
10
<PAGE>
discretion, reject in whole or in part, any subscriptions
received in the Public Offering. No person, by himself or
herself, or with an Associate or group of persons acting in
concert, may purchase more than $150,000 of shares in the Public
Offering and/or Direct Community Offering.
3. If for any reason a Public Offering of unsubscribed shares of
Holding Company Conversion Stock cannot be effected and any
shares remain unsold after the Subscription Offering and the
Direct Community Offering, if any, the Boards of Directors of the
Holding Company and the Bank will seek to make other arrangements
for the sale of the remaining shares. Such other arrangements
will be subject to the approval of the OTS and to compliance with
applicable securities laws.
D. Additional Limitations Upon Purchases of Shares of Holding Company
Conversion Stock
The following additional limitations shall be imposed on all purchases
of Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or group
of Persons acting in concert, may subscribe for or purchase in
the Conversion a number of shares of Holding Company Conversion
Stock which exceeds an amount of shares equal to $150,000. For
purposes of this paragraph, an Associate of a Person does not
include a Tax-Qualified or Non-Tax Qualified Employee Plan in
which the person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity. Moreover, for
purposes of this paragraph, shares held by one or more
Tax-Qualified or Non-Tax Qualified Employee Plans attributed to a
Person shall not be aggregated with shares purchased directly by
or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not purchase in
all categories in the Conversion an aggregate of more than 34% of
the Holding Company Conversion Stock. For purposes of this
paragraph, an Associate of a Person does not include any
Tax-Qualified Employee Plan. Moreover, any shares attributable to
the Officers and directors and their Associates, but held by one
or more Tax-Qualified Employee Plans shall not be included in
calculating the number of shares which may be purchased under the
limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion Stock
that may be purchased by any Person in the Conversion is 25
shares, provided sufficient shares are available.
4. The Boards of Directors of the Holding Company and the Bank may,
in their sole discretion, increase the maximum purchase
limitation referred to in
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subparagraph 1. herein up to 9.99%, provided that orders for
shares exceeding 5% of the shares being offered in the Conversion
shall not exceed, in the aggregate, 10% of the shares being
offered in the Conversion. Requests to purchase additional shares
of Holding Company Conversion Stock under this provision will be
allocated by the Boards of Directors on a pro rata basis giving
priority in accordance with the priority rights set forth in this
Section V.
Depending upon market and financial conditions, the Boards of Directors
of the Holding Company and the Bank, with the approval of the OTS and without
further approval of the Members, may increase or decrease any of the above
purchase limitations.
For purposes of this Section V, the directors of the Holding Company
and the Bank shall not be deemed to be Associates or a group acting in concert
solely as a result of their serving in such capacities.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Holding Company Conversion
Stock Being Sold
1. Transferability. Holding Company Conversion Stock purchased by
Persons other than directors and Officers of the Holding Company
or the Bank will be transferable without restriction. Shares
purchased by directors or Officers shall not be sold or otherwise
disposed of for value for a period of one year from the date of
Conversion, except for any disposition of such shares (i)
following the death of the original purchaser, or (ii) resulting
from an exchange of securities in a merger or acquisition
approved by the applicable regulatory authorities. Any transfers
that could result in a change of control of the Bank or the
Holding Company or result in the ownership by any Person or group
acting in concert of more than 10% of any class of the Bank's or
the Holding Company's equity securities are subject to the prior
approval of the OTS.
The certificates representing shares of Holding Company
Conversion Stock issued to directors and Officers shall bear a
legend giving appropriate notice of the one-year holding period
restriction. Appropriate instructions shall be given to the
transfer agent for such stock with respect to the applicable
restrictions relating to the transfer of restricted stock. Any
shares of common stock of the Holding Company subsequently issued
as a stock dividend, stock split, or otherwise, with respect to
any such restricted stock, shall be subject to the same holding
period restrictions for Holding Company or Bank directors and
Officers as may be then applicable to such restricted stock.
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No director or Officer of the Holding Company or of the Bank, or
Associate of such a director or Officer, shall purchase any
outstanding shares of capital stock of the Holding Company for a
period of three years following the Conversion without the prior
written approval of the OTS, except through a broker or dealer
registered with the SEC or in a "negotiated transaction"
involving more than one percent of the then-outstanding shares of
common stock of the Holding Company. As used herein, the term
"negotiated transaction" means a transaction in which the
securities are offered and the terms and arrangements relating to
any sale are arrived at through direct communications between the
seller or any Person acting on its behalf and the purchaser or
his investment representative. The term "investment
representative" shall mean a professional investment advisor
acting as agent for the purchaser and independent of the seller
and not acting on behalf of the seller in connection with the
transaction.
2. Repurchase and Dividend Rights. Except as permitted by applicable
regulations, for a period of three years following Conversion,
the Converted Bank shall not repurchase any shares of its capital
stock, except in the case of an offer to repurchase on a pro rata
basis made to all holders of capital stock of the Converted Bank.
A repurchase of qualifying shares of a director shall not be
deemed to be a repurchase for purposes of this Section V.E.2.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory
capital of the Converted Bank below the amount required for the
liquidation account to be established pursuant to Section XIII
hereof, and (ii) except in compliance with requirements of
Section 563.134 of the Rules and Regulations of the OTS.
The above limitations are subject to Section 563b.3 (g)(3) of the
Rules and Regulations of the OTS, which generally provides that
the Converted Bank may repurchase its capital stock provided (i)
no repurchases occur within one year following conversion, (ii)
repurchases during the second and third year after conversion are
part of an open market stock repurchase program that does not
allow for a repurchase of more than 5% of the Bank's outstanding
capital stock during a twelve-month period without OTS approval,
(iii) the repurchases do not cause the Bank to become
undercapitalized, and (iv) the Bank provides notice to the OTS at
least 10 days prior to the commencement of a repurchase program
and the OTS does not object. In addition, the above limitations
shall not preclude payments of dividends or repurchases of
capital stock by the Converted Bank in the event applicable
federal regulatory limitations are liberalized or waived by the
OTS subsequent to OTS approval of the Plan.
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3. Voting Rights. After Conversion, holders of deposit accounts will
not have voting rights in the Bank or the Holding Company.
Exclusive voting rights as to the Bank will be vested in the
Holding Company, as the sole stockholder of the Bank. Voting
rights as to the Holding Company will be held exclusively by its
stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the
solicitation of proxies for the Special Meeting, the subscription
prospectus and Order Form may be sent to each Eligible Account
Holder, Tax-Qualified Employee Plan, Supplemental Eligible
Account Holder, Other Member, and director, Officer and employee
at their last known address as shown on the records of the Bank.
However, the Bank may, and if the Subscription Offering commences
after the Special Meeting the Bank shall, furnish a subscription
prospectus and Order Form only to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and employees who
have returned to the Bank by a specified date prior to the
commencement of the Subscription Offering a post card or other
written communication requesting a subscription prospectus and
Order Form. In such event, the Bank shall provide a postage-paid
post card for this purpose and make appropriate disclosure in its
proxy statement for the solicitation of proxies to be voted at
the Special Meeting and/or letter sent in lieu of the proxy
statement to those Eligible Account Holders, Tax- Qualified
Employee Plans or Supplemental Eligible Account Holders who are
not Members on the Voting Record Date.
2. Each Order Form will be preceded or accompanied by a subscription
prospectus describing the Holding Company and the Converted Bank
and the shares of Holding Company Conversion Stock being offered
for subscription and containing all other information required by
the OTS or the SEC or necessary to enable Persons to make
informed investment decisions regarding the purchase of Holding
Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the
following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and
employees;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Bank or its
representative for purposes of exercising Subscription
Rights,
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which date will be not less than 20 days after the Order
Forms are mailed by the Bank;
(iii)The Maximum Subscription Price to be paid for each share
subscribed for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum number of shares
of Holding Company Conversion Stock that may be subscribed
for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form including a statement as to the available
alternative methods of payment for the shares being
subscribed for;
(vii)Specifically designated blank spaces for dating and signing
the Order Form;
(viii) An acknowledgment that the subscriber has received the
subscription prospectus;
(ix) A statement of the consequences of failing to properly
complete and return the Order Form, including a statement
that the Subscription Rights will expire on the expiration
date specified on the Order Form unless such expiration date
is extended by the Holding Company and the Bank, and that
the Subscription Rights may be exercised only by delivering
the Order Form, properly completed and executed, to the Bank
or its representative by the expiration date, together with
required payment of the Maximum Subscription Price for all
shares of Holding Company Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are
non-transferable and that all shares of Holding Company
Conversion Stock subscribed for upon exercise of
Subscription Rights must be purchased on behalf of the
Person exercising the Subscription Rights for his own
account; and
(xi) A statement that, after receipt by the Bank or its
representative, a subscription may not be modified,
withdrawn or canceled without the consent of the Bank.
G. Method of Payment
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Payment for all shares of Holding Company Conversion Stock subscribed
for, computed on the basis of the Maximum Subscription Price, must
accompany all completed Order Forms. Payment may be made in cash (if
presented in Person), by check, or, if the subscriber has a Deposit
Account in the Bank (including a certificate of deposit), the
subscriber may authorize the Bank to charge the subscriber's account.
If a subscriber authorizes the Bank to charge his or her account, the
funds will continue to earn interest, but may not be used by the
subscriber until all Holding Company Conversion Stock has been sold or
the Plan of Conversion is terminated, whichever is earlier. The Bank
will allow subscribers to purchase shares by withdrawing funds from
certificate accounts without the assessment of early withdrawal
penalties with the exception of prepaid interest in the form of
promotional gifts. In the case of early withdrawal of only a portion
of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the
applicable minimum balance requirement, in which event the remaining
balance will earn interest at the passbook rate. This waiver of the
early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Holding Company Conversion Stock under
the Plan of Conversion. Interest will also be paid, at not less than
the then-current passbook rate, on all orders paid in cash, by check
or money order, from the date payment is received until consummation
of the Conversion. Payments made in cash, by check or money order will
be placed by the Bank in an escrow or other account established
specifically for this purpose.
In the event of an unfilled amount of any subscription order, the
Converted Bank will make an appropriate refund or cancel an
appropriate portion of the related withdrawal authorization, after
consummation of the Conversion, including any difference between the
Maximum Subscription Price and the Actual Subscription Price (unless
subscribers are afforded the right to apply such difference to the
purchase of additional whole shares). If for any reason the Conversion
is not consummated, purchasers will have refunded to them all payments
made and all withdrawal authorizations will be canceled in the case of
subscription payments authorized from accounts at the Bank.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee
Plans subscribe for shares during the Subscription Offering, such
plans will not be required to pay for the shares subscribed for at the
time they subscribe, but may pay for such shares of Holding Company
Conversion Stock subscribed for upon consummation of the Conversion.
In the event that, after the completion of the Subscription Offering,
the amount of shares to be issued is increased above the maximum of
the appraisal range included in the Prospectus, the Tax Qualified and
Non-Tax Qualified Employee Plans shall be entitled to increase their
subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the appraisal range
provided that such subscriptions shall continue to be subject to
applicable purchase limits and stock allocation procedures.
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H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Bank shall have
the absolute right, in their sole discretion, to reject any Order
Form, including but not limited to, any Order Forms which (i) are not
delivered or are returned by the United States Postal Service (or the
addressee cannot be located); (ii) are not received back by the Bank
or its representative, or are received after the termination date
specified thereon; (iii) are defectively completed or executed; (iv)
are not accompanied by the total required payment for the shares of
Holding Company Conversion Stock subscribed for (including cases in
which the subscribers' Deposit Accounts or certificate accounts are
insufficient to cover the authorized withdrawal for the required
payment); or (v) are submitted by or on behalf of a Person whose
representations the Boards of Directors of the Holding Company and the
Bank believe to be false or who they otherwise believe, either alone
or acting in concert with others, is violating, evading or
circumventing, or intends to violate, evade or circumvent, the terms
and conditions of this Plan. In such event, the Subscription Rights of
the Person to whom such rights have been granted will not be honored
and will be treated as though such Person failed to return the
completed Order Form within the time period specified therein. The
Bank may, but will not be required to, waive any irregularity relating
to any Order Form or require submission of corrected Order Forms or
the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation of the Holding Company and
the Bank of the terms and conditions of this Plan and of the proper
completion of the Order Form will be final, subject to the authority
of the OTS.
I. Member in Non-Qualified States or in Foreign Countries
The Holding 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 Holding Company Conversion
Stock pursuant to the Plan reside. However, no shares will be offered
or sold under the Plan of Conversion to any such Person who (1)
resides in a foreign country or (2) resides in a state of the United
States in which a small number of Persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to
which the Holding Company and the Bank determine that compliance with
the securities laws of such state would be impracticable for reasons
of cost or otherwise, including, but not limited to, a requirement
that the Holding Company or the Bank or any of their officers,
directors or employees register, under the securities laws of such
state, as a broker, dealer, salesman or agent. No payments will be
made in lieu of the granting of Subscription Rights to any such
Person.
VI. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank will take all appropriate steps to
amend its charter to read in the form of federal stock savings
institution charter as prescribed
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by the OTS. The name of the Bank, as converted, will not change. A
copy of the proposed stock charter is available upon request. By their
approval of the Plan, the Members of the Bank will thereby approve and
adopt such charter.
B. The Bank will also take appropriate steps to amend its bylaws to read
in the form prescribed by the OTS for a federal stock savings
institution. A copy of the proposed federal stock bylaws is available
upon request.
C. The effective date of the adoption of the Bank's federal stock charter
and bylaws shall be the date of the issuance and sale of the Holding
Company Conversion Stock as specified by the OTS.
VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding
Company will be made available from the Bank upon request.
VIII. DIRECTORS OF THE CONVERTED BANK
Each Person serving as a member of the Board of Directors of the Bank
at the time of the Conversion will thereupon become a director of the Converted
Bank.
IX. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND RETENTION PLAN
In order to provide an incentive for directors, Officers and employees
of the Holding Company and its subsidiaries (including the Bank), the Board of
Directors of the Holding Company intends to adopt, subject to shareholder
approval, a stock option and incentive plan and a recognition and retention plan
as soon as permitted by applicable regulation.
X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Bank and the Holding Company may in their discretion make
scheduled contributions to any Tax-Qualified Employee Plans, provided that any
such contributions which are for the acquisition of Holding Company Conversion
Stock, or the repayment of debt incurred for such an acquisition, do not cause
the Converted Bank to fail to meet its regulatory capital requirements.
XI. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Conversion, the Holding Company will register
its stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will undertake not to deregister such stock,
without the approval of the OTS, for a period of three years thereafter.
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The Holding Company shall use its best efforts to encourage and assist
two or more market makers to establish and maintain a market for its common
stock promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
Each Deposit Account holder shall retain, without payment, a
withdrawable Deposit Account or Accounts in the Converted Bank, equal in amount
to the withdrawable value of such account holder's Deposit Account or Accounts
prior to Conversion. All Deposit Accounts will continue to be insured by the
SAIF up to the applicable limits of insurance coverage, and shall be subject to
the same terms and conditions (except as to voting and liquidation rights) as
such Deposit Account in the Bank at the time of the Conversion. All loans shall
retain the same status after Conversion as these loans had prior to Conversion.
XIII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final offering
circular used in connection with the Conversion. The creation and maintenance of
the liquidation account will not operate to restrict the use or application of
any of the regulatory capital accounts of the Converted Bank; provided, however,
that such regulatory capital accounts will not be voluntarily reduced below the
required dollar amount of the liquidation account. Each Eligible Account Holder
and Supplemental Eligible Account Holder shall, with respect to the Deposit
Account held, have a related inchoate interest in a portion of the liquidation
account balance ("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and/or Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date and the denominator is the total amount of the Qualifying Deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders on
such record dates in the Bank. For Deposit Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Deposit Accounts on such record dates. Such initial subaccount balance
shall not be increased, and it shall be subject to downward adjustment as
provided below.
If the deposit balance in any Deposit Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the record date is less than the lesser of (i)
the deposit balance in such Deposit Account at the close of business
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<PAGE>
on any other annual closing date subsequent to the Eligibility Record Date or
the Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or Supplemental
Eligibility Record Date, the subaccount balance shall be reduced in an amount
proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Deposit
Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such
event), each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then-current adjusted subaccount balances for
Deposit Accounts then held before any liquidation distribution may be made to
stockholders. No merger, consolidation, bulk purchase of assets with assumptions
of Deposit Accounts and other liabilities, or similar transactions with another
institution the accounts of which are insured by the SAIF, shall be considered
to be a complete liquidation. In such transactions, the liquidation account
shall be assumed by the surviving institution.
XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK
Regulations of the OTS limit acquisitions, and offers to acquire,
direct or indirect beneficial ownership of more than 10% of any class of an
equity security of the Converted Bank or the Holding Company. In addition,
consistent with the regulations of the OTS, the charter of the Converted Bank
shall provide that for a period of five years following completion of the
Conversion: (i) no Person (i.e., no individual, group acting in concert,
corporation, partnership, association, joint stock company, trust, or
unincorporated organization or similar company, syndicate, or any other group
formed for the purpose of acquiring, holding or disposing of securities of an
insured institution) shall directly or indirectly offer to acquire or acquire
beneficial ownership of more than 10% of any class of the Bank's equity
securities. Shares beneficially owned in violation of this charter provision
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 matter submitted to
the shareholders for a vote. This limitation shall not apply to any offer to
acquire or acquisition of beneficial ownership of more than 10% of the common
stock of the Bank by a corporation whose ownership is or will be substantially
the same as the ownership of the Bank, provided that the offer or acquisition is
made more than one year following the date of completion of the Conversion; (ii)
shareholders shall not be permitted to cumulate their votes for elections of
directors; and (iii) special meetings of the shareholders relating to changes in
control or amendment of the charter may only be called by the Board of
Directors.
XV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the Bank. After
submission of the Plan and proxy materials to the Members, the Plan may be
amended by a two-thirds vote of the respective Boards of Directors of the
Holding Company and the Bank only with the concurrence of the OTS. In the event
that the Bank determines that for tax purposes or otherwise it is in the best
interest of the Bank to convert
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from a federal mutual to a federal stock institution without the concurrent
formation of a holding company, the Plan may be substantively amended, with OTS
approval, in such respects as the Board of Directors of the Bank deems
appropriate to reflect such change from a holding company conversion to a direct
conversion. In the event the Plan is so amended, common stock of the Bank will
be substituted for Holding Company Conversion Stock in the Subscription and
Direct Community and/or Public Offerings, if any, and subscribers will be
resolicited as described in Section V hereof. Any amendments to the Plan
(including amendments to reflect the elimination of the concurrent holding
company formation) made after approval by the Members with the concurrence of
the OTS shall not necessitate further approval by the Members unless otherwise
required.
The Plan may be terminated by a two-thirds vote of the Bank's Board of
Directors at any time prior to the Special Meeting of Members, and at any time
following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Bank may modify or terminate the Plan
upon the order or with the approval of the OTS and without further approval by
Members. The Plan shall terminate if the sale of all shares of Conversion Stock
is not completed within 24 months of the date of the Special Meeting. A specific
resolution approved by a majority of the Board of Directors of the Bank is
required in order for the Bank to terminate the Plan prior to the end of such
24-month period.
XVI. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling of the United States Internal Revenue Service or an
opinion of tax counsel with respect to federal taxation, and either a ruling of
the New York taxation authorities or an opinion of tax counsel or other tax
advisor with respect to New York taxation, to the effect that consummation of
the transactions contemplated herein will not be taxable to the Holding Company
or the Bank.
XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
The Bank may not knowingly loan funds or otherwise extend credit to any
Person to purchase in the Conversion shares of Holding Company Conversion Stock.
21
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
FIRST: The name of the Corporation is Adirondack Financial Services
Bancorp, Inc. (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 Delaware.
FOURTH:
A. The total number of shares of all classes of stock which
the Corporation shall have the authority to issue is one million
three hundred thousand (1,300,000) consisting of:
1. one hundred thousand (100,000) shares of preferred
stock, par value one cent ($.01) per share (the "Preferred
Stock"); and
2. one million two hundred thousand (1,200,000) shares
of common stock, par value one cent ($.01) per share (the
"Common Stock").
B. The Board of Directors is hereby expressly 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 the
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 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
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<PAGE>
by any record owner by virtue of the provisions hereof in respect
of Common Stock beneficially owned by such person owning shares
in excess of the Limit shall be a number equal to the total
number of votes which a single record owner of all Common Stock
owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such
class or series 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) An "affiliate" of a specified person shall mean a
person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the person specified.
(b) "Beneficial ownership" shall be determined pursuant
to Rule 13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect
on December 1, 1997; 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 the clauses of Section A
of Article EIGHTH) or upon the exercise of conversion
rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment
power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise
(but shall not be deemed to be the beneficial owner of
any voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such
person nor any such affiliate is otherwise deemed the
beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such first
mentioned person or any of its affiliates acts as a
partnership, limited partnership, syndicate or other
group pursuant to any agreement, arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of any shares of capital stock of
this Corporation;
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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) shall, solely by reason of such
capacity of such trustee, be deemed, for any purposes hereof, to
beneficially own any Common Stock held under any such plan. For
purposes of computing the percentage beneficial ownership of
Common Stock of a person, the outstanding Common Stock shall
include shares deemed owned by such person through application of
this subsection but shall not include any other Common Stock
which may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm,
corporation, or other entity.
(d) 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 (1) the number of shares of Common Stock
beneficially owned by any person, (2) whether a person is an
affiliate of another, (3) whether a person has an agreement,
arrangement, or understanding with another as to the matters
referred to in the definition of beneficial ownership, (4)
the application of any other definition or operative
provision of this Section to the given facts, or (5) any
other matter relating to the applicability or effect of this
Section.
3. 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) (a "Holder in Excess") supply the Corporation with complete
information as to (a) the record owner(s) of all shares beneficially owned by
such Holder in Excess, and (b) any other factual matter relating to the
applicability or effect of this section as may reasonably be requested of such
Holder in Excess. The Board of Directors shall further have the right to receive
from any Holder in Excess reimbursement for all expenses incurred by the Board
in connection with its investigation of any matters relating to the
applicability or effect of this section on such Holder in Excess, to the extent
such investigation is deemed appropriate by the Board of Directors as a result
of the Holder in Excess refusing to supply the Corporation with the information
described in the previous sentence.
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4. 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
one-third of the votes (after giving effect, if required, to the provisions of
this Section) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
5. 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.
6. 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 By-laws 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 By-laws so provide.
C. Subject to the rights of holders of any class or series of
Preferred Stock, 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. Subject to the rights of holders of any class or series of
Preferred Stock, special meetings of stockholders of the Corporation
may be called only by the Board of Directors
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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 (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes
for the election of directors.
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, other than those who
may be elected by the holders of any class or series of Preferred
Stock, 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 conclusion of the first annual meeting of stockholders,
the term of office of the second class to expire at the conclusion of
the annual meeting of stockholders one year thereafter and the term of
office of the third class to expire at the conclusion of 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 the holders of any series of
Preferred Stock then outstanding, newly created directorships
resulting from any increase in the authorized number of directors or
any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or
other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they
have been elected expires, and until such director's successor shall
have been duly elected and qualified. No decrease in the number of
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 By-laws of the Corporation.
D. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, 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%
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), voting together as a single class.
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SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal the By-laws of the Corporation. Any adoption, amendment or repeal of
the By-laws 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 By-laws of the Corporation. 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 affirmative vote of
the holders of at least 80% 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
hereof), voting together as a single class, shall be required to adopt, amend or
repeal any provisions of the By-laws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly
provided in this Section:
1. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) 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 hereafter 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 equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries except pursuant
to an employee benefit plan of the Corporation or any Subsidiary
thereof; or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of any 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,
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of increasing 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 (a
"Disproportionate Transaction"); provided, however, that no such
transaction shall be deemed a Disproportionate Transaction if the
increase in the proportionate ownership of the Interested Stockholder
or Affiliate as a result of such transaction is no greater than the
increase experienced by the other stockholders generally;
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"), 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 or in any agreement with any national securities
exchange or quotation system or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs 1
through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not
be applicable to any particular Business Combination, and such
Business Combination shall require only the affirmative vote of the
majority of the outstanding shares of capital stock entitled to vote,
or such vote as is required by law or by this Certificate of
Incorporation, if, in the case of any Business Combination that does
not involve any cash or other consideration being received by the
stockholders of the Corporation solely in their capacity as
stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the
following paragraphs 1 and 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, including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by
the Interested Stockholder or any of its Affiliates
for any shares of Common Stock acquired by it (i)
within the two-year period immediately prior to the
first public announcement of the proposal of the
Business
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Combination (the "Announcement Date"), or (ii) in the
transaction in which it became an Interested
Stockholder, whichever is higher.
(2) the Fair Market Value per share
of Common Stock on the Announcement Date or on the
date on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred
to in this Article EIGHTH as the "Determination
Date"), whichever is higher.
(b) The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by holders of shares of any class of
outstanding Voting Stock other than Common Stock shall be at
least equal to the highest of the following (it being intended
that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular
class of Voting Stock):
(1) (if applicable) the Highest Per
Share Price (as hereinafter defined), including any
brokerage commissions, transfer taxes and soliciting
dealers' fees, paid by the Interested Stockholder for
any shares of such class of Voting Stock acquired by
it (i) within the two-year period immediately prior
to the Announcement Date, or (ii) in the transaction
in which it became an Interested Stockholder,
whichever is higher;
(2) (if applicable) the highest
preferential amount per share to which the holders of
shares of such class of Voting Stock are entitled in
the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; and
(3) the Fair Market Value per share
of such class of Voting Stock on the Announcement
Date or on the Determination Date, whichever is
higher.
(c) The consideration to be received by
holders of a particular class of outstanding Voting Stock
(including Common Stock) shall be in cash or in the same form
as the Interested Stockholder has 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 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 Section B.2 of this Article
EIGHTH shall be subject
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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; (i) except as approved by a
majority of the Disinterested Directors, there shall have been
no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as
to dividends or liquidation; (ii) there shall have been (X) 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 (Y) 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 Common Stock,
unless the failure to so increase such annual rate is approved
by a majority of the Disinterested Directors; and (iii)
neither such Interested Stockholder nor any of its Affiliates
shall have become the beneficial owner of any additional
shares of Voting Stock except as part of the transaction which
results in such Interested Stockholder becoming an Interested
Stockholder.
(e) After such Interested Stockholder has
become an Interested Stockholder, such Interested Stockholder
shall not have received the benefit, directly or indirectly
(except proportionately as a stockholder), of any loans,
advances, guarantees, pledges or other financial assistance or
any tax credits or other tax advantages provided by the
Corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
(f) A proxy or information statement
describing the proposed Business Combination and complying
with the requirements of the Securities Exchange Act of 1934
and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be
mailed to stockholders of the Corporation at least 30 days
prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group
acting in concert, a corporation, a partnership, an association, a
joint venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing
of securities.
2. "Interested Stockholder" shall mean any Person
(other than the Corporation or any holding company or Subsidiary
thereof) who or which:
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(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.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its
Affiliates or Associates (as hereinafter defined) beneficially
owns, directly or indirectly within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, as in effect on
December 1, 1997; or
(b) which such Person or any of its
Affiliates or Associates 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 or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or
understanding (but neither such Person nor any such Affiliate
or Associate shall be deemed to be the beneficial owner of any
shares of Voting Stock solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting, and with
respect to which shares neither such Person nor any such
Affiliate or Associate is otherwise deemed the beneficial
owner); or
(c) which are beneficially owned, directly
or indirectly within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as in effect on December 1,
1997, by any other Person with which such Person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting
(other than solely by reason of a revocable proxy as described
in Subparagraph (b) of this Paragraph 3) or in disposing of
any shares of Voting Stock;
provided, however, that, in the case of any employee stock ownership or
similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with
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respect thereto (nor 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 shares of Voting Stock held under any
such plan.
4. For the purpose of determining whether a Person is
an Interested Stockholder pursuant to Section C.2., the number of
shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of this Section C.3. but shall not
include any other shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
5. "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 December 1, 1997
6. "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 this
Section C.2., the term "Subsidiary" shall mean only a corporation of
which a majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
7. "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 on 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.
8. "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 of the Nasdaq System or any system then in use, or, if such stock
is admitted to trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, Fair Market Value
shall be the highest 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 in
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.
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9. 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.
10. In the event of any Business Combination in which
the Corporation survives, the phrase "consideration other than cash to
be received" as used in Sections B.2.(a) and B.2.(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 assets 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% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate
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objectives as a financial institution holding company and on the ability of its
subsidiary financial institution to fulfill the objectives of a federally
insured financial institution under applicable statutes and regulations.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in
addition to any affirmative vote of stockholders required by law or this
Certificate of Incorporation, any direct or indirect purchase or other
acquisition by the Corporation of any Equity Security (as hereinafter defined)
of any class from any Interested Person (as hereinafter defined) shall require
the affirmative vote of the holders of at least 80% of the Voting Stock of the
Corporation that is not beneficially owned (for purposes of this Article TENTH
beneficial ownership shall be determined in accordance with Section C.2(b) of
Article FOURTH hereof) by such Interested Person, 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 or in any agreement with any national securities exchange or
quotation system, or otherwise. Certain defined terms used in this Article TENTH
are as set forth in Section C below.
B. The provisions of Section A of this Article TENTH shall not
be applicable with respect to:
1. any purchase or other acquisition of securities
made as part of a tender or exchange offer by the Corporation or a
Subsidiary (which term, as used in this Article TENTH, is as defined in
the first clause of Section C.6 of Article EIGHTH hereof) of the
Corporation to purchase securities of the same class made on the same
terms to all holders of such securities and complying with the
applicable requirements of the Securities Exchange Act of 1934 and the
rules and regulations thereunder (or any subsequent provision replacing
such Act, rules or regulations);
2. any purchase or acquisition made pursuant to an
open market purchase program approved by a majority of the Board of
Directors, including a majority of the Disinterested Directors (which
term, as used in this Article TENTH, is as defined in Article EIGHTH
hereof); or
3. any purchase or acquisition which is approved by a
majority of the Board of Directors, including a majority of the
Disinterested Directors, and which is made at no more than the Market
Price (as hereinafter defined), on the date that the understanding
between the Corporation and the Interested Person is reached with
respect to such purchase (whether or not such purchase is made or a
written agreement relating to such purchase is executed on such date),
of shares of the class of Equity Security to be purchased.
C. For the purposes of this Article TENTH:
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1. The term Interested Person shall mean any Person
(other than the Corporation, Subsidiaries of the Corporation, pension,
profit sharing, employee stock ownership or other employee benefit
plans of the Corporation and its Subsidiaries, entities organized or
established by the Corporation or any of its Subsidiaries pursuant to
the terms of such plans and trustees and fiduciaries with respect to
any such plan acting in such capacity) that is the direct or indirect
beneficial owner of 5% or more of the Voting Stock of the Corporation,
and any Affiliate or Associate of any such person.
2. The Market Price of shares of a class of Equity
Security on any day shall mean the highest sale price of shares of such
class of Equity Security on such day, or, if that day is not a trading
day, on the trading day immediately preceding such day, on the national
securities exchange or the Nasdaq System or any other system then in
use on which such class of Equity Security is traded.
3. The term Equity Security shall mean any security
described in Section 3(a)(11) of the Securities Exchange Act of 1934,
as in effect on December 1, 1997, which is traded on a national
securities exchange or the Nasdaq System or any other system then in
use.
4. For purposes of this Article TENTH, all references
to the term Interested Stockholder in the definition of Disinterested
Director shall be deemed to refer to the term Interested Person.
ELEVENTH:
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 or officer of another corporation, including, without
limitation, any Subsidiary (as defined in Article EIGHTH herein), 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 or officer or
in any other capacity while serving as a director or officer, 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.
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B. The right to indemnification conferred in Section A of this
Article 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, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication"),
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections A and B of this Article shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
director or officer 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 is not paid
in full by the Corporation within 60 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 20 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 also be entitled
to be paid the expense of prosecuting or defending such suit. In (1) 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 (2) 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 or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of
expenses conferred in this Article shall not be exclusive of any other right
which any person may have or hereafter
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acquire under any statute, the Corporation's Certificate of Incorporation,
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to
time by a majority vote of the disinterested directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent of
the Corporation to the fullest extent of the provisions of this Article with
respect to the indemnification and advancement of expenses of directors and
officers of the Corporation.
TWELFTH: 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 (A) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (B) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under Section 174 of the Delaware General
Corporation Law, or (D) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further eliminate or limit 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.
THIRTEENTH: 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% 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 THIRTEENTH, Sections B or C of Article
FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH, Article TENTH or Article ELEVENTH.
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FOURTEENTH: The name and mailing address of the sole incorporator are
as follows:
NAME MAILING ADDRESS
---- ---------------
Lewis E. Kolar Gloversville Federal Savings and Loan Association
52 North Main Street
Gloversville, New York 12078-3084
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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, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 23rd day of December 1997.
/s/ Lewis E. Kolar
----------------------------------
Lewis E. Kolar, Sole Incorporator
18
Exhibit 3.2
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
BY-LAWS
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.
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 nor more than 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 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 at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, 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
<PAGE>
of such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President 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 procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to
him or her in order.
(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 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 60 days prior to the anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed
by more than 60 days from such anniversary date, notice by the stockholder
to be timely must be so delivered not later than the close of business on
the later of the 60th day prior to such annual meeting or the tenth day
following the day on which notice of the date of the annual meeting was
mailed or public announcement of the date of such meeting is first 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 who proposed such business, (iii) the class and number of
shares of the Corporation's capital stock that are
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beneficially owned by such stockholder and (iv) any material interest of
such stockholder in such business. Notwithstanding anything in these
By-laws to the contrary, no business shall be brought before or conducted
at an annual meeting except in accordance with the provisions of this
Section 6(b). The officer of the Corporation or other person presiding over
the annual meeting shall, if the facts so warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 6(b) and, if he or she
should so determine, he or she shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall
not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these By-laws 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 30 days
prior to the date of the meeting; provided, however, that in the event that
less than 40 days' notice 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 tenth day following the day on
which such notice of the date of the meeting was mailed. Such stockholder's
notice shall set forth (x) 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
(y) as to the stockholder giving the notice: (A) the name and address, as
they appear on the Corporation's books, of such stockholder and (B) the
class and number of shares of the Corporation's capital stock that are
beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the
provisions of this Section 6(c). The officer of the Corporation or other
person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if
he or she should so determine, he or she shall so declare to the meeting
and the defective nomination shall be disregarded.
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Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore 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 procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to such persons
as required by applicable law. The stock transfer books shall be the only
evidence as to the identity of the stockholders entitled to examine the stock
transfer books or to vote in person or by proxy at any meeting of stockholders.
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 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.
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Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act at
the meeting or any adjournment thereof and make a written report thereof, in
accordance with applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to 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 into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms 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 then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
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Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the President and shall be held at such place, on such date, and at such
time as they or he or she shall fix. Notice of the place, date, and time of each
such special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
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 authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
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(i) To declare dividends from time to time in accordance with
law;
(ii) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(iii) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(iv) To remove any officer of the Corporation with or without
cause, and from time to time to devolve the powers and duties of any
officer upon any other person for the time being;
(v) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and
agents;
(vi) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(vii) To adopt from time to time such insurance, retirement, and
other benefit plans for directors, officers, employees and agents of
the Corporation and its subsidiaries as it may determine; and,
(viii) To adopt from time to time regulations, not inconsistent
with these By-laws, for the management of the Corporation's business
and affairs.
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 those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance
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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 designated
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; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) 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 By-laws in
order to determine compliance with such By-law and (ii) 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 President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may
deem proper. The President shall be chosen from among the directors. Any
number of offices may be held by the same person.
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(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 each have such
powers and duties as generally pertain to their respective offices, subject
to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof.
Section 2. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his or her absence, by such officer or other person as is chosen at the
meeting. The Secretary or, in his or her absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his or her absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in the President's absence or during his or her disability to
act. In addition, the Vice Presidents shall perform the duties and exercise the
powers usually incident to their respective offices and/or such other duties and
powers as may be properly assigned to them from time to time by the Board of
Directors, the Chairman of the Board or the President.
Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
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Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his or her signature, shall perform all such duties and have all such
powers as are usually incident to such office and/or such other duties and
powers as are properly assigned to him or her by the Board of Directors, the
Chairman of the Board or the President, and may be required to give bond,
payable by the Corporation, for the faithful performance of his duties in such
sum and with such surety as may be required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistants to the Treasurer, or one appointee to both such
positions, which officers shall have such powers and shall perform such duties
as are provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President, or
any officer of the Corporation authorized by the President, shall have power to
vote and otherwise act on behalf of the Corporation, in person or 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 President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an 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.
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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
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
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
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
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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 mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. 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 mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, 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 By-laws, 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
Assistant Treasurer.
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Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
13
Exhibit 3.3
Charter of
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
SECTION 1. Corporate title. The full corporate title of the bank is
Gloversville Federal Savings and Loan Association.
SECTION 2. Office. The home office of the bank shall be located in the
City of Gloversville, County of Fulton, in the state of New York.
SECTION 3. Duration. The duration of the bank is perpetual.
SECTION 4. Purpose and Powers. The purpose of the bank is to pursue any
or all of the lawful objectives of a federal bank chartered under section 5 of
the Home Owners' Loan Act and to exercise all of the express, implied, and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of 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 Office of Thrift
Supervision ("Office").
SECTION 5. Capital Stock. The total number of shares of all classes of
the capital stock which the bank has the authority to issue is one million three
hundred thousand (1,300,000) of which one million two hundred thousand
(1,200,000) shall be common stock of par value of $.01 per share, and of which
one hundred thousand (100,000) shall be serial preferred stock of 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 stockholders, 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 bank. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted to the savings
bank), labor, or services actually performed for the 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 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 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
bank from the mutual to the stock form of organization, 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 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
<PAGE>
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, except
as to the cumulation of votes for the election of directors: 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 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 bank if the preferred stock is
exchanged for securities of such other corporation: Provided,
That no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of
the Office; 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 bank in a
merger or consolidation for the bank, shall not be considered to
be such an adverse change.
A description of the different classes and series (if any) of the
bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class and series (if
any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) 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, except as to
the cumulation of votes for the 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, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
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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
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 bank
available for distribution remaining after: (i) Payment or provision for payment
of the bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions 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 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 bank may provide in supplementary sections to
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and 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 charter. 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 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 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;
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(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 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.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, 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 charter section adopted by the board of directors, the bank
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter established 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 bank
shall not be entitled to preemptive rights with respect to any shares of the
bank which may be issued.
SECTION 7. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Part 563b) the bank shall establish and maintain
a liquidation account for the benefit of its savings account holders as of
December 31, 1993 ("eligible savers") and March 31, 1995 ("supplemental eligible
savers"). In the event of a complete liquidation of the bank, it shall comply
with such regulations with respect to the amount and the priorities on
liquidation of each eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account, to the extent it is still in existence:
Provided, That an eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account shall not entitle such eligible saver or
supplemental eligible saver to any voting rights at meetings of the bank's
stockholders.
SECTION 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the bank's charter or bylaws to the
contrary, for a period of five years from the date
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of completion of the conversion of the bank from mutual to stock form, the
following provisions shall apply:
A. Beneficial Ownership Limitation. No person 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 bank. This limitation shall not apply
to a transaction in which the bank forms a holding company without change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan which is exempt from the
approval requirements under Section 574.3(c)(1)(vi) of the Office's regulations.
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 stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, a bank, 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 the equity
securities of the bank.
(2) The term "offer" includes every offer to buy or otherwise 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.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) 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 arrangements,
whether written or otherwise.
B. Cumulative Voting Limitation. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the bank or amendments to its charter shall be called
only upon direction of the board of directors.
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SECTION 9. Directors. The bank shall be under the direction of a board
of directors. The authorized number of directors, as stated in the bank's
bylaws, shall not be fewer than five nor more than fifteen except when a greater
number is approved by the Director of the Office.
SECTION 10. Amendment of charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the bank, then
preliminarily approved by the Office, which preliminary approval may be granted
by the Office pursuant to regulations specifying preapproved charter amendments,
and thereafter approved by the stockholders by a majority 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 Office
in accordance with regulatory procedures or on such other date as the Office may
specify in its preliminary approval.
6
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GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
ATTEST: _________________________________ By: _____________________________
Menzo D. Case Lewis Kolar
Secretary President and Chief Executive
Officer
DIRECTOR OF THE OFFICE OF
THRIFT SUPERVISION
ATTEST: _________________________________ By: _____________________________
Secretary of the Office of Thrift Director of the Office of
Supervision Thrift Supervision
Declared effective this ____ day of ____________.1998
7
Exhibit 3.4
BYLAWS OF
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
ARTICLE I
HOME OFFICE
The home office of the bank shall be in the City of Gloversville, in
the County of Fulton, in the State of New York.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the bank or at such other place
in the state in which the principal place of business of the bank is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of shareholders of the bank for
the election of directors and for the transaction of any other business of the
bank shall be held annually within 120 days after the end of the bank's fiscal
year on the third Wednesday of each January, if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday, at
2:00 p.m., or at such other date and time within such 120-day period as the
board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the bank addressed to the chairman
of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
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 president, or the secretary, or the directors calling the
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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 bank as of the record date pre scribed in Section 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
60 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 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 home office of the bank and shall be subject to
inspection by any shareholder at any time during usual business hours for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting and shall be subject to
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. In lieu of making the shareholder list available for
inspection by shareholders as provided in the preceding para graph, the board of
directors may elect to follow the procedures prescribed in Section 552.6(d) of
the Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. 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 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.
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Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her 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 direction, as
determined by a majority of the 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 10. 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 bank to the contrary, at any meeting of the shareholders of
the bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. 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 stock 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 11. 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 or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her 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 or her 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 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 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. Unless otherwise provided in the charter
of the bank, every shareholder entitled to vote at an election for directors
shall have the right to vote, in person or by proxy, the number of shares owned
by the shareholder for as many persons as there are directors to be elected and
for whose election the shareholder has a right to vote, or to cumulate the votes
by giving one candidate as many votes as the number of such directors to be
elected
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multiplied by the number of shares shall equal or by distributing such votes on
the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person 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 or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, 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 or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares repre sented 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 board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. 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 bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. Ballots bearing the names of all
the persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 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. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the board of directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the secretary of the bank
at least 20 days before the date of the
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annual meeting, and all business so stated, proposed and filed shall be
considered 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
properly brought before the meeting such proposal shall not be acted upon at the
meeting. For a proposal to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the secretary of the bank. To be timely, a shareholder's notice must be
delivered to or received at the principal executive offices of the bank, not
less than 20 days prior to the meeting; provided, however, that in the event
that less than 30 days notice of the date of the meeting is given to
shareholders (which notice shall be accompanied by a proxy or information
statement which describes each matter proposed by the board of directors to be
acted upon at the meeting), notice by the shareholder 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 annual meeting was mailed. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (a) a brief description
of the proposal desired to be brought before the annual meeting; (b) the name
and address of the shareholder proposing such business and (c) the class and
number of shares of the bank which are owned of record by the shareholder.
Notwithstanding anything in the bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 15.
Section 16. 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 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 1. General Powers. The business and affairs of the bank shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of six
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 without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place,
5
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within the 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 bank unless
the bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors, may fix any place, within the bank's normal lending
territory, as the place for holding any special meeting of the board of direc
tors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
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. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. 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 6 of this Article III.
Section 8. 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 regulation of the Office
or by these bylaws.
Section 9. 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.
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Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, 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 11. Vacancies. Any vacancy occurring on the 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. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. 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 or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine.
Section 13. Presumption of Assent. A director of the bank who is
present at a meeting of the board of directors at which action on any bank
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she 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 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 14. 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. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter 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.
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ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. 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 ex tent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the 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 bank otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
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. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. 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 executive committee may
be called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and 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.
Section 6. Action Without a Meeting. 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.
8
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Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the bank. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
bank and may prescribe the duties, constitution and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the bank shall be a president,
one or more vice presidents, a secretary and a chief financial officer, each of
whom shall be elected by the board of directors. The Board of Directors may also
designate the Chairman of the Board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the bank. The offices of the secretary and chief financial officer may be held
by the same person and a vice president may also be either the secretary or the
chief financial officer. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president. The board of
directors may also elect or authorize the appointment of such other officers as
the business of the bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the bank shall
be elected annually 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
9
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and qualified or until the officer's death, resignation, 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 bank to enter into an employment contract with any officer in
accordance with regulations of the Office; 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 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.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of di rectors may authorize any officer,
employee, or agent of the bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the 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 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the bank shall be signed by one or more officers, employees or agents of
the bank in such manner as shall from time to time be determined by the board of
directors.
Section 4. Deposits. All funds of the bank not otherwise employed shall
be deposited from time to time to the credit of the bank in any duly authorized
depositories as the board of directors may select.
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ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the bank authorized by
the board of directors, 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 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 bank. All
certificates surrendered to the 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 or cancelled, except that in case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the 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 or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the 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 bank shall be deemed by the bank to be the owner for
all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the bank shall end on the last day of September of
each year. The 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.
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ARTICLE IX
DIVIDENDS
Subject to the terms of the bank's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors shall provide a bank seal which shall be two
concentric circles between which shall be the name of the bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with the regulations
of the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the bank at any legal meeting.
12
Exhibit 4
NUMBER 002
COMMON STOCK
CUSIP No. ___________
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF
ADIRONDACK FINANCIAL SERVICES BANCORP, INC. (the "Corporation"), a Delaware
corporation. 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 is not valid until
countersigned and registered by the Corporation's transfer agent and registrar.
This security is not a deposit or account and is not federally insured or
guaranteed.
IN WITNESS WHEREOF, the Corporation 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____________________________
- ---------------------------------- -----------------------------------
Menzo D. Case, Corporate Secretary Lewis E. Kolar, President and Chief
Executive Officer
[Seal]
Countersigned and Registered
- ----------------------------
Transfer Agent and Registrar
<PAGE>
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
The shares represented by this certificate are issued subject to all
the provisions of the certificate of incorporation and bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
executive offices of the Corporation).
The Corporation's certificate of incorporation provides that no
"person" (as defined in the certificate of incorporation) who "beneficially
owns" (as defined in the certificate of incorporation) in excess of 10% of the
outstanding shares of the Corporation shall be entitled to vote any shares held
in excess of such limit. This provision of the certificate of incorporation
shall not apply to an acquisition of securities of the Corporation by an
employee stock purchase plan or other employee benefit plan of the Corporation
or any of its subsidiaries.
The Corporation's certificate of incorporation also includes a
provision the general effect of which is to require the affirmative vote of the
holders of 80% of the outstanding voting shares of the Corporation to approve
certain "business combinations" (as defined in the certificate of incorporation)
between the Corporation and a stockholder owning in excess of 10% of the
outstanding shares of the Corporation. However, only the affirmative vote of a
majority of the outstanding shares or such vote as is otherwise required by law
(rather than the 80% voting requirement) is applicable to the particular
transaction if it is approved by a majority of the "disinterested directors" (as
defined in the certificate of incorporation) or, alternatively, the transaction
satisfies certain minimum price and procedural requirements. The Corporation's
certificate of incorporation also contains a provision which requires the
affirmative vote of holders of at least 80% of the outstanding voting shares of
the Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, preferences and
relative participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, to the extent that the same have
been fixed, and of the authority of the board of directors to designate the same
with respect to other series. Such request may be made to the Corporation or to
its transfer agent and registrar.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entirety
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common.
UNIF GIFT MIN ACT________Custodian________
(Cust) (Minor)
Under Uniform Gift to Minors Act - ____________
(State)
UNIF TRANS MIN ACT________Custodian_______
(Cust) (Minor)
Under Uniform Transfers to Minors Act -_________
(State)
Additional abbreviations may also be used though not inthe above list.
For Value Received,___________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------
- ------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING 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.
Exhibit 5
January 2, 1998
The Board of Directors
Adirondack Financial Services Bancorp, Inc.
52 North Main Street
Gloversville, New York 12078-3084
Re: Registration Statement Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on Form SB-2 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the 661,250 shares of Common Stock of
Adirondack Financial Services Bancorp, Inc. (the "Company"), par value $.01 per
share, to be issued. As counsel, we have reviewed the Certificate of
Incorporation of the Company and such other documents as we have deemed
appropriate for the purpose of this opinion. We are rendering this opinion as of
the time the Registration Statement referred to above becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/S/ SILVER FREEDMAN & TAFF, L.L.P.
SILVER FREEDMAN & TAFF, L.L.P.
Exhibit 8.3
[RP Financial, LC. Letterhead]
December 12, 1997
Board of Directors
Gloversville Federal Savings and Loan Association
52 North Main Street
Gloversville, New York 12078-3084
Re: Plan of Conversion: Subscription Rights
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms int he Plan of Conversion and Reorganization (the
"Plan of conversion") adopted by the Board of Directors of Gloversville Federal
Savings and Loan Association ("Gloversville Federal" or the "Association").
Pursuant to the Plan of conversion, Gloversville Federal will become a
wholly-owned subsidiary of Adirondack Financial Services Bancorp (the "Holding
Company"), a Delaware Corporation. Simultaneously, the Holding Company will
issue shares of common stock.
We understand that in accordance with the Plan of Conversion,
Subscription Rights to purchase shares of Common Stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) Tax Qualified Employee
Plans; (3) Other Members; and (4) employees officers and directors. Based solely
upon our observation that the Subscription Rights will be available to such
parties without cost, will be legally non-transferable and of short duration,
and will afford such parties the right only to purchase shares of Common Stock
at the same price as will be paid by members of the general public in the
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that, as a factual matter:
(1) the Subscription Rights will have no ascertainable market value;
and,
(2) the price at which the Subscription Rights are exercisable will
not be more or less than the pro forma market value of the shares
upon issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stock as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
Common Stock in the conversion will thereafter be able to buy or sell such
shares at the same price paid in the Subscription Offering.
Very truly yours,
RP FINANCIAL, LC.
/S/ James P. Hennessey
James P. Hennessey
Senior Vice President
Exhibit 10.1
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
1997 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, directors emeriti,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Gloversville Federal Savings & Loan Association and any
successor entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeritus,
officer or employee of the Corporation or an Affiliate, except that when used
with respect to any Options or Rights which at the time of exercise are intended
to be Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Corporation or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Corporation" - means Adirondack Financial Services Bancorp, Inc., a
Delaware corporation.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per Share
at which the Shares subject to such Option may be purchased upon exercise of
such Option and (ii) in the case of a Right, the price per Share (other than the
Market Value per Share on the date of exercise and the Offer Price per Share as
defined in Section 10 hereof) which, upon grant, the Committee determines shall
be utilized in calculating the aggregate value which a Participant shall be
entitled to receive pursuant to Sections 9, 10 or 12 hereof upon exercise of
such Right.
"Incentive Stock Option" - means an option to purchase Shares granted by
the Committee pursuant to Section 6 hereof which is subject to the limitations
and restrictions of Section 8 hereof and is intended to qualify under Section
422(b) of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 10 hereof.
<PAGE>
"Market Value" - means the average of the high and low quoted sales price
on the date in question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a tax-
qualified retirement plan); c) has not been an officer of the Corporation; d)
does not receive remuneration from the Corporation in any capacity other than as
a director; and e) does not possess an interest in any other transactions or is
not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is not intended to qualify
under Section 422(b) of the Code.
"Option" - means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" - means any director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate who is selected by the
Committee to receive an Award or who is granted an Award pursuant to Section 19
hereof.
"Plan" - means the 1997 Stock Option and Incentive Plan of the
Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in lieu of,
an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock Appreciation
Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with respect
to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more than
ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as to individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
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A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from time
to time Participants in the Plan from those directors (including advisory
directors and directors emeriti), officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Bank's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall not
be considered to have been made under the Plan with respect to any Option or
Right which terminates and new Awards may be granted under the Plan with respect
to the number of Shares as to which such termination has occurred.
6. General Terms and Conditions of Options and Rights. The Committee shall
have full and complete authority and discretion, subject to Office of Thrift
Supervision Regulations and except as expressly limited by the Plan, to grant
Options and/or Rights and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option or Right, which shall not be less than the Market Value per Share at the
date of grant of such Option or Right, (ii) the number of Shares subject to, and
the expiration date of, any Option or Right, which expiration date shall not
exceed ten years from the date of grant, (iii) the manner, time and rate
(cumulative or otherwise) of exercise of such Option or Right, and (iv) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right. As required by Office
of Thrift Supervision Regulations, each non-employee director of the Corporation
may not be granted Awards with respect to more than 5% of the total shares
subject to the Plan and all non-employee directors of the Corporation, in the
aggregate, may not be granted Awards with respect to more than 30% of the total
shares subject to the Plan. Notwithstanding the foregoing and subject to
compliance with applicable Office of Thrift Supervision Regulations, no
individual shall be granted Awards in any calendar year with respect to more
than 25% of the total shares subject to the Plan in any calendar year or during
the entire term of the Plan.
Any Award made pursuant to this Plan, which Award is subject to the
requirements of Office of Thrift Supervision Regulations, shall vest in five
equal annual installments with the first installment vesting no sooner than the
one-year anniversary of the date of grant, except in the event of death or
disability. In the event Office of Thrift Supervision Regulations are amended
(the "Amended Regulations") to permit shorter vesting periods, any Award made
pursuant to this Plan, which Award is subject to the requirements of such
Amended Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Furthermore, at the time of any Award, the Participant shall enter into an
agreement with the Corporation in a form specified by the Committee, agreeing to
the terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan shall
be exercisable during the lifetime of the Participant to whom such Option
or Right was granted only by such Participant and, except as provided in
paragraphs (c) and (d) of this Section 7, no such Option or Right may be
exercised unless at the time such Participant exercises such Option or
Right, such Participant has maintained Continuous Service since the date
of grant of such Option or Right.
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(b) To exercise an Option or Right under the Plan, the Participant to whom such
Option or Right was granted shall give written notice to the Corporation in
form satisfactory to the Committee (and, if partial exercises have been
permitted by the Committee, by specifying the number of Shares with respect
to which such Participant elects to exercise such Option or Right) together
with full payment of the Exercise Price, if any and to the extent required.
The date of exercise shall be the date on which such notice is received by
the Corporation. Payment, if any is required, shall be made either (i) in
cash (including check, bank draft or money order) or (ii) by delivering (A)
Shares already owned by the Participant and having a fair market value
equal to the applicable exercise price, such fair market value to be
determined in such appropriate manner as may be provided by the Committee
or as may be required in order to comply with or to conform to requirements
of any applicable laws or regulations, or (B) a combination of cash and
such Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability and
termination of employment by the Corporation or any Affiliate for cause),
such Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service and in no event
after the expiration date of such Option or Right, exercise such Option or
Right to the extent that such Participant was entitled to exercise such
Option or Right at the date of such cessation, provided, however, that such
right of exercise after cessation of Continuous Service shall not be
available to a Participant if the Committee otherwise determines and so
provides in the applicable instrument or instruments evidencing the grant
of such Option or Right. If a Participant to whom an Option or Right was
granted shall cease to maintain Continuous Service by reason of death or
disability then, unless the Committee shall have otherwise provided in the
instrument evidencing the grant of an Option or Right, all Options and
Rights granted and not fully exercisable shall become exercisable in full
upon the happening of such event and shall remain so exercisable (i) in the
event of death for the period described in paragraph (d) of this Section 7
and (ii) in the event of disability for a period of one year following such
date. If the Continuous Service of a Participant to whom an Option or Right
was granted by the Corporation is terminated for cause, all rights under
any Option or Right of such Participant shall expire immediately upon the
effective date of such termination.
(d) In the event of the death of a Participant while in the Continuous Service
of the Corporation or an Affiliate or within the three-month period
referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is
transferred by will or the laws of descent and distribution, or in the case
of an Award other than an Incentive Stock Option, pursuant to a qualified
domestic relations order, as defined in the Code or Title 1 of ERISA or the
rules thereunder may, but only to the extent such Participant was entitled
to exercise such Option or Right upon his death as provided in paragraph
(c) above, exercise such Option or Right at any time within a period of one
year succeeding the date of death of such Participant, but in no event
later than ten years from the date of grant of such Option or Right.
Following the death of any Partici pant to whom an Option was granted under
the Plan, irrespective of whether any Related Right shall have theretofore
been granted to the Participant or whether the person entitled to exercise
such Related Right desires to do so, the Committee may, as an alternative
means of settlement of such Option, elect to pay to the person to whom such
Option is transferred by will or by the laws of descent and distribution,
or in the case of an Option other than an Incentive Stock Option, pursuant
to a qualified domestic relations order, as defined in the Code or Title I
of ERISA or the rules thereunder, the amount by which the Market Value per
Share on the date of exercise of such Option shall exceed the Exercise
Price of such Option, multiplied by the number of Shares with respect to
which such Option is properly exercised. Any such settlement of an Option
shall be considered an exercise of such Option for all purposes of the
Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only to
Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Op tion is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who,
4
<PAGE>
at the time such Incentive Stock Option is granted, owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Corporation or any Affiliate unless the Exercise Price of such Incentive
Stock Option is at least 110 percent of the Market Value per Share at the date
of grant and such Incentive Stock Option is not exercisable after the expiration
of five years from the date such Incentive Stock Option is granted, and (v) the
aggregate Market Value (determined as of the time any Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by a Participant in any calendar year shall not
exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto, provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an Option
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right, provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Subject to
vesting requirements contained in 12 C.F.R. ss. 563b.3(g)(4) or any successor
regulation, a Limited Stock Appreciation Right shall be exercisable only during
the period beginning on the first day following the date of expiration of any
"offer" (as such term is hereinafter defined) and ending on the forty-fifth day
following such date.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in
5
<PAGE>
question, equals 25% of the Shares outstanding immediately prior to the
commencement of the offer in question. The term "Offer Price per Share" as used
in this Section 10 shall mean the highest price per Share paid in any Offer
which Offer is in effect any time during the period beginning on the sixtieth
day prior to the date on which a Limited Stock Appreciation Right is exercised
and ending on the date on which such Limited Stock Appreciation Right is
exercised. Any securities or property which are part or all of the consideration
paid for Shares in the Offer shall be valued in determining the Offer Price per
Share at the higher of (A) the valuation placed on such securities or property
by the corporation, person or other entity making such Offer or (B) the
valuation placed on such securities or property by the Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merger. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. Employee Rights Under the Plan. No director, officer or employee shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no director, officer, employee or other
person shall have any claim or right to be granted an Award under the Plan or
under any other incentive or similar plan of the Corporation or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any employee any right to be retained in the employ of the Corporation or any
Affiliate.
15. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange or other system on which Shares may then be
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<PAGE>
listed, and (ii) the completion of such registration or other qualification of
such Shares under any state or Federal law, rule or regulation, as the Committee
shall determine to be necessary or advisable.
16. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the exercise of a Right under the Plan
any taxes required by law to be withheld with respect to such cash payments.
Where a Participant or other person is entitled to receive Shares pursuant to
the exercise of an Option or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, and may, in its sole discretion, withhold
sufficient Shares to cover the amount of taxes which the Corporation is required
to withhold.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 11 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
18. Effective Date and Term of Plan. The Plan shall become effective upon
its ratification by stockholders of the Corporation. It shall continue in effect
for a term of ten years unless sooner terminated under Section 17 hereof.
19. Initial Grant. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation at the time of stockholder ratification of this
Plan who is not a full-time Employee is hereby granted a ten-year Non-Qualified
Stock Option to purchase ____% of the shares sold in the Conversion at an
Exercise Price per share equal to the Market Value per share of the Shares on
the date of grant. Each such Option shall be evidenced by a Non-Qualified Stock
Option Agreement in a form approved by the Board of Directors and shall be
subject in all respects to the terms and conditions of this Plan, which are
controlling. All Options granted pursuant to this section shall vest in five
equal annual installments with the first installment vesting on the first
anniversary of the date of grant, subject to the Director maintaining Continuous
Service with the Corporation or its Affiliates since the date of grant. All
Options granted pursuant to this Section 19 shall be rounded down to the nearest
whole share to the extent necessary to ensure that no Options to purchase stock
representing fractional shares are granted.
7
Exhibit 10.2
ADIRONDACK FINANCIAL SERVICES BANCORP, INC.
1997 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Gloversville Federal Savings & Loan Association, a savings
institution and its successors.
"Beneficiary" - means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate. Service shall
not be considered interrupted in the case of sick leave, military leave or any
other leave of absence approved by the Corporation or any Affiliate or in the
case of transfers between payroll locations of the Corporation or its Affiliates
or between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion" - means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" - means Adirondack Financial Services Bancorp, Inc., a
Delaware corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the Bank
or an Affiliate, or, if no such plan applies to such individual, which renders
such employee or director, in the judgment of the Committee, unable to perform
his customary duties and responsibilities.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an
<PAGE>
interest in any other transactions or is not engaged in a business relationship
for which disclosure would be required under Item 404(a) or (b) of Regulation
S-K.
"Participant" - means any director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award or a director who is granted an
award pursuant to Section 12.
"Plan" - means the 1997 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 3
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to
a Participant by the Committee subject to the restrictions referred to in
Section 3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant Awards
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 3, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the
expiration of which, as the Committee shall determine and provide in the
agreement referred to in paragraph (d) of this Section 3, the Shares
awarded as Restricted Stock shall vest, and subject to any such other
terms and conditions as the Committee shall provide, shares of Restricted
Stock may not be sold, assigned, transferred, pledged, voted or otherwise
encumbered by the Participant, except as hereinafter provided, during the
Restricted Period. Except for such restrictions, and subject to paragraphs
(c) and (e) of this Section 3 and Section 4 hereof, the Participant as
owner of such shares shall have all the rights of a stockholder.
No director who is not an employee of the Corporation shall be granted
Awards with respect to more than 5% of the total shares subject to the
Plan. All non-employee directors of the Corporation, in the aggregate, may
not be granted Awards with respect to more than 30% of the total shares
subject to the Plan and no individual shall be granted Awards with respect
to more than 25% of the total shares subject to the Plan. No Awards shall
begin vesting earlier than one year from the date the Plan is approved by
stockholders of the Corporation and no Award shall vest at a rate in
excess of 20% per year, except in the event of death or disability. In the
event Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant
to this Plan, which Award is subject to the requirements of such Amended
Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, the
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to
an Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circum stances occurring
after the commencement of such Restricted Period.
(b) Except as provided in Section 5 hereof, if a Participant ceases to
maintain Continuous Service for any reason (other than death or
disability), unless the Committee shall otherwise determine, all Shares of
2
<PAGE>
Restricted Stock theretofore awarded to such Participant and which at the
time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation. If a Participant ceases to maintain Continuous Service by
reason of death or disability, Restricted Stock then still subject to
restrictions imposed by paragraph (a) of this Section 3 will be free of
those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under
the Plan shall be registered in the name of the Participant and deposited
by the Participant, together with a stock power endorsed in blank, with
the Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1997 Recognition and Retention Plan of
___________________. Copies of such Plan are on file in the offices
of the Secretary of _____________, 52 North Main Street,
Gloversville, New York l2078
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to the
terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Restricted Stock
Agreement").
(e) The payment to the Participant of dividends or other distributions
declared or paid on such shares by the Corporation shall be deferred until
the lapsing of the restrictions imposed under paragraph (a) of this
Section 3, and such dividends or other distributions shall be held by the
Corporation for the account of the Participant until such time. There
shall be credited at the end of each year (or portion thereof) interest on
the amount of the deferred dividends or other distributions at a rate per
annum as the Committee, in its discretion, may determine. Payment of
deferred dividends or other distributions, together with interest accrued
thereon, shall be made upon the earlier to occur of the lapsing of the
restrictions imposed under paragraph (a) of this Section 3 or upon death
or disability of the Participant. Shares of Restricted Stock subject to
restriction on the date of any shareholder vote shall be voted by an
independent party to be named by the Committee.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this
Section 3, the Corporation shall deliver to the Participant (or where the
relevant provision of paragraph (b) of this Section 3 applies in the case
of a deceased Participant, to his legal representative, beneficiary or
heir) the certificate(s) and stock power deposited with it pursuant to
paragraph (c) of this Section 3 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph
(a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent
3
<PAGE>
and distribution, or (ii) pursuant to a qualified domestic relations order as
defined in the Code or Title I of ERISA or the rules thereunder.
6. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan. The Committee may maintain, and
update from time to time as appropriate, a list designating selected directors
as Non-Employee Directors. The purpose of such list shall be to evidence the
status of such individuals as Non-Employee Directors and the Board of Directors
may appoint to the Committee any individual actually qualifying as a
Non-Employee Directors regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 4% of the total Shares issued in the Association's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus,
advisory director, officer or employee shall have a right to be selected as a
Participant nor, having been so selected, to be selected again as a Participant
and no director, officer, employee or other person shall have any claim or right
to be granted an Award under the Plan or under any other incentive or similar
plan of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan
4
<PAGE>
sufficient Shares or withhold sufficient cash to cover any applicable
withholding and employment taxes. The Corporation shall have the right to deduct
from all dividends paid with respect to shares of Restricted Stock the amount of
any taxes which the Corporation is required to withhold with respect to such
dividend payments. No discretion or choice shall be conferred upon any
Participant with respect to the form, timing or method of any such tax
withholding.
10. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 4 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
11. Term of Plan. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.
12. Director Awards. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation who is not a full-time employee of the Corporation
is hereby granted an Award equal to ____% of the shares sold in the Conversion.
Each of the Awards granted in this Section 12 shall be earned in five equal
annual installments, with the first installment vesting on the first anniversary
of the date of grant, as long as the director maintains Continuous Service with
the Corporation or its affiliates, provided, however, that no Award shall be
earned in any fiscal year in which the Bank fails to meet all of its fully
phased-in capital requirements.
5
Exhibit 10.3
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT ("Agreement") is made and
entered into as of this _______ day of __________________, 1997, by and between
Gloversville Federal Savings & Loan Association (hereinafter referred to as the
"Association" whether in mutual or stock form), and Lewis E. Kolar (the
"Employee").
WHEREAS, the Employee is currently serving as President and Chief
Executive Officer of the Association; and
WHEREAS, the Association has adopted a plan of conversion whereby the
Association will convert to capital stock form as the subsidiary of Adirondack
Financial Services Bancorp, Inc. (the "Holding Company"), subject to the
approval of the Association's members and the Office of Thrift Supervision (the
"Conversion"); and
WHEREAS, the board of directors of the Association ("Board of Directors")
recognizes that, as is the case with publicly held corporations generally, the
possibility of a change in control of the Holding Company and/or the Association
may exist and that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or distraction of key
management personnel to the detriment of the Association, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Association to enter into this Agreement with the Employee in order to
assure continuity of management of the Association and to reinforce and
encourage the continued attention and dedication of the Employee to the
Employee's assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control of
the Holding Company or the Association, although no such change is now
contemplated; and
WHEREAS, the Board of Directors has approved and authorized the execution
of this Agreement with the Employee to take effect as stated in Section 2
hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a nature that (i)
results in a change in control of the Association or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12
C.F.R. Part 574 as in effect on the date hereof; or (ii) would be
required to be reported in response to Item 1 of the current report on
Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); (2)
any person (as the term is used in Section 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 Association or the Holding Company representing 20% or more of the
Association's or the Holding Company's outstanding securities; (3)
individuals who are members of the board of directors of the
Association or the Holding 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
<PAGE>
Incumbent Board, or whose nomination for election by the Holding
Company's stockholders was approved by the nominating committee
serving under an Incumbent Board, shall be considered a member of the
Incumbent Board; or (4) a reorganization, merger, consolidation, sale
of all or substantially all of the assets of the Association or the
Holding Company or a similar transaction in which the Association or
the Holding Company is not the resulting entity. The term "Change in
Control" shall not include an acquisition of securities by an employee
benefit plan of the Association or the Holding Company or the
acquisition of securities of the Association by the Holding Company in
connection with the Conversion.
(b) The term "Commencement Date" means the date of completion of the
Association's conversion to stock form
(c) The term "Date of Termination" means the earlier of (1) the date upon
which the Association gives notice to the Employee of the termination
of the Employee's employment with the Association or (2) the date upon
which the Employee ceases to serve as an employee of the Association.
(d) The term "Involuntary Termination" means termination of the employment
of Employee without the Employee's express written consent, and shall,
subject to the last sentence in this paragraph, include a material
diminution of or interference with the Employee's duties,
responsibilities and benefits as President and Chief Executive Officer
of the Association, including (without limitation) any of the
following actions unless consented to in writing by the Employee: (1)
a change in the principal workplace of the Employee to a location
outside of a 30 mile radius from the Association's headquarters office
as of the date hereof; (2) a material demotion of the Employee; (3) a
material reduction in the number or seniority of other Association
personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to
which, such personnel are to report to the Employee, other than as
part of a Association- or Holding Company-wide reduction in staff; (4)
a material adverse change in the Employee's salary, other than as part
of an overall program applied uniformly and with equitable effect to
all members of the senior management of the Association or the Holding
Company; and (5) a material permanent increase in the required hours
of work or the workload of the Employee. The term "Involuntary
Termination" does not include Termination for Cause or termination of
employment due to retirement, death, disability or suspension or
temporary or permanent prohibition from participation in the conduct
of the Association's affairs under Section 8 of the Federal Deposit
Insurance Act ("FDIA") and shall not include a material diminution of
or interference with the Employee's duties, responsibilities and
benefits unless the employee or the Association submits written notice
of involuntary termination within 120 days thereof.
(e) The terms "Termination for Cause" and "Terminated For Cause" mean
termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct,
breach of a fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule,
or regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, or material breach of any provision of
this Agreement.
2. Term. The term of this Agreement shall be a period of two years commencing
on the Commencement Date, subject to earlier termination as provided
herein. Beginning on the first anniversary of the Commencement Date, and on
each anniversary thereafter until the first anniversary of the
2
<PAGE>
Commencement Date after the Employee reaches age 65, the term of this
Agreement shall be extended for a period of one year in addition to the
then-remaining term, provided that, prior to such anniversary, the Board of
Directors of the Association explicitly reviews and approves the extension.
Reference herein to the term of this Agreement shall refer to both such
initial term and such extended terms.
3. Severance Benefits; Regulatory Provisions.
(a) Involuntary Termination in Connection With a Change in Control. In the
event of Involuntary Termination in connection with or following a
Change in Control which Termination occurs during the term of this
Agreement, the Association shall, subject to Section 4 of this
Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 200% of
the Employee's "base amount" as defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code"); and (2)
provide to the Employee during the remaining term of this Agreement
such health insurance benefits as the Association maintained for
executive officers at the Date of Termination on terms as favorable to
the Employee as applied at the Date of Termination. The total of
payments to the Employee under this section shall not exceed three
times his average compensation from the Association over the five most
recent taxable years (or, if employed by the Association for a shorter
period, over the period of his employment by the Association).
(b) Temporary Suspension or Prohibition. If the Employee is suspended
and/or temporarily prohibited from participating in the conduct of the
Association's affairs by a notice served under Section 8(e)(3) or
(g)(1) of the FDIA, 12 U.S.C.ss. 1818(e)(3) and (g)(1), the
Association's obligations under this Agreement shall be suspended as
of the date of service, unless stayed by appropriate proceedings. If
the charges in the notice are dismissed, the Association may in its
discretion (i) pay the Employee all or part of the compensation
withheld while its obligations under this Agreement were suspended and
(ii) reinstate in whole or in part any of its obligations which were
suspended.
(c) Permanent Suspension or Prohibition. If the Employee is removed and/or
permanently prohibited from participating in the conduct of the
Association's affairs by an order issued under Section 8(e)(4) or
(g)(1) of the FDIA, 12 U.S.C. ss. 1818(e)(4) and (g)(1), all
obligations of the Association under this Agreement shall terminate as
of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) Default of the Association. If the Association is in default (as
defined in Section 3(x)(1) of the FDIA), all obligations under this
Agreement shall terminate as of the date of default, but this
provision shall not affect any vested rights of the contracting
parties.
(e) Termination by Regulators. All obligations under this Agreement shall
be terminated, except to the extent determined that continuation of
this Agreement is necessary for the continued operation of the
Association: (1) by the Director of the Office of Thrift Supervision
(the "Director") or his or her designee, at the time the Federal
Deposit Insurance Corporation or the Resolution Trust Corporation
enters into an agreement to provide assistance to or on behalf of the
Association under the authority contained in Section 13(c) of the
FDIA; or (2) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger to
resolve problems related to operation of the Association or when the
3
<PAGE>
Association is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested,
however, shall not be affected by any such action.
4. Certain Reduction of Payments by the Association.
(a) Notwithstanding any other provision of this Agreement, if the value
and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the
Employee in connection with a Change in Control would cause any amount
to be nondeductible by the Association or the Holding Company for
federal income tax purposes pursuant to Section 280G of the Code, then
amounts and benefits under this Agreement shall be reduced (not less
than zero) to the extent necessary so as to maximize amounts and the
value of benefits to the Employee without causing any amount to become
nondeductible by the Association or the Holding Company pursuant to or
by reason of such Section 280G. The Employee shall determine the
allocation of such reduction among payments and benefits to the
Employee.
(b) Any payments made to the Employee pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with
12 U.S.C. ss. 1828(k) and any regulations promulgated thereunder.
5. No Mitigation. The Employee shall not be required to mitigate the amount of
any salary or other payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
or benefit provided for in this Agreement be reduced by any compensation
earned by the Employee as the result of employment by another employer, by
retirement benefits after the date of termination or otherwise.
6. Attorneys and/or Fees. If the Employee is purportedly Terminated for Cause
and the Association denies payments and/or benefits under Section 3(a) of
this Agreement on the basis that the Employee experienced Termination for
Cause rather than Involuntary Termination, but it is determined by a court
of competent jurisdiction or by an arbitrator pursuant to Section 13 that
cause as contemplated by Section 2(e) of this Agreement did not exist for
termination of the Employee's employment, or if in any event it is
determined by any such court or arbitrator that the Association has failed
to make timely payment of any amounts or provision of any benefits owed to
the Employee under this Agreement, the Employee shall be entitled to
reimbursement for all reasonable costs, including attorneys' fees, incurred
in challenging such termination of employment or collecting such amounts or
benefits. Such reimbursement shall be in addition to all rights to which
the Employee is otherwise entitled under this Agreement.
7. No Assignments.
(a) This Agreement is personal to each of the parties hereto, and neither
party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other
party; provided, however, that the Association shall require any
successor or assign (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business and/or assets of the Association, by an assumption agreement
in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that the Association would be required to perform it
if no such succession or assignment had taken place. Failure of the
Association to obtain such an assumption agreement prior to the
effectiveness of any such succession or assignment shall be a breach
of this Agreement and shall entitle the Employee
4
<PAGE>
to compensation from the Association in the same amount and on the
same terms as the compensation pursuant to Section 3(a) hereof. For
purposes of implementing the provisions of this Section 7(a), the date
on which any such succession becomes effective shall be deemed the
Date of Termination.
(b) This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while
any amounts would still be payable to the Employee hereunder if the
Employee had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee or if
there is no such designee, to the Employee's estate.
8. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, to the
Association at its home office, to the attention of the Board of Directors
with a copy to the Secretary of the Association, or, if to the Employee, to
such home or other address as the Employee has most recently provided in
writing to the Association.
9. Amendments. No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.
10. Headings. The headings used in this Agreement are included solely for
convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
11. Severability. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect
the validity or enforceability of the other provisions hereof.
12. Governing Law. This Agreement shall be governed by the laws of the United
States to the extent applicable and otherwise 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 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
ATTEST: GLOVERSVILLE FEDERAL SAVINGS & LOAN
ASSOCIATION
_______________________________ ___________________________________
Donald I. Lee, Secretary By: _________________
Its: President and Chief Executive
Officer
EMPLOYEE
___________________________________
6
EXHIBIT 21
SUBSIDIARY OF THE REGISTRANT
(Upon the completion of Transaction)
<TABLE>
<CAPTION>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
<S> <C> <C> <C>
Adirondack Financial Gloversville Federal Savings 100% Federal
Services Bancorp, Inc. and Loan Association
</TABLE>
It is contemplated that the financial statements of the Registrant will
be consolidated with its subsidiary.
Exhibit 23.1
CONSENT OF COUNSEL
We consent to the use of our opinions, to the incorporation by
reference of such opinions as an exhibits to the Form SB-2 and to the reference
to our firm under the headings "The Conversion - Income Tax Consequences" and
"Legal and Tax Matters" in the Prospectus included in this Form SB-2. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
/S/ SILVER, FREEDMAN & TAFF, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
January 2, 1998
Exhibit 23.2
[KPMG PEAT MARWICK LETTERHEAD]
ACCOUNTANT'S CONSENT
The Board of Directors
Gloversville Federal Savings and
Loan Association
We consent to the use in this Registration Statement on Form SB-2 and in the
Application for Conversion on Form AC of Adirondack Financial Services Bancorp,
Inc. of our report dated December 12, 1997, on the financial statements of
Gloversville Federal Savings and Loan Association as of September 30, 1997 and
1996 and for each of the years in the three-year period ended September 30,
1997.
We also consent to the references to our firm under the heading "Experts" in the
related prospectus.
/s/ KPMG Peat Marwick LLP
Albany, New York
December 31, 1997
Exhibit 23.3
[RP Financial, LC. Letterhead]
December 31, 1997
Board of Directors
Gloversville Federal Savings and Loan Association
52 North Main Street
Gloversville, New York 12078-3084
Re: Plan of Conversion: Subscription Rights
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of Gloversville Federal Savings and Loan Association, Gloversville,
New York, and any amendments thereto, and in the Form S-1 Registration Statement
and any amendments thereto for Adirondack Financial Services Bancorp. We also
hereby consent to the inclusion of, summary of and references to our Appraisal
Report and our statement concerning subscription rights in such filings
including the Prospectus of Adirondack Financial Sercvices Bancorp.
Sincerely,
RP FINANCIAL, LC.
/S/ James P. Hennessey
James P. Hennessey
Senior Vice President
Exhibit 99.2
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
52 North Main Street
Gloversville, New York 12078-3084
(518) 725-6331
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Gloversville Federal Savings and Loan Association ("Gloversville
Federal" or the "Association") will be held at the main office of the
Association located at 52 North Main Street, Gloversville, New York, on
________, 1998 at _____ _.m., Gloversville, New York time. The purpose of this
Special Meeting is to consider and vote upon:
A plan to convert the Association from a federally chartered mutual
savings and loan association to a federally chartered stock savings and
loan association, including the adoption of a federal stock savings and
loan association charter and bylaws, with the concurrent sale of all
the Association's common stock to Adirondack Financial Services
Bancorp, Inc. a Delaware corporation (the "Holding Company"), and sale
by the Holding Company of shares of its common stock;
such other business as may properly come before the Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors of the Association at
the close of business on __________, 1998 and borrowers of the Bank as of
___________, 19__ and __________, 1998 who continue to be depositors and
borrowers as of the date of the Special Meeting. In the event there are not
sufficient votes for approval of the Plan of Conversion at the time of the
Special Meeting, the Special Meeting may be adjourned from time to time in order
to permit further solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Richard D. Ruby
Chairman of the Board
Gloversville, New York
___________, 1998
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT.
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SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present "mutual" form of organization, Gloversville Federal
has no stockholders. Its deposit account holders are members of the Association
and have voting rights in that capacity. In the unlikely event of liquidation,
the Association's deposit account holders would have the sole right to receive
any assets of the Association remaining after payment of its liabilities
(including the claims of all deposit account holders to the withdrawal value of
their deposits). Under the Plan of Conversion (the "Plan of Conversion") to be
voted on at the Special Meeting, the Association would be converted into a
federally chartered savings and loan association organized in stock form, and
all of the Association's common stock would be sold concurrently to the Holding
Company (the "Conversion"). The Holding Company will offer and sell its common
stock (the "Common Stock") in an offering (1) to account holders with an account
balance of $50 or more on September 30, 1996 ("Eligible Account Holders"), (2)
tax-qualified employee plans of the Association and the Holding Company
("Tax-Qualified Employee Plans"), (3) account holders of the Association with an
account balance of $50 or more as of ___________, 1998 ("Supplemental Eligible
Account Holders"), (4) certain other members of the Association as of
__________, 1998 who are not Eligible or Supplemental Eligible Account Holders
("Other Members") and (5) employees, officers and directors of the Association
(the "Subscription Offering"). Notwithstanding the foregoing, to the extent
orders for shares exceed the maximum of the appraisal range, Tax-Qualified
Employee Plans shall be afforded a first priority to purchase shares sold above
the maximum of the appraisal range. It is anticipated that Tax-Qualified
Employee Plans will purchase 8% of the Common Stock sold in the Conversion.
To the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Holding Company may offer and sell the remainder of
the Common Stock in a public offering (the "Public Offering and/or Direct
Community Offering") through Capital Resources, Inc. ("Capital Resources") to
selected persons to whom a prospectus (the "Prospectus") is delivered. The
Subscription Offering and the Public Offering and/or Direct Community Offering
are referred to collectively as the "Offering." Voting and liquidation rights
with respect to the Association would thereafter be held by the Holding Company,
except to the limited extent of the liquidation account (the "Liquidation
Account") that will be established for the benefit of Eligible and Supplemental
Eligible Account Holders of the Association and voting and liquidation rights in
the Holding Company would be held only by those persons who become stockholders
of the Holding Company through purchase of shares of its Common Stock. See
"Description of the Plan of Conversion - Principal Effects of Conversion -
Liquidation Rights of Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE CONVERSION.
Business Purposes Net Conversion proceeds are expected to increase the capital
for Conversion of Gloversville Federal, which will support the expansion of
its financial services to the public. The conversion to
stock form and the use of a holding company structure are
also expected to enhance its ability to expand through
possible mergers and acquisitions (although no such
transactions are contemplated at this time) and will
facilitate its future access to the capital markets. The
Association will continue to be subject to comprehensive
regulation and examination by the Office of Thrift
Supervision, Department of Treasury ("OTS") and the Federal
Deposit Insurance Corporation ("FDIC").
Subscription As part of the Conversion, Common Stock is being offered for
Offering sale in the Subscription Offering, in the priorities
summarized below, to the Association's (1) Eligible Account
Holders, (2) Tax-Qualified Employee Plans, (3) Supplemental
Eligible Account Holders (4) Other Members, and (5)
employees, officers and directors. If necessary, all shares
of Common Stock not purchased in the Subscription Offering,
if any, may be offered in
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connection with the Public Offering and/or Direct Community Offering for sale to
selected persons through Capital Resources.
Subscription Rights Each Eligible Account Holder has been given non-transferable
of Eligible rights to subscribe for an amount equal to the greater of
Account Holders $150,000 of Common Stock, one-tenth of one percent of the
total number of shares offered in the Subscription Offering
or 15 times the product (rounded down to the whole next
number) obtained by multiplying the total number of shares
to be issued by a fraction of which the numerator is the
amount of qualifying deposits of such subscriber and the
denominator is the total qualifying deposits of all account
holders in this category on the qualifying date.
Subscription Rights The Association's Tax-Qualified Employee Plans have been
of Tax-Qualified given non-transferable rights to subscribe, individually and
Employee Plans in the aggregate, for up to 10% of the total number of
shares sold in the Conversion after satisfaction of
subscriptions of Eligible Account Holders. Notwithstanding
the foregoing, to the extent orders for shares exceed the
maximum of the appraisal range, Tax-Qualified Employee Plans
shall be afforded a first priority to purchase shares sold
above the maximum of the appraisal range. It is anticipated
that Tax-Qualified Employee Plans will purchase 8% of the
Common Stock sold in the Conversion.
Subscription Rights After satisfaction of subscriptions of Eligible Account
of Supplemental Holders and Tax-Qualified Employee Plans, each Supplemental
Eligible Account Eligible Account Holder (other than directors and officers
Holders of the Association) has been given non-transferable rights
to subscribe for an amount equal to the greater of $150,000
of Common Stock, one-tenth of one percent of the total
number of shares offered in the Conversion or 15 times the
product (rounded down to the whole next number) obtained by
multiplying the total number of shares to be issued by a
fraction of which the numerator is the amount of qualifying
deposits of such subscriber and the denominator is the total
qualifying deposits of all account holders in this category
on the qualifying date. The subscription rights of each
Supplemental Eligible Account Holder shall be reduced to the
extent of such person's subscription rights as an Eligible
Account Holder.
Subscription Rights Each Other Member has been given non-transferable rights to
of Other Members subscribe for an amount equal to the greater of $150,000 of
Common Stock or one-tenth of one percent of the total number
of shares offered in the Conversion after satisfaction of
the subscriptions of the Association's Eligible Account
Holders, Tax-Qualified Employee Plans and Supplemental
Eligible Account Holders.
Subscription Rights Each individual employee, officer and director of the
of Association Association has been given the right to subscribe for an
Personnel amount equal to the greater of $150,000 of Common Stock
after satisfaction of the subscriptions of Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders and Other Members. Total shares subscribed
for by the employees, officers and directors in this
category may not exceed 22% of the total shares offered in
the Conversion.
Public Offering Subject to prior rights of holders of subscription rights,
and/or Direct the Holding Company may also offer the Common Stock for sale
Community to selected persons through Capital Resources in a Public
Offering Offering and/or Direct Community Offering.
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Purchase No person may purchase more than $150,000 of Common Stock in
Limitations the Subscription Offering. No person, together with
associates of and persons acting in concert with such
person, may purchase more than $150,000 of Common Stock in
the Public Offering and/or Direct Community Offering. The
aggregate purchases of directors and executive officers and
their associates may not exceed 34% of the total number of
shares offered in the Conversion. These purchase limitations
do not apply to the Association's Tax-Qualified Employee
Plans.
Expiration Date of All subscriptions for Common Stock in connection with the
the Subscription Subscription Offering must be received by noon,
Offering Gloversville, New York time on ________, 1998.
How to Subscribe For information on how to subscribe for Common Stock being
for Shares offered in the Subscription Offering, please read the
Prospectus and the order form and instructions accompanying
this Proxy Statement. Subscriptions will not become
effective until the Plan of Conversion has been approved by
the Association's members and all of the Common Stock
offered in the Conversion has been subscribed for or sold in
the Offering or through such other means as may be approved
by the OTS.
Price of Common All sales of Common Stock in the Offering will be made at
Stock the same price per share which is currently expected to be
$10.00 per share on the basis of an independent appraisal of
the pro forma market value of the Association and the
Holding Company upon Conversion. On the basis of a
preliminary appraisal by RP Financial, Inc. ("RP
Financial"), which has been reviewed by the OTS, a minimum
of 425,000 and a maximum of 575,000 shares will be offered
in the Conversion. See "The Conversion - Stock Pricing and
Number of Shares to be Issued" in the Prospectus.
Tax Consequences The Association has received an opinion from its special
counsel, Silver, Freedman & Taff, L.L.P., stating that the
Conversion is a nontaxable reorganization under Section
368(a)(1)(F) of the Internal Revenue Code. The Association
has also received an opinion from KPMG Peat Marwick, LLP
("KPMG Peat Marwick") stating that the Conversion will not
be a taxable transaction for New York income tax purposes.
Required Vote Approval of the Plan of Conversion will require the
affirmative vote of a majority of all votes eligible to be
cast at the Special Meeting.
YOUR BOARD OF DIRECTORS URGES
YOU TO VOTE FOR THE PLAN OF CONVERSION
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GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON ________, 1998
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Gloversville Federal Savings
and Loan Association ("Gloversville Federal" or the "Association") of the
proxies to be voted at the Special Meeting of Members (the "Special Meeting") of
the Association to be held at the Association's main office located at 52 North
Main Street, Gloversville, New York 12078-3084, on ________, 1998 at _____ _.m.,
Gloversville, New York time, and at any adjournments thereof. The Special
Meeting is being held for the purpose of considering and voting upon a Plan of
Conversion under which the Association would be converted (the "Conversion")
from a federally chartered mutual savings and loan association into a federally
chartered stock savings and loan association, the concurrent sale of all the
common stock of the stock savings and loan association to Adirondack Financial
Services Bancorp, Inc. (the "Holding Company"), a Delaware corporation, and the
sale by the Holding Company of shares of its common stock (the "Common Stock").
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE ASSOCIATION UNANIMOUSLY RECOMMENDS THAT
YOU VOTE TO APPROVE THE PLAN OF CONVERSION
The Association is currently organized in "mutual" rather than "stock"
form, meaning that it has no stockholders and no authority under its federal
mutual charter to issue capital stock. The Association's Board of Directors has
adopted the Plan of Conversion providing for the Conversion. The sale of Common
Stock of the Holding Company, which was recently formed to become the holding
company of the Association, will substantially increase the Association's net
worth. The Holding Company will exchange 50% of the net proceeds from the sale
of the Common Stock for the common stock of the Association to be issued upon
Conversion; provided that the amount retained by the Holding Company will be
reduced to the extent required that, upon the completion of the transaction, the
Association's ratio of capital to assets is at least 10%. The Holding Company
expects to retain the balance of the net proceeds as its initial capitalization,
a portion of which the Holding Company intends to lend to the ESOP to fund its
purchase of Common Stock. This increased capital will support the expansion of
the Association's financial services to the public. The Board of Directors of
the Association also believes that the conversion to stock form and the use of a
holding company structure will enhance the Association's ability to expand
through possible mergers and acquisitions (although no such transactions are
contemplated at this time) and will facilitate its future access to the capital
markets.
The Board of Directors of the Association believes that the Conversion
will further benefit the Association by enabling it to attract and retain key
personnel through prudent use of stock-related incentive compensation and
benefit plans. The Board of Directors of the Holding Company intends to adopt a
stock option and incentive plan and a recognition and retention plan, subject to
approval of Holding Company stockholders following completion of the Conversion.
See "Management - Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Conversion will not obligate any person
to purchase any Common Stock.
THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE ASSOCIATION'S MEMBERS AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS.
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INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Association has fixed __________, 1998 as
the voting record date ("Voting Record Date") for the determination of members
entitled to notice of the Special Meeting. All Association depositors are
members of the Association under its current charter. All Association depositors
of record as of the close of business on the Voting Record Date and borrowers as
of ___________, 19__ and the Voting Record Date who continue to be depositors
and borrowers as of the date of the Special Meeting will be entitled to vote at
the Special Meeting or any adjournment thereof.
Each depositor member (including IRA and Keogh account beneficiaries)
will be entitled at the Special Meeting to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
accounts in the Association as of the Voting Record Date, up to a maximum of
1,000 votes. In general, accounts held in different ownership capacities will be
treated as separate memberships for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in his
own name, each person would be entitled to 1,000 votes for each separate account
and they would together be entitled to cast 1,000 votes on the basis of the
joint account. Where no proxies are received from IRA and Keogh account
beneficiaries, after due notification, the Association, as trustee of these
accounts, is entitled to vote these accounts in favor of the Plan of Conversion.
Each member borrower is entitled to one vote in addition to any other vote the
borrower may otherwise have.
Approval of the Plan of Conversion requires the affirmative vote of a
majority of the total outstanding votes of the Association's members eligible to
be cast at the Special Meeting. As of __________, 1998, the Association had
approximately ______ members who were entitled to cast a total of approximately
_________ votes at the Special Meeting.
Association members may vote at the Special Meeting or any adjournment
thereof in person or by proxy. Any member giving a proxy will have the right to
revoke the proxy at any time before it is voted by giving written notice to the
Secretary of the Association, provided that such written notice is received by
the Secretary prior to the Special Meeting or any adjournment thereof, or upon
request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of the
Association will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. If no instructions are given, such proxies
will be voted in favor of the Plan of Conversion. If any other matters are
properly presented at the Special Meeting and may properly be voted on, the
proxies solicited hereby will be voted on such matters in accordance with the
best judgment of the proxy holders named thereon. Management is not aware of any
other business to be presented at the Special Meeting.
If a proxy is not executed and is returned or the member does not vote
in person, the Association is prohibited by OTS regulations from using a
previously executed proxy to vote for the Conversion. As a result, failure to
vote may have the same effect as a vote against the Plan of Conversion.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Association, in person, by telephone or through other forms of communication
and, if necessary, the Special Meeting may be adjourned to a later date. In
addition, Capital Resources will assist the Association in the solicitation of
proxies. Such persons will be reimbursed by the Association for their expenses
incurred in connection with such solicitation. The Association will bear all
costs of this solicitation. The proxies solicited hereby will be used only at
the Special Meeting and at any adjournment thereof.
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special
Meeting provides for the Conversion to be accomplished through adoption of
amended charter and bylaws for the Association to authorize the issuance of
capital stock along with the concurrent formation of a holding company. As part
of the Conversion, the Plan of Conversion provides for the subscription offering
(the "Subscription Offering") of the Common Stock to the Association's (i)
Eligible Account Holders (deposit account holders with an account balance of $50
or more as of September 30, 1996; (ii) Tax-Qualified Employee Plans, (iii)
Supplemental Eligible Account Holders (deposit account holders with an
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account balance of $50 or more as of ___________, 1997); (iv) Other Members
(deposit account holders eligible to vote at the Special Meeting who are not as
Eligible Account Holders or Supplemental Eligible Account Holders); and (v) the
Association's employees, officers and directors. Notwithstanding the foregoing,
to the extent orders for shares exceed the maximum of the appraisal range,
Tax-Qualified Employee Plans shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal range. It is anticipated that
Tax-Qualified Employee Plans will purchase 8% of the Common Stock sold in the
Conversion. If necessary, all shares of Common Stock not purchased in the
Subscription Offering, if any, may be offered to selected persons in connection
with the Public Offering and/or Direct Community Offering through Capital
Resources.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS
OF THE ASSOCIATION AND THE HOLDING COMPANY, ACCOMPANIES THIS PROXY STATEMENT AND
SHOULD BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK.
THE SUBSCRIPTION OFFERING EXPIRES AT NOON, GLOVERSVILLE, NEW YORK TIME ON
________, 1998 UNLESS EXTENDED BY THE ASSOCIATION AND THE HOLDING COMPANY.
The federal conversion regulations require that all stock offered in a
conversion must be sold in order for the conversion to become effective. The
conversion regulations require that the offering be completed within 45 days
after completion of the Subscription Offering period unless extended by the
Association and the Holding Company with the approval of the OTS. This 45-day
period expires _____, 1998 unless the Subscription Offering is extended. If this
is not possible, an occurrence that is currently not anticipated, the Board of
Directors of the Association and the Holding Company will consult with the OTS
to determine an appropriate alternative method of selling all unsubscribed
shares offered in the Conversion. The Plan of Conversion provides that the
Conversion must be completed within 24 months after the date of the Special
Meeting.
The Public Offering and/or Direct Community Offering or any other sale
of the unsubscribed shares will be made as soon as practicable after the
completion of the Subscription Offering. No sales of shares may be completed,
either in the Subscription Offering or otherwise, unless the Plan of Conversion
is approved by the members of the Association.
The commencement and completion of the Offering, however, is subject to
market conditions and other factors beyond the Association's control. Due to
adverse conditions in the stock market in the past, a number of converting
thrift institutions encountered significant delays in completing their stock
offerings or were not able to complete them at all. No assurance can be given as
to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Public Offering and/or Direct
Community Offering or other sale of the Common Stock to be offered in the
Conversion. If delays are experienced, significant changes may occur in the
estimated pro forma market value of the Holding Company's Common Stock, together
with corresponding changes in the offering price and the net proceeds realized
by the Association and the Holding Company from the sale of the Common Stock.
The Association and the Holding Company may also incur substantial additional
printing, legal, accounting and other expenses in completing the Conversion.
The following is a brief summary of the Conversion and is qualified in
its entirety by reference to the Plan of Conversion, a complete copy of which is
attached hereto. The Association's federal stock charter and bylaws that will
become effective upon completion of the Conversion are available from the
Association upon request. A copy of the Holding Company's articles of
incorporation and bylaws are also available from the Association upon request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Association will remain unchanged by the Conversion. The
principal amount, interest rate and maturity date of loans will remain as they
were contractually fixed prior to the Conversion.
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Voting Rights of Members. Under the Association's current federal
mutual charter, depositors have voting rights as members of the Association with
respect to the election of directors and certain other affairs of the
Association. After the Conversion, exclusive voting rights with respect to all
such matters will be vested in the Holding Company as the sole stockholder of
the Association. Depositors will no longer have any voting rights, except to the
extent that they become stockholders of the Holding Company through the purchase
of its Common Stock. Voting rights in the Holding Company will be held
exclusively by its stockholders.
Liquidation Rights of Depositor Members. Currently, in the unlikely
event of liquidation of the Association, any assets remaining after satisfaction
of all creditors' claims in full (including the claims of all depositors to the
withdrawal value of their accounts) would be distributed pro rata among the
depositors of the Association, with the pro rata share of each being the same
proportion of all such remaining assets as the withdrawal value of each
depositor's account is of the total withdrawal value of all accounts in the
Association at the time of liquidation. After the Conversion, the assets of the
Association would first be applied, in the event of liquidation, against the
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Any remaining assets would then be
distributed to the persons who qualified as Eligible Account Holders or
Supplemental Eligible Account Holders under the Plan of Conversion to the extent
of their interests in a "Liquidation Account" that will be established at the
time of the completion of the Conversion and then to the Holding Company as the
sole stockholder of the Association's outstanding common stock. The
Association's depositors who did not qualify as Eligible Account Holders or
Supplemental Eligible Account Holders would have no right to share in any
residual net worth of the Association in the event of liquidation after the
Conversion, but would continue to have the right as creditors of the Association
to receive the full withdrawal value of their deposits prior to any distribution
to the Holding Company as the Association's sole stockholder. In addition, the
Association's deposit accounts will continue to be insured by the Federal
Deposit Insurance Corporation ("FDIC") to the maximum extent permitted by law,
currently up to $100,000 per insured account. The Liquidation Account will
initially be established in an amount equal to the net worth of the Association
as of the date of the Association's latest statement of financial condition
contained in the final prospectus used in connection with the Conversion. Each
Eligible Account Holder and/or Supplemental Eligible Account Holder will receive
an initial interest in the Liquidation Account in the same proportion as the
balance in all of his qualifying deposit accounts was of the aggregate balance
in all qualifying deposit accounts of all Eligible Account Holders and
Supplemental Eligible Account Holders on September 30, 1996 or____________,
1997, respectively. For accounts in existence on both dates, separate
subaccounts shall be determined on the basis of the qualifying deposits in such
accounts on the record dates. However, if the amount in the qualifying deposit
account on any annual closing date of the Association is less than the lowest
amount in such deposit account on the Eligibility Record Date and/or
Supplemental Eligibility Record Date, and any subsequent annual closing date,
this interest in the Liquidation Account will be reduced by an amount
proportionate to such reduction in the related deposit account and will not
thereafter be increased despite any subsequent increase in the related deposit
account.
The Association. Under federal law, the stock savings and loan
association resulting from the Conversion will be deemed to be a continuation of
the mutual savings and loan association rather than a new entity and will
continue to have all of the rights, privileges, properties, assets and
liabilities of the Association prior to the Conversion. The Conversion will
enable the Association to issue capital stock, but will not change the general
objectives, purposes or types of business currently conducted by the
Association, and no assets of the Association will be distributed in order to
effect the Conversion, other than to pay the expenses incident thereto. After
the Conversion, the Association will remain subject to examination and
regulation by the OTS and will continue to be a member of the Federal Home Loan
Bank System. The Conversion will not cause any change in the executive officers
or directors of the Association.
Tax Consequences. Consummation of the Conversion is expressly
conditioned upon prior receipt of either a ruling of the United States Internal
Revenue Service ("IRS") or an opinion letter of the Association's counsel with
respect to federal taxation, and either a ruling of the New York taxation
authorities or an opinion letter with respect to New York taxation, to the
effect that the Conversion will not be a taxable transaction to the Holding
Company, the Association or the Association's deposit account holders receiving
subscription rights.
The Association has received an opinion of its special counsel, Silver,
Freedman & Taff, L.L.P., to the effect that (i) the Conversion will qualify as a
reorganization under Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended, and no gain or loss will be recognized to the Association in either
its mutual form or its stock form by reason of the proposed Conversion, (ii) no
gain or loss will be recognized to the Association upon the receipt of money
from the Holding Company for stock of the Association; and no gain or loss will
be recognized to the Holding Company
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upon the receipt of money for Common Stock of the Holding Company; (iii) the
assets of the Association in either its mutual or its stock form will have the
same basis before and after the Conversion; (iv) the holding period of the
assets of the Association will include the period during which the assets were
held by the Association in its mutual form prior to conversion; (v) gain, if
any, will be realized by the Eligible Account Holders and Supplemental Eligible
Account Holders of the Association, upon the constructive issuance to them of
withdrawable deposit accounts of the Association immediately after the proposed
Conversion, interests in the Liquidation Account, and on the receipt or
distribution to them of the nontransferable Subscription Rights to purchase
Holding Company Common Stock (any such gain will be recognized by such account
holder, but only to the extent, if any, of an amount not in excess of the fair
market value of the Subscription Rights and Liquidation Account interests
received); (vi) the basis of the account holder's savings accounts in the
Association after the Conversion will be the same as the basis of his or her
savings accounts in the Association prior to the Conversion; (vii) the basis of
each account holder's interest in the Liquidation Account will be zero; (viii)
the basis of the Holding Company Common Stock to its shareholders will be the
Purchase Price thereof and a shareholder's holding period for Holding Company
Common Stock acquired through the exercise of Subscription Rights shall begin on
the date on which the Subscription Rights are exercised; (ix) the converted
Association, immediately after Conversion, will succeed to and take into account
the earnings and profits or deficit in earnings and profits of the Association
in mutual form as of the date of the Conversion; and (x) the creation of the
liquidation account will not diminish the Association's accumulated earnings and
profits available for subsequent distribution of dividends.
The opinion from Silver, Freedman & Taff, L.L.P. is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Association has received the letter of RP Financial (the "Appraiser Letter")
which, based on certain assumptions, concludes that the Subscription Rights to
be received by Eligible Account Holders, Supplemental Eligible Account Holders
and other eligible subscribers do not have any economic value at the time of
distribution or at the time the Subscription Rights are exercised, whether or
not a public offering takes place.
The Association has also received an opinion of Silver, Freedman &
Taff, L.L.P. to the effect that, based in part on the Appraiser Letter, no
taxable income will be realized by a stock subscriber as a result of the
exercise of non-transferable Subscription Rights to purchase shares of Holding
Company Common Stock or upon the lapse of such rights.
If it is subsequently established that the subscription rights received
by such persons have an ascertainable fair market value, or in the case of
employees, directors and officers are compensatory in nature, then, in such
event, the subscription rights will be taxable to the recipient in the amount of
their fair market value. In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
With respect to New York taxation, the Association has received an
opinion from KPMG Peat Marwick, to the effect that, assuming the Conversion does
not result in any federal taxable income, gain or loss to the Association in its
mutual or stock form, the Holding Company, the account holders, borrowers,
officers, directors and employees and Tax-Qualified Employee Plans of the
Association, the Conversion should not result in any New York income tax
liability to such entities or persons.
Unlike a private letter ruling, the opinions of Silver, Freedman &
Taff, L.L.P. and KPMG Peat Marwick, LLP as well as the Appraiser Letter, have no
binding effect or official status, and no assurance can be given that the
conclusions reached in any of those opinions would be sustained by a court if
contested by the IRS or the New York tax authorities.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the Association casting at least a majority of the
votes eligible to be cast at the Special Meeting; (b) sale of all of the Common
Stock to be offered in the Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and New York tax consequences of the
Conversion.
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The Plan of Conversion may be substantively amended by the Boards of
Directors of the Association and the Holding Company with the concurrence of the
OTS. If the Plan of Conversion is amended, proxies which have been received
prior to such amendment will not be resolicited unless otherwise required by the
OTS. Also, as required by the federal regulations, the Plan of Conversion
provides that the transactions contemplated thereby may be terminated by the
Board of Directors of the Association alone at any time prior to the Special
Meeting and may be terminated by the Board of Directors of the Association at
any time thereafter with the concurrence of the OTS, notwithstanding approval of
the Plan of Conversion by the members of the Association at the Special Meeting.
All interpretations by the Association and the Holding Company of the Plan of
Conversion and of the order forms and related materials for the Subscription
Offering will be final, except as regards or affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a plan of conversion, may obtain review of such final action only by
filing a written petition in the United States Court of Appeals for the circuit
in which the principal office or residence of such person is located, or in the
United States Court of Appeals for the District of Columbia, requesting that the
final action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the Association's members to vote on the Plan
of Conversion described herein is included at the beginning of this Proxy
Statement. The statute and regulation referred to above should be consulted for
further information.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
CONVERSION.
If you have any questions, please call our Information Center at (518)
___-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
-----------------------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
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REVOCABLE PROXY
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
The undersigned member of Gloversville Federal Savings and Loan
Association (the "Association") hereby appoints the Board of Directors of the
Association as proxies to cast all votes which the undersigned member is
entitled to cast at a Special Meeting of Members to be held at the Association's
office located at 52 North Main Street, Gloversville, New York 12078-3084, at
the hour and date stated in the Proxy Statement, and at any and all adjournments
and postponements thereof, and to act with respect to all votes that the
undersigned would be entitled to cast, if then personally present, in accordance
with the instructions on the reverse side hereof to vote FOR or AGAINST:
The adoption of the Plan of Conversion to convert the
Association from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan
association, including the adoption of a federal stock savings
and loan association charter and bylaws, with the simultaneous
issuance of its common stock to Adirondack Financial Services
Bancorp, Inc., a Delaware corporation (the "Holding Company")
and sale by the Holding Company of shares of its Common Stock.
This proxy will be voted as directed by the undersigned member. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION. In addition, this proxy will be voted at the discretion of the
Board of Directors upon any other matter as may properly come before the Special
Meeting.
The undersigned member may revoke this proxy at any time before it is
voted by delivering to the Secretary of the Association either by a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting and voting in person. The undersigned member
hereby acknowledges receipt of the Notice of Special Meeting and Proxy
Statement.
(IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE)
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GLOVERSVILLE FEDERAL SAVINGS AND LOAN ASSOCIATION
Please Mark Votes Below
Approval of the Plan of Conversion
FOR [ ] AGAINST [ ] DATE:_______________________, 1997
X_______________________
X_______________________
IMPORTANT: Please sign your name
exactly as it appears on this proxy.
Joint accounts need only one
signature. When signing as an
attorney, administrator, agent,
corporation, officer, executor,
trustee or guardian, etc., please
add your full title to your
signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN
ALL CARDS IN THE ACCOMPANYING ENVELOPE.
8
