As filed with the Securities and Exchange Commission on March 9, 1998
Registration No. 333-
================================================================================
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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HUDSON RIVER 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.)
One Hudson City Centre, Hudson, New York 12534 (518) 828-4600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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Carl A. Florio
President and Chief Executive Officer
Hudson River Bancorp, Inc.
One Hudson City Centre
Hudson, New York 12534 (518) 828-4600
(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:
Robert L. Freedman, P.C.
James S. Fleischer, P.C.
Beth A. Freedman, Esq.
Craig M. Scheer, 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. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration 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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
Title of Each Amount Proposed Maximum Proposed Maximum
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered Per Share(2) Price Registration Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01
par value (1) 17,853,750 shares $10.00 $178,537,500 $52,669
=================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares to be issued to the Hudson River Bank & Trust Company
Foundation.
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]
HUDSON RIVER BANCORP, INC.
(Proposed Holding Company for The Hudson City Savings Institution)
(to be known as Hudson River Bank & Trust Company)
$10.00 Per Share
15,072,815 Shares of Common Stock
(Anticipated Maximum)
Hudson River Bancorp, Inc. (the "Holding Company") is offering up to
15,072,815 shares of common stock, par value $0.01 per share (the "Common
Stock"), in connection with the conversion of The Hudson City Savings
Institution ("HCSI" or the "Bank") from a New York state chartered mutual
savings bank to a New York state chartered stock savings bank to be renamed
Hudson River Bank & Trust Company and the issuance of all of HCSI's outstanding
capital stock to the Holding Company (the "Conversion"). Pursuant to the Bank'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) HCSI's depositors with account balances of $100 or more as of September
30, 1996 ("Eligible Account Holders"), (ii) tax-qualified employee plans of HCSI
and the Holding Company ("Tax-Qualified Employee Plans"), (iii) HCSI's
depositors with account balances of $100 or more as of , 1998 ("Supplemental
Eligible Account Holders") and (iv) certain of its other members ("Other
Members").
(continued on next page)
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FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE
CONVERSION CENTER AT (___) ___-____.
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FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED, SEE
"RISK FACTORS" BEGINNING ON PAGE __.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING BOARD, THE NEW YORK STATE BANKING DEPARTMENT,
OR THE FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS SUCH COMMISSION,
SUPERINTENDENT, BOARD, DEPARTMENT 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, Estimated Net
Purchase Price(1) Commissions and Other Expenses(2) Conversion Proceeds(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share............................... $10.00 0.21 9.79
Midpoint Per Share.............................. $10.00 0.19 9.81
Maximum Per Share............................... $10.00 0.18 9.82
Minimum Total................................... $111,407,770 2,326,475 109,081,295
Midpoint Total.................................. $131,067,960 2,542,737 128,525,223
Maximum Total................................... $150,728,150 2,759,000 147,969,150
Maximum Total, As Adjusted(4)................... $173,337,380 3,007,701 170,329,679
====================================================================================================================================
</TABLE>
(1) Determined on the basis of an appraisal prepared by RP Financial, LC. ("RP
Financial") dated February 27, 1998, which states that the estimated
aggregate pro forma market value of the Common Stock to be sold in the
Conversion ranged from $111,407,770 to $150,728,150 or between 11,140,777
shares and 15,072,815 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 Bank and the Holding Company arising
from the Conversion, including the payment to Sandler O'Neill & Partners,
L.P. ("Sandler O'Neill") of estimated sales commissions ranging from
$1,195,917 (at the minimum) to $1,628,442 (at the maximum) in connection
with the sale of shares in the Offering. Such fees may be deemed to be
underwriting fees. See "Use of Proceeds" and "Pro Forma Data" for the
assumptions used to arrive at these estimates. The Holding Company has
agreed to indemnify Sandler O'Neill 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, commissions and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price, the number of shares issued and the number of shares
sold subject to commissions. 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) As adjusted to give effect to the sale of up to an additional 2,260,922
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."
Sandler O'Neill & Partners, L.P.
The date of this Prospectus is ________ __, 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 New York State Banking Department (the "NYBD"). Subject to the
prior rights of holders of Subscription Rights and to market conditions, the
Holding Company may also offer the Common Stock for sale through Sandler O'Neill
in a community offering (the "Community Offering") to selected persons to whom
this prospectus is delivered. It is anticipated that shares not subscribed for
in the Subscription Offering and the Community Offering, if any, will be offered
to certain members of the general public in a syndicated community offering (the
"Syndicated Community Offering") (The Subscription Offering, Community Offering
and Syndicated Community Offering are referred to collectively as the
"Offerings").
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 Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current valuation
range of the shares to be sold of $111,407,770 to $150,728,150 (the "Estimated
Valuation Range"), the Holding Company is offering up to 15,072,815 shares.
Depending upon the market and financial conditions at the time of the completion
of the Syndicated Community Offering, if any, the total number of shares to be
issued in the Conversion may be increased or decreased from the 15,072,815
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 $111,407,770 or above
$173,337,380, 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."
Pursuant to the Plan, the Holding Company has established the Hudson River
Bank and Trust Company Foundation, a charitable foundation (the "Foundation").
The Plan provides that the Bank and the Holding Company will fund the Foundation
with shares of Common stock contributed by the Holding Company from authorized
but unissued shares in an amount equal to 3% of the number of shares of Common
Stock sold in the Conversion. The purpose of the Foundation is to provide
charitable benefits to persons and organizations residing within the communities
in which the Bank operates. For a discussion of the Foundation and its effects
on the Conversion, see "Risk Factors -- Contribution to the Charitable
Foundation," "Pro Forma Data," and "The Conversion - Establishment of the
Charitable Foundation."
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 $250,000 of Common
Stock; no person, together with associates of and persons acting in concert with
such person, may purchase more than $250,000 of Common Stock in the Community
Offering and no person, together with associates of and persons acting in
concert with such person, may purchase more than 1% of Common Stock in the
Offerings. Under certain circumstances, the maximum purchase limitations may be
increased or decreased at the sole discretion of the Bank and the Holding
Company up to 9.99% of the total number of shares of Common Stock sold in the
Conversion or down 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 Bank and the Holding Company have engaged Sandler
O'Neill 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 Syndicated Community Offering. For such services, Sandler O'Neill
will receive a marketing fee of 1.10% of the total dollar amount of Common Stock
sold in the Conversion, excluding purchases by directors, officers, employees
and their immediate family members, and the employee stock ownership and benefit
plans of the Bank and the Holding Company. 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 Syndicated Community
Offering through such selected dealers. Such fees may be deemed to be
underwriting commissions. Sandler O'Neill and the selected dealers may be deemed
to be underwriters. See "The Conversion - Marketing Arrangements" and "The
Conversion - Offering of Holding Company Common Stock."
The Subscription Offering will expire at 12:00 noon, Eastern time, on ,
1998 ("Expiration Date"), unless extended by the Bank and the Holding Company
with the approval of the Superintendent of Banks of the State of New York (the
"Superintendent") and the Federal Deposit Insurance Corporation ("FDIC"), if
necessary. The Community Offering and/or any Syndicated Community Offering must
be completed within 45 days after close of the Subscription Offering, unless
extended by the Bank and the Holding Company with the approval of the
Superintendent and the FDIC, if necessary. Orders submitted are irrevocable
until the completion of the Conversion; provided, that if the Conversion is not
completed within the 45 day period referred to above unless such period has been
extended with the consent of the Superintendent and the FDIC, if necessary, all
subscribers will have their funds returned promptly with interest, and all
withdrawal authorizations will be cancelled. Such extensions may not go beyond
______ __, 2000.
The Holding Company has applied to have the Common Stock listed on the
Nasdaq Stock Market under the symbol "____." Prior to this offering there has
not been a public market for the Common Stock, and there can be no assurance
that an active and liquid trading market for the Common Stock will develop or
that resales of the Common Stock can be made at or above the Purchase Price. See
"Market for Common Stock" and "The Conversion Stock Pricing and Number of Shares
to be Issued."
Explanatory Note: This Prospectus contains certain forward looking
statements, which statements consist of estimates with respect to the financial
condition, results of operations and business of the Company and the Bank.
Prospective investors are cautioned that such forward looking statements are not
guarantees of future performance and are subject to various factors that could
cause actual results to differ materially from these estimates. These factors
include changes in general economic and market conditions, and the development
of an interest rate environment that adversely affects the interest rate spread
or other income anticipated from the Company's and the Bank's operations and
investments. See "Risk Factors" for a discussion of other factors that might
cause actual results to differ from such estimates.
2
<PAGE>
[MAP TO COME]
3
<PAGE>
SUMMARY
The following summary of the Conversion and the Offerings is qualified
in its entirety by the more detailed information appearing elsewhere in this
Prospectus.
Risk Factors....... A purchase of the Common Stock involves a substantial
degree of risk. Eligible Account Holders, Supplemental
Eligible Account Holders and other prospective investors
should carefully consider the matters set forth under "Risk
Factors." The shares of Common Stock offered hereby are not
insured or guaranteed by the FDIC or any other government
agency and are not guaranteed by the Holding Company or the
Bank.
Hudson River
Bancorp, Inc..... The Holding Company is a Delaware corporation organized
organized at the direction of the Bank to become a savings
and loan holding company and own all of the Bank's capital
stock to be issued upon its conversion from mutual form to
stock form. To date, the Holding Company has not engaged in
any business. Its executive office is located at 1 Hudson
City Centre, Hudson, New York 12534 and its telephone number
is (518) 828-4600.
The Hudson
City Savings
Institution...... The Bank is a New York State chartered mutual savings bank.
At December 31, 1997, the Bank had total assets of $665.1
million, total deposits of $586.2 million and total equity
of $67.4 million and operated twelve full service offices.
The Bank's main office is located at 1 Hudson City Centre,
Hudson, New York 12534 and its telephone number at that
location is (518) 828-4600. The Bank's current operating
strategy consists primarily of:
o investing primarily in one- to four-family residential
mortgage loans; including home equity loans and, to a
lesser extent, manufactured home loans, financed
insurance premiums and other consumer loans, commercial
real estate, construction and commercial business loans
and in investment-grade securities;
o managing its interest rate risk by originating and
retaining for portfolio adjustable-rate loans and
fixed-rate loans with maturities of 20 years or less;
o increasing the yield of its securities investments by
emphasizing the purchase of short- to intermediate-term
government agency and corporate debt securities;
o maintaining a low cost of funds by attracting and
retaining core deposits by providing enhanced service;
and
o attempting to attract new deposit customers by
competitively pricing time deposit products and
offering a variety of maturities of such deposits.
The Conversion
and Reasons for
Conversion....... The Board of Trustees of the Bank has adopted a Plan of
Conversion pursuant to which the Bank intends to convert to
a New York
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State-chartered stock savings bank to be known as Hudson
River Bank and Trust Company and issue all of its stock to
the Holding Company. The Holding Company is offering shares
of its Common Stock in the Offerings in connection with the
Bank's Conversion. Management believes the Conversion offers
a number of advantages, including: (i) providing enhanced
future access to capital markets; (ii) providing enhanced
ability to diversify into other financial services related
activities; and (iii) providing enhanced ability to increase
its presence in the communities it serves and to
geographically expand its operations and market area through
marketing and business development, the acquisition or
establishment of branch offices or the acquisition of other
financial institutions. The Conversion and the Offerings are
subject to approval by the Superintendent and non-objection
by the FDIC, and approval of voting depositors of the Bank
as of ________, 1998, with aggregate deposit accounts of
$100 or more ("Voting Depositors") at a special meeting to
be held on __________, 1998 (the "Special Meeting"). The
Superintendent issued an approval letter on _______, 1998
and the FDIC issued a notice of intent not to object to the
Conversion on _______, 1998. See "The Conversion-- General."
The Hudson
River Bank and
Trust Company
Foundation...... The Bank's Plan of Conversion provides for the establishment
of a charitable foundation in connection with the
Conversion. The Foundation, which will be incorporated under
Delaware law as a non-stock corporation, will be funded with
a contribution by the Holding Company equal to 3% of the
Common Stock sold in the Conversion. The authority for the
affairs of the Foundation will be vested in the Board of
Directors of the Foundation, which will initially be
comprised of four members of the Bank's Board of Trustees.
See "The Conversion - Establishment of Charitable
Foundation."
Terms of the
Offering........ The shares of Common Stock to be sold in connection with the
Conversion are being offered at a fixed price of $10.00 per
share in the Subscription Offering pursuant to subscription
rights in the following orders of priority: (i) Eligible
Account Holders; (ii) the Holding Company's and the Bank's
tax-qualified employee plans ("Employee Plans"), including
the ESOP; (iii) Supplemental Eligible Account Holders; and
(iv) Depositors whose deposits in qualifying accounts in the
Bank totaled $100 or more on the voting record date ("Other
Depositors"). Under the New York Banking regulations, Escrow
Account holders are not considered eligible account holders
or subscribers for purposes of the Offerings. Upon
completion of the Subscription Offering, any shares of
Common Stock not subscribed for in the Subscription Offering
will be offered in the Community Offering at $10.00 per
share to certain members of the general public. Subscription
rights will expire if not exercised by 12:00 noon, Eastern
time, on __________, 1998, unless extended by the Bank and
the Holding Company, with the approval of the Superintendent
and the FDIC, if necessary. See "The
Conversion--Subscription Offering and Subscription Rights"
and "--Community Offering."
Procedure for
Ordering Shares
and Prospectus
Delivery....... Forms to order Common Stock offered in the Subscription
Offering and the Community Offering will only be distributed
with or be preceded by a Prospectus. Any person receiving a
stock order and
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<PAGE>
certification form who desires to subscribe for shares must
do so prior to the Expiration Date by delivering to the Bank
a properly executed stock order and certification form
together with full payment. Once tendered, subscription
orders cannot be revoked or modified without the consent of
the Holding Company and Bank. To ensure that each purchaser
receives a prospectus at least 48 hours prior to the
Expiration Date in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), no prospectus will be mailed any later than five days
prior to the Expiration Date or hand delivered any later
than two days prior to such date. The Holding Company and
Bank are not obligated to accept subscriptions not submitted
on an original stock order form. The only place to obtain an
original stock order form and prospectus other than through
the mail is at the Conversion Center located at the Bank's
main office. See "The Conversion - Procedure for Purchasing
Shares in Subscription and Community Offerings."
Form of Payment
for Shares...... Payment for subscriptions may be made: (i) in cash (if
delivered in person); (ii) by check, bank draft or money
order; or (iii) by authorization of withdrawal from deposit
accounts maintained at the Bank. ORDERS FOR COMMON STOCK
SUBMITTED BY SUBSCRIBERS IN THE SUBSCRIPTION OFFERING WHICH
AGGREGATE $50,000 OR MORE AND WHICH ARE PAID BY CHECK MUST
BE PAID BY OFFICIAL BANK OR CERTIFIED CHECK. No wire
transfers will be accepted. See "The Conversion-- Procedure
for Purchasing Shares in Subscription Offering."
Nontransferability
of Subscription
Rights.......... The subscription rights of Eligible Account Holders,
Supplemental Eligible Account Holders, Other Depositors and
Employee Benefit Plans are nontransferable. Certificates
representing shares of Common Stock purchased in the
Subscription Offering must be registered in the name of the
Eligible Account Holder, Supplemental Eligible Account
Holder or Other Depositor, as the case may be. Joint stock
registration will be allowed only if the qualifying deposit
account is so registered. See "The Conversion--Restrictions
on Transfer of Subscription Rights and Shares."
Purchase
Limitations..... No Eligible Account Holder, Supplemental Eligible Account
Holder or Other Depositor may purchase in the Subscription
Offering more than $250,000 of Common Stock. No person,
together with associates and persons acting in concert with
such person, may purchase in the Community Offering and the
Syndicated Community Offering more than $250,000 of Common
Stock. No person, together with associates or persons acting
in concert with such person, may purchase in the aggregate
more than 1% of the Common Stock offered (the "overall
maximum purchase limitation"). However, the Employee Plans,
including the ESOP, may purchase up to 10% of the Common
Stock issued, including shares issued to the Foundation. It
is anticipated that the ESOP will subscribe to purchase 8%
of the Common Stock issued, including shares issued to the
Foundation. The minimum purchase is 25 shares of Common
Stock. At any time during the Conversion and without
approval of the Bank's depositors or a resolicitation of
subscribers, the Bank and the Company may, in their sole
discretion, decrease the maximum purchase limitation below
$250,000 of
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<PAGE>
Common Stock; however, such amount may not be reduced to
less than 0.10% of the Common Stock offered. Additionally,
at any time during the Conversion, the Bank and the Company
may, in their sole discretion, increase the maximum purchase
limitation in the Subscription and Community Offerings to an
amount in excess of $250,000 up to a maximum of 5% of the
shares to be issued in the Conversion. Similarly, the 1.0%
overall maximum purchase limitation may be increased up to
5% of the total shares of Common Stock offered in the
Conversion.
Securities Offered
and Purchase
Price............ The Holding Company is offering between 11,140,777 and
15,072,815 shares of Common Stock at a Purchase Price of
$10.00 per share. The maximum of the Estimate Price Range
may be increased by up to 15% and the maximum number of
shares of Common Stock to be offered may be increased up to
17,333,738 shares due to regulatory considerations and
changes in market or general financial or economic
considerations. See "The Conversion--Stock Pricing" and
"--Number of Shares to be Issued."
Appraisal......... The Purchase Price per share has been fixed at $10.00. The
total number of shares to be issued in the Conversion is
based upon an independent appraisal prepared by RP
Financial, LC. ("RP Financial"), dated as of February 27,
1998, which states that the estimated pro forma market value
of the Common Stock offered ranged from $111,407,770 to
$150,728,150. The final aggregate value will be determined
at the time of closing of the Offerings and is subject to
change due to changing market conditions and other factors.
See "The Conversion--Stock Pricing."
Use of Proceeds... The Holding Company will use 50% of the net proceeds of the
Offerings to purchase all of the outstanding common stock of
the Bank to be issued in the Conversion. A portion of net
proceeds retained by the Holding Company will be used for
general business activity, including a loan by the Holding
Company directly to the ESOP to enable the ESOP to purchase
up to 8% of the Common Stock issued in the Conversion,
including shares issued to the Foundation. The Holding
Company intends to initially invest the remaining net
proceeds primarily in government agency, corporate debt
securities and in deposit accounts with the Bank. The Bank
intends to utilize net proceeds for general business
purposes, including investments in loans and securities as
well as for the possible expansion of its facilities and
operations through marketing, business development, or
acquisitions of other financial institutions, branch offices
or other financial services companies, although the Holding
Company and the Bank have no current arrangements,
understandings or agreements regarding any such
transactions.
Dividend Policy... Upon Conversion, the Board of Directors of the Holding
Company will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory
requirements. In the future, the Board of Directors of the
Holding Company may consider a policy of paying cash
dividends on the Common Stock. However, no decision has been
made with respect to such dividends, if any. See "Dividend
Policy."
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<PAGE>
Benefits of
the Conversion
to Management... Among the benefits to the Bank and the Holding Company
anticipated from the Conversion is the ability to attract
and retain personnel through the use of stock options and
other stock related benefit programs. Subsequent to the
Conversion, the Holding Company intends to adopt a
Recognition and Retention Plan and a Stock Option and
Incentive Plan for the benefit of directors, officers and
employees. If such benefit plans are adopted within one year
after the Conversion, such plans will be subject to
stockholders' approval at a meeting of stockholders which
may not be held earlier than six months after the
Conversion. The Holding Company intends to adopt a
Recognition and Retention Plan (the "RRP") which would
provide for the granting of Common Stock to officers,
directors and employees of the Bank and Company in an amount
equal to 4% of the Common Stock issued in the Conversion,
including shares issued to the Foundation. The Holding
Company also intends to adopt a stock option and incentive
plan (the "Stock Option Plan") which would provide the
Holding Company with the ability to grant options to
officers, directors and employees of the Bank and Holding
Company to purchase Common Stock equal to 10% of the number
of shares of Common Stock issued in the Conversion,
including shares issued to the Foundation. Additionally,
certain officers of the Holding Company and the Bank will be
provided with employment agreements or change in control
agreements which provide such officers with employment
rights and/or payments upon their termination of service
following a change in control. For a further description of
the RRP and Stock Option Plan as well as the employment
contracts and change in control agreements, see "Risk
Factors" and "Management of the Bank- Benefit Plans." See
"Management of the Bank- Proposed Purchases by Executive
Officers and Trustees," "The Conversion - Establishment of
The Hudson River Bank and Trust Company Foundation" and
"Restrictions on Acquisition of the Company and the Bank
-Restrictions in the Company's Certificate of Incorporation
and Bylaws."
Voting Control
of Officers
and Directors... Trustees and executive officers of the Bank and the Company
expect to purchase approximately 2.36% or 1.52% of shares of
Common Stock outstanding, based upon the minimum and the
maximum of the Estimated Valuation Range including shares
issued to the Foundation, respectively. Additionally,
assuming the implementation of the ESOP, RRP and Stock
Option Plan, trustees, executive officers and employees have
the potential to control the voting of approximately 24.36%
or 23.52% of the Common Stock at the minimum and the maximum
of the Estimated Valuation Range, including shares issued to
the Foundation, respectively. Additionally, the Foundation
will hold Common Stock in an amount equal to 3% of the
Common Stock sold in the Conversion, which such shares of
Common Stock may be voted as directed by the Board of
Directors of the Foundation, who will initially consist of
four Directors of the Company and the Bank. See "The
Conversion -Establishment of Charitable Foundation,"
"Management of the Bank- Subscriptions of Executive
Officers, Directors and Trustees," and "Restrictions on
Acquisition of the Company and the Bank -Restrictions in the
Company's Certificate of Incorporation and Bylaws."
Expiration Date
for the
Subscription
Offering....... The Expiration Date for the Subscription Offering is 12:00
noon
8
<PAGE>
Eastern time on _______________, 1998 unless extended by the
Bank and the Holding Company. See "The Conversion
-Subscription Offering and Subscription Rights."
Market for
Common Stock.... As a mutual institution, the Bank has never issued capital
stock and, consequently, there is no existing market for the
Common Stock. The Holding Company has applied to have its
Common Stock quoted on the Nasdaq National Market under the
symbol "____" subject to the completion of the Conversion
and compliance with certain conditions, including the
presence of at least three registered and active market
makers. See "Market for the Common Stock."
No Board
Recommendations.. The Bank's Board of Trustees and the Holding Company's Board
of Directors are not making any recommendations to
depositors or other potential investors regarding whether
such persons should purchase the Common Stock. An investment
in the Common Stock must be made pursuant to each investor's
evaluation of his or her best interests.
Conversion Center.. If you have any questions regarding Conversion, call the
Conversion Center at (518) _________.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are selected consolidated financial and other data of
the Bank. The financial data is derived in part from, and should be read in
conjunction with the Consolidated Financial Statements and Notes of the Bank
presented elsewhere in this Prospectus.
In the opinion of management, the unaudited consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial condition and results of
operations of HCSI as of December 31, 1997 and for the nine month periods ended
December 31, 1997 and 1996. Interim results for the nine months ended December
31, 1997 are not necessarily indicative of the results that may be expected for
the year ended March 31, 1998.
<TABLE>
<CAPTION>
At At March 31,
December 31, -----------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Selected Financial Data:
<S> <C> <C> <C> <C> <C> <C>
Total assets ......................................... $665,051 $651,034 $623,220 $576,111 $553,818 $515,184
Loans receivable, net ................................ 505,142 487,147 447,125 435,688 406,072 387,806
Securities available for sale, at fair value:
U.S. Government and Agency securities .............. 36,943 37,329 33,452 2,937 -- --
Corporate debt securities .......................... 6,339 8,294 17,977 6,926 14,337 --
Investment securities, at amortized cost:
U.S. Government and Agency securities .............. 19,974 17,960 13,957 14,937 13,964 5,961
Corporate debt securities .......................... 46,743 57,648 63,557 69,238 59,611 76,632
Mortgage-backed securities ......................... 4,517 3,050 4,221 2,591 3,147 4,476
State, county and municipal ........................ 10 410 1,268 2,820 1,955 2,456
Federal Home Loan Bank of New York stock ............. 2,812 2,812 2,596 2,569 -- --
Deposits ............................................. 586,231 564,599 555,188 514,451 498,677 465,353
Short-term borrowings ................................ 2,000 12,585 -- -- -- --
Total equity ......................................... 67,395 65,129 59,606 52,138 46,350 40,177
Full service offices ................................. 12 11 11 9 7 7
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended December 31, Years Ended March 31,
------------------ ----------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Summary of Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income ........................ $ 41,453 $ 39,373 $ 52,881 $ 49,082 $ 43,059 $ 40,649 $ 41,152
Interest expense .................................... 19,540 19,091 25,426 24,086 19,309 18,157 20,814
-------- -------- -------- -------- -------- -------- --------
Net interest income ............................... 21,913 20,282 27,455 24,996 23,750 22,492 20,338
Provision for loan losses ........................... 6,408 1,858 3,826 1,090 1,169 1,201 2,543
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
loan losses ..................................... 15,505 18,424 23,629 23,906 22,581 21,291 17,795
-------- -------- -------- -------- -------- -------- --------
Other operating income:
Service charges on deposit accounts ............... 840 815 1,063 1,026 1,033 921 928
Loan servicing income ............................. 353 402 480 272 265 281 193
Net securities transactions ....................... 12 28 28 28 (16) 597 449
Net gain (loss) on sale of loans .................. 39 (5) 17 92 14 326 964
Other income ...................................... 646 121 237 217 236 1,396 546
-------- -------- -------- -------- -------- -------- --------
Total other operating income .................... 1,890 1,361 1,825 1,635 1,532 3,521 3,080
-------- -------- -------- -------- -------- -------- --------
Other operating expenses:
Compensation and benefits ......................... 6,985 6,436 8,592 7,471 6,840 6,381 5,843
Occupancy ......................................... 993 916 1,285 1,184 1,162 1,086 1,047
Equipment ......................................... 1,232 860 1,230 1,057 1,194 1,219 1,092
OREO and repossessed property
expenses ........................................ 274 190 292 348 851 441 365
Other expenses .................................... 4,704 3,356 4,788 4,139 5,176 5,325 4,364
-------- -------- -------- -------- -------- -------- --------
Total other operating expenses ................. 14,188 11,758 16,187 14,199 15,223 14,452 12,711
-------- -------- -------- -------- -------- -------- --------
Income before income tax expense .............. 3,207 8,027 9,267 11,342 8,890 10,360 8,164
Income tax expense ................................. 1,321 3,142 3,607 4,298 2,917 4,169 3,571
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of
accounting changes ............................... 1,886 4,885 5,660 7,044 5,973 6,191 4,593
Cumulative effect of change in accounting
for taxes ......................................... -- -- -- -- -- -- 815
-------- -------- -------- -------- -------- -------- --------
Net income .......................................... $ 1,886 $ 4,885 $ 5,660 $ 7,044 $ 5,973 $ 6,191 $ 5,408
======== ======== ======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
At or For the
Nine Months Ended At or For the Year Ended
December 31, March 31,
----------------- -----------------------------------------------
1997(1) 1996(1) 1997 1996 1995 1994 1993
------- ------- ---- ---- ---- ---- ----
Performance Ratios:
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets .................................. 0.38% 1.01% 0.88% 1.18% 1.05% 1.15% 1.07%
Return on average equity .................................. 3.71 10.36 8.94 12.52 12.06 14.17 14.45
Net interest rate spread(2) ............................... 4.05 3.90 3.97 3.89 4.05 4.04 3.95
Net interest margin(3) .................................... 4.62 4.41 4.48 4.38 4.40 4.38 4.24
Yield on average earning assets ........................... 8.75 8.56 8.64 8.59 7.98 7.92 8.59
Rate on average interest-bearing
liabilities ............................................. 4.70 4.66 4.67 4.70 3.93 3.88 4.64
Average earning assets to average
interest-bearing liabilities ............................ 113.97 112.33 112.56 111.48 109.72 109.55 106.91
Efficiency ratio(4) ....................................... 58.48 53.52 54.34 52.07 56.81 55.13 53.75
Expense ratio(5) .......................................... 2.80 2.40 2.48 2.32 2.54 2.60 2.44
Asset Quality Ratios:
Non-performing loans to total loans ....................... 3.20 3.10 4.06 2.42 1.67 2.25 2.41
Allowance for loan losses to non-performing loans ......... 41.24 28.19 29.37 32.57 43.36 31.67 21.28
Allowance for loan losses to total loans .................. 1.32 0.87 1.19 0.79 0.73 0.71 0.51
Non-performing assets to total assets ..................... 2.62 2.85 3.60 2.02 1.50 2.12 2.07
Capital Ratios:
Equity to total assets .................................... 10.13 10.00 10.00 9.56 9.05 8.37 7.80
Average equity to average total assets .................... 10.21 9.78 9.88 9.42 8.74 8.11 7.41
</TABLE>
- ---------
(1) Ratios for the nine month periods are stated on an annualized basis. Such
ratios and results are not necessarily indicative of results that may be
expected for the full year.
(2) Net interest rate spread represents the difference between the yield on
average earning assets and the rate on average interest-bearing
liabilities.
(3) Net interest margin represents net interest income as a percentage of
average earning assets.
(4) Total other operating expense, excluding other real estate owned and
repossessed property expense, as a percentage of net interest income and
total other operating income, excluding net securities transactions.
(5) Total other operating expense, excluding other real estate owned and
repossessed property expense, as a percentage of average total assets.
12
<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.
Interest Rate Risk Exposure
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest and dividend
income on earning assets, such as loans and investments, and its interest
expense on interest-bearing liabilities, such as deposits and borrowings.
Changes in the level of interest rates affect the amount of loans originated by
the Bank as well as the market value of the Bank's 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.
In managing its asset/liability mix, the Bank may, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, place 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 Bank will continue to
be significantly vulnerable to changes in interest rates and to decreases in the
difference between long and short term interest rates.
Risks Associated with the Establishment of the Charitable Foundation
Pursuant to the Plan of Conversion, the Holding Company and the Bank
intend to voluntarily establish a charitable foundation in connection with the
Conversion. The Foundation has been incorporated under Delaware law as a
non-stock corporation and will be funded with shares of common stock contributed
by the Holding Company (the "Stock Contribution"). The contribution of common
stock to the foundation will be dilutive to the ownership and voting interests
of stockholders and will have an adverse impact on the earnings of the Holding
Company on a consolidated basis.
Adverse Impact on Earnings. Assuming receipt of approval of the Bank's
members, the Stock Contribution will have an adverse impact on the Holding
Company's earnings. The Holding Company will recognize an expense in the amount
of $4.5 million ($2.7 million net of taxes) in the quarter in which the
Conversion is completed based on the issuance of shares at the maximum of the
Estimated Valuation Range, which is expected to be the first quarter of fiscal
1999. Such expense will reduce earnings and have a material adverse impact on
the Holding Company's earnings in the fiscal quarter and year recorded. The
Holding Company has been advised by its legal counsel that the Stock
Contribution should be tax deductible, subject to a limitation based on 10% of
the Holding Company's annual taxable income. If the Stock Contribution had been
made at December 31, 1997,
13
<PAGE>
the Bank would have reported a net loss of $827 thousand for the nine month
period rather than net income of $1.9 million.
In the future, the Company may make additional contributions to the
Foundation, although the Holding Company has no current plans regarding the
amount or timing of any such future contributions. The amount of future
contributions, if any, will be determined based upon, among other factors, an
assessment of the Holding Company's then current financial position, operations,
and prospects and on the need for charitable activities in the Bank's market
area. Any such contributions, regardless of form, will result in an increase in
other operating expense and thus a reduction in net earnings. In addition, any
contributions of authorized but unissued shares would dilute the interests of
outstanding stockholders. However, the Holding Company currently anticipates
that any future contributions of shares by it to the Foundation will be funded
through shares repurchased in the open market.
Dilution of Stockholder's Interests. The Stock Contribution will
involve the donation of 452,184 shares of the Common Stock, or the sale of such
shares for their aggregate par value $4,522, to the Foundation. Upon completion
of the Conversion and the Stock Contribution, the Holding Company will have
15,525,000 shares issued and outstanding at the maximum of the Estimated
Valuation Range, of which the Foundation will own 452,184 shares, or 2.9%. As a
result, persons purchasing shares in the Conversion will have their share
ownership and voting interest in the Holding Company diluted by 2.9%. See "Pro
Forma Data."
Possible Nondeductibility of the Stock Contribution. It is expected
that the Internal Revenue Service ("IRS") will rule that the Foundation is
exempt from federal income tax under Section 501(a) of the Code as an
organization described in Section 501(c)(3) of the Code. As such, the Holding
Company will be entitled to a deduction in the amount of the Stock Contribution,
subject to an annual limitation based on 10% of the Holding Company's annual
taxable income. The Holding Company, however, would be able to carry forward any
unused portion of the deduction for five years following the Stock Contribution
for Federal and New York tax purposes. Based on present information, the Holding
Company currently estimates that the Stock Contribution should be fully
deductible for federal tax and New York purposes. However, no assurances can be
made that the Holding Company will have sufficient pre-tax income over the
five-year period following the year in which the Stock Contribution is made to
utilize fully the carryover related to the excess contribution.
Potential Change in Valuation and Capital if the Stock Contribution is
Not Made. The Stock Contribution was taken into account by RP Financial in
determining the estimated pro forma market value of the Holding Company. The
aggregate price of the shares of Common Stock being offered in the Offering is
based upon the Appraisal. The pro forma aggregate price of the shares being
offered for sale in the Conversion is currently estimated to be between $111.4
million and $150.7 million, with a midpoint of $131.1 million.
If the Stock Contribution is not part of the Conversion, the Estimated
Valuation Range of the shares being offered is estimated to be between $119.0
million and $161.0 million. This represents an increase of $8.9 million at the
midpoint of the Estimated Valuation Range. In such event the
14
<PAGE>
estimated pro forma stockholders' equity of the Holding Company would be
approximately $188.0 million at the midpoint based on a pro forma price to book
ratio of 74.5% and a pro forma price to earnings ratio of 25.26x. See
"Comparison of Valuation and Pro Forma Information with No Stock Contribution."
The decrease in the amount of Common Stock being offered for sale as a
result of the Stock Contribution will not have a significant effect on the
Holding Company's or the Bank's capital position. The Bank's regulatory capital
is significantly in excess of its regulatory capital requirements and will
further exceed such requirements following the Conversion. See "Comparison of
Valuation and Pro Forma Information with No Stock Contribution."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation would own 2.9% of the Holding Company's outstanding shares. Such
shares will be owned solely by the Foundation; however pursuant to the terms of
the Stock Contribution as mandated by the FDIC and the Superintendent, the
shares of Holding Company Common Stock must be voted in the same proportion as
all other shares of Holding Company Common Stock on all proposals considered by
the Holding Company's stockholders. See "The Conversion -- Stock Contribution to
Charitable Foundation -- Regulatory Conditions Imposed on the Foundation." In
the event that the FDIC and the Superintendent were to waive this voting
restriction, the Foundation's Board of Directors would exercise sole voting
power over such shares and would no longer be subject to the voting restriction.
However, the FDIC and the Superintendent could impose additional conditions at
that time on the composition of the Board of the Foundation or which otherwise
relate to control of the Common Stock of the Holding Company held by the
Foundation. See "The Conversion -- the Stock Contribution to the Charitable
Foundation -- Regulatory Conditions Imposed on the Foundation." If a waiver of
the voting restriction were granted by the FDIC and the Superintendent and no
further conditions were imposed on the Foundation at that time, management of
the Holding Company and the Bank could benefit to the extent that the Board of
Directors of the Foundation determines to vote the shares of Common Stock held
by the Foundation in favor of proposals supported by the Holding Company and the
Bank. Furthermore, when the Foundation's shares are combined with shares
purchased directly by executive officers and directors of the Holding Company,
shares issued pursuant to proposed stock benefit plans, and shares held in the
Bank's ESOP, the aggregate of such shares could exceed 20% of the Holding
Company's outstanding Common Stock, which could enable management to defeat
stockholder proposals requiring 80% approval. Consequently, this potential
voting control might preclude takeover attempts that other stockholders deem to
be in their best interest, and might tend to perpetuate management. Since the
ESOP shares are allocated to eligible employees of the Bank, and any unallocated
shares will be voted by an independent trustee, and because awards under the
proposed stock benefit plans may be granted to employees other than executive
officers and directors, management of the Holding Company does not expect to
have voting control of all shares held or to be allocated by the ESOP or other
stock benefit plans. See, "-- Certain Anti-Takeover Provisions Which May
Discourage Takeover Attempts -- Voting Control of Officers and Directors."
There are no agreements or understandings, written or tacit, with
respect to the exercise of either direct or indirect control over the management
or policies of the Holding Company by the Foundation, including agreements
related to voting, acquisition or disposition of the Holding
15
<PAGE>
Company's Common Stock. Finally, as the Foundation sells its shares of Common
Stock over time, its ownership interest and voting power in the Holding Company
is expected to decrease.
Potential Challenges. The funding of a charitable foundation as part of
a conversion is innovative and has occurred on only a few other occasions. As
such, the Stock Contribution may be subject to potential challenges
notwithstanding that the Board of Directors of the Holding Company and the Board
of Trustees of the Bank have carefully considered the various factors involved
in the establishment of the Foundation in reaching their determination to make
the Stock Contribution as part of the Conversion. See "The
Conversion-Establishment of the Hudson River Bank and Trust Company Foundation.
Source of Manufactured Home Loan Applications
The largest component of the Bank's consumer loan portfolio is
manufactured home loans. At December 31, 1997 the Bank has $98.3 million in
manufactured home loans, representing 19.2% of the Bank's total loan portfolio.
Substantially all of the manufactured home loans originated by the Bank are
referred to it by Tammac Corporation ("Tammac"), an unaffiliated corporation
which is a party to an agreement with the Bank to solicit manufactured home
loans on behalf of the Bank in return for a fixed percentage of the loan amount.
If Tammac were unable to perform its obligations under the agreement and the
Bank were unable to secure a comparable source of manufactured home loan
applications, originations of manufactured home loans could decline
substantially. In addition, because Tammac provides certain collection,
repossession and liquidation services for delinquent manufactured home loans,
termination of the agreement with Tammac could adversely affect the Bank. The
Bank currently has no reason to believe that Tammac will fail to perform its
obligations under the agreement.
Risks Associated with Non-Residential Lending Activity
The Bank has emphasized the origination of non-residential loans. At
December 31, 1997, the Bank's loan portfolio included $98.3 million (19.2%) of
manufactured home loans, $23.4 million (4.6%) of financed insurance premiums,
$12.1 million (2.4%) of other consumer loans, $73.9 million (14.4%) of
commercial real estate loans and $13.9 million (2.7%) of commercial business
loans.
These loans generally are considered to involve a higher degree of risk
than single-family residential loans due to a variety of factors. See "Business
- - Commercial Real Estate Lending and Consumer Lending." At December 31, 1997, of
the $16.4 million of the Bank's non-performing loans, $4.9 million related to
residential non-performing real estate loans and $11.5 million related to other
non-performing loans. See "Business - Non-Performing Assets."
Competition
HCSI 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 credit unions,
mortgage banks, commercial banks, mutual funds and, national and local
securities firms. Due to their size, many competitors can achieve certain
economies of scale and as
16
<PAGE>
a result offer a broader range of products and services than the Bank. The Bank
attempts to mitigate the effect of such factors by emphasizing customer service
and community outreach. Such competition may limit HCSI's growth in the future.
See "Business - Competition."
Takeover Defensive Provisions
Holding Company and Bank Governing Instruments. Certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws and the Bank's
Restated Organization Certificate and Bylaws assist the Holding Company and the
Bank in 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. 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."
Provisions in Management Contracts and Benefit Plans. Certain
provisions contained in the proposed management contracts and benefit plans that
provide for cash payments or the vesting of benefits upon a change of control of
the Holding Company or the Bank may have an anti-takeover effect and could
discourage an acquisition of the Holding Company. See "Management of the Bank -
Employment 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 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, respectively, and
assuming the use of authorized but unissued shares, the interest of stockholders
will be diluted by up to 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,
grants under the proposed RRP will result in the recording of compensation
expense over the vesting period. See "Pro Forma Data."
17
<PAGE>
Voting Control of Directors and Executive Officers. The trustees and
executive officers (12 persons) of the Bank are anticipated to purchase an
aggregate of approximately $2,708,000 million or approximately 2.36% of the
shares offered in the Conversion at the minimum of the Estimated Valuation
Range, or 1.52% of the shares offered in the Conversion at the maximum of the
Estimated Valuation Range, exclusive of shares that may be attributable to
directors and officers through the RRP, the Stock Option Plan and the ESOP,
which may give directors, executive officers and employees the potential to
control the voting of additional Common Stock and including shares issued to the
Foundation. In addition, in connection with the Conversion, the Foundation will
receive 452,184 shares of Common Stock at the maximum of the Estimated Valuation
Range which, if a waiver of the voting restriction imposed on such Common Stock
is obtained from the FDIC and the Superintendent, may be voted as determined by
the Board of Directors of the Foundation who will initially consist of four
Directors of the Holding Company and the Bank. Management's voting control
could, together with additional stockholder support, defeat stockholder
proposals requiring 80% approval of stockholders. As a result, this voting
control may preclude takeover attempts that certain stockholders deem to be in
their best interest and tend to perpetuate existing management. See
"Restrictions on Acquisition of the Holding Company and the Bank--Restrictions
in the Holding Company's Certificate of Incorporation and Bylaws."
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 - 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 of the Bank -
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 of the Bank - 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, SOP 93-6 would increase compensation
expense relating to the ESOP to be established in connection with the
Conversion. It is not possible to determine at this time the extent of such
impact on future net income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Impact of New Accounting
Standards" and "Pro Forma Data."
In addition, the Company will experience additional expense in the
quarter in which the Conversion is completed as a result of the Stock
Contribution. See "The Conversion--Stock Contribution to the Charitable
Foundation."
18
<PAGE>
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock and, consequently, there is no established market for the Common
Stock at this time. The Holding Company has received approval to have its Common
Stock quoted on the Nasdaq National Market under the symbol "____" conditioned
on the consummation of the Conversion. A public trading market having the
desirable characteristics of depth, liquidity and orderliness depends upon the
existence of willing buyers and sellers at any given time, the presence of which
is dependent upon the individual decisions of buyers and sellers over which
neither the Holding Company nor any market maker has control. Accordingly, there
can be no assurance that an active and liquid trading market for the Common
Stock will develop or that, if developed, will continue, nor is there any
assurance that purchasers of the Common Stock will be able to sell their shares
at or above the Purchase Price. In the event a liquid market for the Common
Stock does not develop or market makers for the Common Stock discontinue their
activities, such occurrences may have an adverse impact on the liquidity of the
Common Stock and the market value of the Common Stock. See "Market for Common
Stock."
HUDSON RIVER BANCORP, INC.
The Holding Company was formed at the direction of HCSI in February
1998 for the purpose of becoming a savings and loan holding company and owning
all of the outstanding stock of the Bank 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 HCSI. The holding company structure will, however, provide
the Holding Company with greater flexibility than the Bank 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 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 HCSI, 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 HCSI, 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."
19
<PAGE>
The executive office of the Holding Company is located at 1 Hudson City
Centre, Hudson, New York 12534. Its telephone number at that address is (518)
828-4600.
THE HUDSON CITY SAVINGS INSTITUTION
HCSI serves the financial needs of communities in its market area
through its main office and 11 other full service branch offices located
throughout HCSI's primary market area. Its deposits are insured up to applicable
limits by the Federal Deposit Insurance Corporation ("FDIC"). At December 31,
1997, HCSI had total assets of $665.1 million, deposits of $586.2 million and
total equity of $67.4 million (or 10.1% of total assets).
HCSI has been, and intends to continue to be, an independent, community
oriented financial institution. HCSI'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 including
home equity loans, and to a lesser extent, manufactured home loans, financed
insurance premiums and other consumer loans, commercial real estate,
construction and commercial business loans. HCSI originates its loans in the
Bank's primary market area, with the exception of manufactured home loans, which
are primarily originated outside of the Bank's primary market area including
states contiguous with New York, and financed insurance premiums, which are
originated primarily in New York, New Jersey and Pennsylvania. At December 31,
1997, $250.6 million, or 49.0%, of the Bank's total loan portfolio consisted of
residential one- to four-family mortgage loans. See "Business - Lending
Activities." The Bank also invests in government agency and corporate debt
securities and other permissible investments. See "Business - Investment
Activities - Securities."
The executive office of the Bank is located at 1 Hudson City Centre,
Hudson, New York 12534. Its telephone number at that address is (518) 828-4600.
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 $109.1 million and $148.0
million (or up to $170.3 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 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 HCSI issued in the
Conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Holding Company's Common Stock to HCSI. On an
interim basis, the proceeds will be invested by the Holding Company and HCSI in
short-term investments similar to those currently in the Bank's portfolio. 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 $9.2 million (based upon the sale
20
<PAGE>
of shares at the minimum of the Estimated Valuation Range) to $12.4 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 Bank over a ten-year period.
The net proceeds received by HCSI will become part of HCSI's general
funds for use in its business and will be used to support the Bank's existing
operations, subject to applicable regulatory restrictions. Immediately upon the
completion of the Conversion, it is anticipated that the Bank will invest such
proceeds into short-term assets. Subsequently, the Bank intends to redirect the
net proceeds to the origination of loans, subject to 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
securities similar to those already held by the Bank, as well as in deposit
accounts with the Bank. 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 $4.6 million (based upon the sale of shares at
the minimum of the Estimated Valuation Range and including shares issued to the
Foundation) to approximately $6.2 million (based upon the sale of shares at the
maximum of the Estimated Valuation Range and including shares issued to the
Foundation). 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."
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 applicable
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 Bank's investment opportunities and capital needs.
The Bank may use a portion of the proceeds to fund the creation of one
or more new branch offices within its primary market area, although the Bank has
no specific plans regarding any new branch offices at the time. In addition, the
Holding Company or HCSI might consider expansion through the acquisition of
other financial services providers (or branches, deposits or assets thereof),
although there are no specific plans, negotiations or written or oral agreements
regarding any acquisitions at this time.
21
<PAGE>
DIVIDENDS
The Holding Company currently has no plans to pay dividends. However,
the Holding Company's Board of Directors may consider a policy of paying
dividends in the future. 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 Bank's regulatory capital requirements, tax considerations, industry
standards, economic conditions, regulatory restrictions, general business
practices and other factors.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of HCSI 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 $109.1 million to $148.0 million based on the minimum and the maximum of
the Estimated Valuation Range, respectively) and dividends from HCSI, 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 HCSI to pay dividends to the Holding Company. See
"Description of Capital Stock - Holding Company Capital Stock Dividends." HCSI,
like all savings associations regulated by the FDIC, 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 Bank - Liquidation Rights in Proposed
Converted Institution" and "Regulation - Regulatory Capital Requirements" and "-
Limitations on Dividends and Other Capital Distributions." Earnings allocated to
HCSI's "excess" bad debt reserves and deducted for federal income tax purposes
cannot be used by HCSI to pay cash dividends to the Holding Company without
adverse tax consequences. See "Regulation - Taxation."
MARKET FOR COMMON STOCK
HCSI, as a mutual savings bank, and the Holding Company, as a newly
organized company, have never issued capital stock. Consequently, there is not
at this time an existing market for the Common Stock. The Holding Company has
applied for listing of the Common Stock on the Nasdaq Stock Market under the
symbol "____" upon completion of the Conversion. In order to be quoted on the
Nasdaq Stock Market, among other criteria, there must be at least three market
makers for the Common Stock. Sandler O'Neill has agreed to act as a market maker
for the Holding Company's Common Stock following the Conversion, and assist in
securing additional market makers to do the same. A public trading 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. Accordingly, there can be no assurance that an active
and liquid market for the Common Stock will develop or be maintained or that
resales of the Common Stock can be made at or above the Purchase Price. See "The
Conversion - Stock Pricing and Number of Shares to be Issued."
22
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
At December 31, 1997, the Bank exceeded all regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with
regulatory capital standards as of December 31, 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 December 31, 1997
-------------------------------------------------------------------------------------------
17,333,738 Shares
11,140,777 Shares 13,106,796 Shares 15,072,815 Shares Sold at 15%
Historical Sold at Minimum Sold at Midpoint Sold at Maximum Above 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(1)........ $67,395 10.13% $108,166 15.32% $115,458 16.19% $122,750 17.04% $131,135 17.99%
======= ====== ======== ====== ======== ====== ======== ====== ======== ======
Leverage Capital(2):
Capital level(3)..... $66,753 10.08% $107,524 15.29% $114,816 16.16% $122,108 17.01% $130,493 17.97%
Requirement(4)....... 26,495 4.00% 28,126 4.00% 28,417 4.00% 28,709 4.00% 29,044 4.00%
-------- ------ ------- ------ -------- ------ -------- ------ -------- ------
Excess............... $40,258 6.08% $79,398 11.29% $86,399 12.16% $93,399 13.01% $101,449 13.97%
======= ====== ======= ====== ======= ====== ======== ====== ======== ======
Risk-Based Capital(2):
Capital level(3)(5).. $72,672 15.38% $113,443 23.01% $120,735 24.31% $128,027 25.59% $136,412 27.04%
Requirement(4)....... 37,812 8.00% 39,443 8.00% 39,735 8.00% 40,027 8.00% 40,362 8.00%
-------- ------ ------- ------ -------- ----- -------- ------ -------- ------
Excess............... $34,860 7.38% $74,000 15.01% $81,000 16.31% $ 88,000 17.59% $96,050 19.04%
======= ====== ======= ====== ======= ===== ======== ====== ======== ======
</TABLE>
- ----------
(1) Total equity as calculated under generally accepted accounting principles
("GAAP") expressed as a percent of total assets under GAAP.
(2) Leverage capital levels are shown as a percentage of "total assets," and
risk-based capital levels are calculated on the basis of a percentage of
"risk-weighted assets," each as defined in the FDIC regulations.
(3) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range. These
levels assume funding by the Bank of the RRP equal to 4% of the Common
Stock issued, including shares issued to the Foundation, and repayment of
the Holding Company's loan to the ESOP to enable the ESOP to purchase 8% of
the Common Stock issued, including shares issued to the Foundation, valued
at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range.
(4) The current leverage capital requirement is 3% of total adjusted assets for
savings banks that receive the highest supervisory ratings for safety and
soundness and that are not experiencing or anticipating significant growth.
The current leverage capital ratio applicable to all other savings banks is
4% to 5%. See "Regulation--Capital Requirements."
(5) Assumes the net proceeds are invested in assets that carry a risk-weighting
of 50%.
23
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits and
short-term borrowings, of HCSI as of December 31, 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
--------------------------------------------------
15% Above
HCSI Minimum Midpoint Maximum Maximum
Existing 11,140,777 13,106,796 15,072,815 17,333,738
Capitalization Shares Shares Shares Shares
-------------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits............................................. $ 586,231 $ 586,231 $ 586,231 $ 586,231 $ 586,231
========= ========= ========= ========= =========
Total deposits and short-term borrowings(1).......... $ 588,231 $ 588,231 $ 588,231 $ 588,231 $ 588,231
========= ========= ========= ========= =========
Stockholders' Equity:
Preferred Stock ($0.01)............................ $ -- $ -- $ -- $ -- $ --
Common Stock ($0.01)(2)............................ -- 115 135 155 179
Additional Paid-in Capital
(includes expenses and commissions)............... -- 112,309 132,322 152,336 175,351
Surplus and undivided profits, substantially
restricted(3)..................................... 67,363 67,363 67,363 67,363 67,363
Net unrealized gain on securities available
for sale, net of tax.............................. 32 32 32 32 32
Less:
Expense of contribution to Foundation(6)........... -- (3,342) (3,932) (4,522) (5,200)
Plus:
Tax effect of contribution to Foundation(4)........ -- 1,337 1,573 1,809 2,080
Less:
Common Stock acquired by ESOP(5) .................. -- (9,180) (10,800) (12,420) (14,283)
Common Stock acquired by RRP(5) ................... -- (4,590) (5,400) (6,210) (7,142)
--------- --------- --------- --------- ---------
Total Stockholders' Equity(6) ....................... $ 67,395 $ 164,043 $ 181,293 $ 198,543 $ 218,380
========= ========= ========= ========= =========
</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 and includes shares issued to
the Foundation.
(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 of
the Bank" regarding the liquidation account to be established upon
Conversion.
(4) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 40% tax rate. The realization of the tax benefit is
limited annually to 10% of the Holding Company's annual taxable income,
subject to the ability of the Holding Company to carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made.
(5) Assumes that 8% of the shares sold in the Conversion, including shares
issued to the Foundation, will be purchased by the ESOP. The funds used to
acquire the ESOP shares will be borrowed from the Holding Company. The Bank
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, including shares issued to the Foundation, will be acquired by
the RRP, following stockholder 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 of the Bank - Benefit Plans - Employee Stock
Ownership Plan" and "- Recognition and Retention Plan."
(6) If the Stock Contribution is approved by the Bank's members, the amount of
initial contribution will be accrued as an expense in the fiscal quarter in
which the conversion is completed. See "The Conversion--Stock Contribution
to the Charitable Foundation."
24
<PAGE>
PRO FORMA DATA
The following table sets forth the historical net income and equity
data of HCSI at and for the nine months ended December 31, 1997 and the fiscal
year ended March 31, 1997, and after giving effect to the Conversion, the pro
forma net income, capital stock and stockholders' equity and per share data of
the Holding Company at and for the nine months ended December 31, 1997 and the
fiscal year ended March 31, 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 periods and yielded net proceeds to the Holding
Company as indicated, (ii) 3% of the shares were donated to the Foundation upon
the completion of the Conversion, (iii) 50% of such net proceeds were retained
by the Holding Company and the remainder were used to purchase all of the stock
of HCSI, and (iv) such net proceeds, less the amount of the ESOP and RRP
funding, were invested by the Bank and Holding Company at the beginning of the
periods to yield a pre-tax return of 5.476% and 5.997% for the nine months ended
December 31, 1997 and for the fiscal year ended March 31, 1997, respectively.
The after-tax rate of return is 3.286% and 3.598%, respectively, assuming a
combined federal and state income tax rate of 40%. The assumed return is based
upon the market yield rate of one-year U.S. Government Treasury Securities as of
the end of the periods indicated. The use of this rate is viewed to be more
relevant than the use of an arithmetic average of the weighted average yield
earned by the Bank on its earning assets and the weighted average rate paid on
its interest-bearing liabilities during such periods. In calculating the
underwriting fees to be paid as part of the Offering, the table assumes that (i)
no commission was paid on $2.7 million of shares sold to directors, officers and
employees, and (ii) the remaining shares were sold at a 1.10% commission. (These
assumptions represent management's estimate as to the distribution of stock
orders in the Conversion. However, there can be no assurance that such estimate
will be accurate and that a greater proportion of shares will not be sold at a
higher commission, thus increasing offering expenses.) Fixed expenses are
estimated to be $1,130,558. Actual Conversion expenses may be more or less than
those estimated because the fees paid to Sandler O'Neill and other brokers will
depend upon the categories of purchasers, the Purchase Price and market
conditions and other factors. The pro forma net income amounts derived from the
assumptions set forth herein should not be considered indicative of the actual
results of operations of the Holding 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 $111,407,770 (the minimum of the Estimated Valuation
Range) or more than $173,337,380 (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."
25
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended December 31, 1997
-----------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
11,140,777 13,106,796 15,072,815 17,333,738
Shares Sold at Shares Sold at Shares Sold at Shares Sold at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds......................................... $111,408 $131,068 $150,728 $173,337
Plus: Shares issued to Foundation(1)................... 3,342 3,932 4,522 5,200
--------- --------- --------- ---------
Pro forma market capitalization........................ $114,750 $135,000 $155,250 $178,537
======== ======== ======== ========
Gross proceeds......................................... $111,408 $131,068 $150,728 $173,337
Less offering expenses and commissions................. (2,326) (2,543) (2,759) (3,007)
----------- ----------- ----------- -----------
Estimated net conversion proceeds..................... $109,082 $128,525 $147,969 $170,330
Less ESOP shares....................................... (9,180) (10,800) (12,420) (14,283)
Less RRP shares........................................ (4,590) (5,400) (6,210) (7,142)
----------- ----------- ----------- -----------
Estimated proceeds available for investment(2)........ $95,312 $112,325 $129,339 $148,905
======= ======== ======== ========
Net Income:
Historical........................................... $1,886 $1,886 $1,886 $1,886
Pro Forma Adjustments:
Net earnings from proceeds(3)....................... $2,349 $2,768 $3,187 $3,669
ESOP(4)............................................. ($413) ($486) ($559) ($643)
RRP(5).............................................. ($413) ($486) ($559) ($643)
---------- ---------- ---------- ----------
Pro forma net income(5)........................... $3,409 $3,682 $3,955 $4,269
====== ====== ====== ======
Net Income Per Share:
Historical(7)...................................... $0.18 $0.15 $0.13 $0.11
Pro forma Adjustments:
Net earnings from proceeds........................ $0.22 $0.22 $0.22 $0.22
ESOP(4)........................................... ($0.04) ($0.04) ($0.04) ($0.04)
RRP(5)............................................ ($0.04) ($0.04) ($0.04) ($0.04)
-------- ----------- ----------- -----------
Pro forma net income per share(5)(6).......... $0.32 $0.29 $0.27 $0.25
===== ===== ===== =====
Ratio of offering price to pro forma net income per
share (annualized).............................. 23.38% 25.46% 27.26% 29.04%
Stockholders' Equity (Book Value)(8):
Historical........................................... $67,395 $67,395 $67,395 $67,395
Pro Forma Adjustments:
Estimated net Conversion proceeds.................... $109,082 $128,525 $147,969 $170,330
Plus: Tax benefit of Stock Contribution.............. $1,337 $1,573 $1,809 $2,080
Less: Common stock acquired by:
ESOP(4)............................................. ($9,180) ($10,800) ($12,420) ($14,283)
RRP(5).............................................. ($4,590) ($5,400) ($6,210) ($7,142)
--------- ------------ ------------ ------------
Pro forma stockholder's equity(6)............... $164,044 $181,293 $198,543 $218,380
======== ======== ======== ========
Stockholders' Equity (Book Value)(8):
Per Share(7):
Historical........................................... $5.87 $4.99 $4.34 $3.77
Pro Forma Adjustments:
Estimated net Conversion proceeds.................... $9.51 $9.52 $9.53 $9.54
Plus: Tax benefit of Stock Contribution.............. $0.12 $0.12 $0.12 $0.12
Less: Common stock acquired by:
ESOP(4)............................................. ($0.80) ($0.80) ($0.80) ($0.80)
RRP(5).............................................. ($0.40) ($0.40) ($0.40) ($0.40)
-------- ----------- ----------- -----------
Pro forma book value per share(6)............... $14.30 $13.43 $12.79 $12.23
====== ====== ====== ======
Pro forma offering price per share to book value per
share............................................... 69.95% 74.46% 78.19% 81.76%
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended March 31, 1997
-----------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
11,140,777 13,106,796 15,072,815 17,333,738
Shares Sold at Shares Sold at Shares Sold at Shares Sold at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds......................................... $111,408 $131,068 $150,728 $173,337
Plus: Shares issued to Foundation(1)................... $3,342 $3,392 $4,522 $5,200
-------- -------- -------- --------
Pro forma market capitalization........................ $114,750 $135,000 $155,250 $178,537
======== ======== ======== ========
Gross proceeds......................................... $111,408 $131,068 $150,728 $173,337
Less offering expenses and commissions................. ($2,326) ($2,543) ($2,759) ($3,007)
--------- --------- --------- ---------
Estimated net conversion proceeds..................... $109,082 $128,525 $147,969 $170,330
Less ESOP shares....................................... ($9,180) ($10,800) ($12,420) ($14,283)
Less RRP shares........................................ ($4,590) ($5,400) ($6,210) ($7,142)
--------- --------- --------- ---------
Estimated proceeds available for investment(2)........ $95,312 $112,325 $129,339 $148,905
======= ======== ======== ========
Net Income:
Historical........................................... $5,660 $5,660 $5,660 $5,660
Pro Forma Adjustments: $3,429 $4,042 $4,654 $5,358
Net earnings from proceeds(3).......................
ESOP(4)............................................. ($551) ($648) ($745) ($857)
RRP(5).............................................. ($551) ($648) ($745) ($857)
------- --------- --------- --------
Pro forma net income(5)........................... $7,987 $8,406 $8,824 $9,304
====== ====== ====== ======
Net Income Per Share:
Historical(7)...................................... $0.53 $0.45 $0.39 $0.34
Pro forma Adjustments:
Net earnings from proceeds........................ $0.32 $0.32 $0.32 $0.32
ESOP(4)........................................... ($0.05) ($0.05) ($0.05) ($0.05)
RRP(5)............................................ ($0.05) ($0.05) ($0.05) ($0.05)
-------- -------- -------- --------
Pro forma net income per share(5)(6).......... $0.75 $0.67 $0.61 $0.56
===== ===== ===== =====
Ratio of offering price to pro forma net income per
share........................................... 13.33% 14.90% 16.33% 17.81%
Stockholders' Equity (Book Value)(8):
Historical........................................... $65,129 $65,129 $65,129 $65,129
Pro Forma Adjustments:
Estimated net Conversion proceeds.................... $109,082 $128,525 $147,969 $170,330
Plus: Tax benefit of Stock Contribution.............. $1,337 $1,573 $1,809 $2,080
Less: Common stock acquired by: ($9,180) ($10,800) ($12,420) ($14,283)
ESOP(4).............................................
RRP(5).............................................. ($4,590) ($5,400) ($6,210) ($7,142)
--------- --------- --------- ---------
Pro forma stockholders' equity(6)............... $161,778 $179,027 $196,277 $216,114
======== ======== ======== ========
Stockholders' Equity (Book Value)(8):
Per Share(7):
Historical........................................... $5.68 $4.82 $4.20 $3.65
Pro Forma Adjustments:
Estimated net Conversion proceeds.................... $9.51 $9.52 $9.53 $9.54
Plus: Tax benefit of Stock Contribution.............. $0.12 $0.12 $0.12 $0.12
Less: Common stock acquired by:
ESOP(4)............................................. ($0.80) ($0.80) ($0.80) ($0.80)
RRP(5).............................................. ($0.40) ($0.40) ($0.40) ($0.40)
--------- -------- --------- --------
Pro forma book value per share(6)............... $14.11 $13.26 $12.65 $12.11
======== ======= ======== =======
Pro Forma offering price per share to pro forma book
value per share..................................... 70.93% 75.41% 79.10% 82.61%
</TABLE>
- ------------
(1) The Holding Company intends to contribute shares equal to 3% of the shares
issued in the Conversion to the Foundation within 12 months following the
completion of the Conversion. See "The Conversion--Stock Contribution to
the Charitable Foundation." Since the contributed shares will be donated or
sold for nominal consideration, they will not add to gross proceeds.
However, since such shares are issued and outstanding, they add to the
Holding Company's market capitalization. The amount of the Stock
Contribution will be accrued as an expense in the fiscal quarter in which
the Conversion is completed.
27
<PAGE>
The pro forma net income data does not reflect such non-recurring accrual.
Both the historical and pro forma per share data assume that the Stock
Contribution is made.
(2) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(assuming stockholder ratification is received) which it is assumed will be
funded from the net proceeds retained by the Holding Company.
(3) No effect has been given to withdrawals from deposit 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 Bank, have been deducted from net proceeds.
(4) It is assumed that 8% of the shares of Common Stock sold in the Conversion,
including shares issued to the Foundation, 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 Bank
intends to make contributions to the ESOP in amounts at least equal to the
principal and interest requirement of the debt. The Bank's payment of the
ESOP debt is based upon equal installments of principal and interest over a
10-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 Bank. Accordingly, the only expense to the Holding
Company on a consolidated basis will be related to the allocations of
earned ESOP shares which will be based on the number of shares committed to
be released to participants for the year at the average market value of the
shares during the year tax-effected at 40%. 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. Pursuant to SOP 93-6, only the ESOP shares
committed to be released are considered outstanding for the purposes of the
net income per share calculations.
(5) Adjustments to both book value and net income 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 (assuming stockholder
ratification of such plan is received) of an amount of shares equal to 4%
of the shares of Common Stock sold in the Conversion, including shares
issued to the Foundation, for the benefit of certain directors, officers
and employees. It is assumed that the sale of the shares to the RRP
occurred at the beginning of the period. 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 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. For purposes of calculating
pro forma net income per share, RRP shares are considered to be fully
vested. 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, including shares issued to the
Foundation, 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 nine months ended December 31, 1997 and year
ended March 31, 1997, pro forma net income per share (assuming all RRP
shares are treated as being fully vested) would be $0.32, $0.29, $0.27 and
$0.26 and $0.73, $0.66, $0.60 and $0.55, respectively, and pro forma
stockholders' equity per share would be $14.13, $13.30, $12.68 and $12.15
and $13.94, $13.14, $12.54 and $12.02, respectively, in each case at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range.
(6) 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, including shares issued to the Foundation, at $10.00 per share,
the interests of existing stockholders would be diluted as follows: pro
forma net income per share for the nine months ended December 31, 1997 and
the year ended March 31, 1997 would be $0.31, $0.29, $0.27 and $0.26 and
$0.71, $0.64, $0.59 and $0.54, respectively, and pro forma stockholders'
equity per share would be $13.91, $13.12, $12.54 and $12.03 and $13.73,
$12.96, $12.40 and $11.91, 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 are funded through open market
purchases at the Purchase Price of $10.00 per share, proceeds available for
reinvestment would be reduced by $11,475,000, $13,500,000, $15,525,000 and
$17,853,000 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range. See "Management - Benefit Plans - Stock
Option and Incentive Plan."
(7) Historical 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. Pursuant to SOP
93-6, only the ESOP shares committed to be released are considered
outstanding for the purposes of the net income per share calculations. All
ESOP shares have been considered outstanding for purposes of computing book
value per share.
(8) "Book value" represents the difference between the stated amounts of the
Bank's assets (generally based on historical cost) 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 Bank'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 Bank" 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.
28
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO
STOCK CONTRIBUTION
In the event that the Stock Contribution to the Foundation is not made,
RP Financial has estimated that the amount of Common Stock offered for sale in
the Conversion would increase by approximately 893,200 and that the overall
market capitalization would increase by $5.0 million, both at the midpoint of
the Estimated Valuation Range as of December 31, 1997. Under such circumstances,
pro forma stockholders' equity of the Holding Company would be approximately
$188.0 million, at the midpoint, which is approximately $6.7 million greater
than the pro forma stockholders' equity of the Holding Company would be if the
Stock Contribution is made. In preparing this estimate, it has been assumed that
the pro forma price to book value ratio and pro forma price to earnings ratio
would be approximately the same under both the current appraisal and the
estimate of the value of the Holding Company without the Stock Contribution at
the midpoint of the Estimated Valuation Range. Further, assuming the midpoint of
the Estimated Valuation Range, pro forma stockholders' equity per share and pro
forma net income per share would be substantially the same with the Stock
Contribution as without the Stock Contribution. In this regard, pro forma
stockholders' equity and pro forma net income per share at and for the period
ended December 31, 1997 would be $13.43 and $0.30 respectively, at the midpoint
of the Estimated Valuation Range, assuming no Stock Contribution, and $13.43 and
$0.29, respectively, with the Stock Contribution. The pro forma price to book
value ratio and the pro forma price to earnings ratio at and for the period
ended December 31, 1997 are 74.49% and 25.26x, respectively, at the midpoint of
the Estimated Valuation Range, assuming no Stock Contribution and are 74.46% and
25.46x, respectively, with the Stock Contribution. There is no assurance that in
the event the Stock Contribution is not made that the appraisal prepared at that
time would conclude that the pro forma market value of the Holding Company would
be the same as that estimated herein.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Estimated Valuation Range, assuming the Conversion
was completed at December 31, 1997.
29
<PAGE>
<TABLE>
<CAPTION>
At the Maximum
At the Minimum At the Midpoint At the Maximum as Adjusted
----------------------- ---------------------- ---------------------- ----------------------
With No With No With No With No
Stock Cont. Stock Cont. Stock Cont. Stock Cont. Stock Cont. Stock Cont. Stock Cont. Stock Cont
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
11,140,777 11,900,000 13,106,796 14,000,000 15,072,816 16,100,000 17,333,738 18,515,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount ......... $111,408 $119,000 $131,068 $140,000 $150,728 $161,000 $173,337 $185,150
Pro forma market capitalization ... $114,750 $119,000 $135,000 $140,000 $155,250 $161,000 $178,537 $185,150
Total assets ...................... $761,699 $767,361 $778,949 $785,610 $796,199 $803,859 $816,036 $824,846
Total liabilities ................. $597,656 $597,656 $597,656 $597,656 $597,656 $597,656 $597,656 $597,656
Pro forma stockholders' equity .... $164,043 $169,705 $181,293 $187,954 $198,543 $206,203 $218,380 $227,190
Pro forma net income(1) ........... $ 3,408 $ 3,550 $ 3,682 $ 3,849 $ 3,955 $ 4,147 $ 4,270 $ 4,491
Pro forma stockholders' equity
per share ........................ $ 14.30 $ 14.26 $ 13.43 $ 13.43 $ 12.79 $ 12.81 $ 12.23 $ 12.27
Pro forma net income
per share(1) .................... $ 0.32 $ 0.32 $ 0.29 $ 0.30 $ 0.28 $ 0.28 $ 0.26 $ 0.26
Pro Forma Pricing Ratios:
Offering price as a percentage
of pro forma stockholders'
equity per share .............. 69.95% 70.12% 74.46% 74.49% 78.19% 78.08% 81.76% 81.50%
Offering price to pro forma
net income per share(1) ....... 23.38x 23.28x 25.46x 25.26x 27.26x 26.96x 29.04x 28.63x
Market capitalication to assets . 15.07% 15.51% 17.33% 17.82% 19.50% 20.03% 21.88% 22.45%
Pro Forma Financial Ratios:
Return on assets(2) ............ 0.60% 0.62% 0.63% 0.65% 0.66% 0.69% 0.70% 0.73%
Return on stockholders'
equity(2) ..................... 2.77% 2.79% 2.71% 2.73% 2.66% 2.68% 2.61% 2.64%
Stockholders' equity to
assets ........................ 21.54% 22.12% 23.27% 23.92% 24.94% 25.65% 26.76% 27.54%
</TABLE>
- -------------
(1) For the nine month period ended December 31, 1997.
(2) Ratios for the nine month periods have been annualized.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Holding Company has only recently been formed and accordingly has no
results of operations at this time. As a result, the following discussion
principally reflects the operations of the Bank and its subsidiaries. The Bank's
primary market area, with 12 full-service branches and one loan production
office, consists of Columbia, Albany and Rensselaer counties in New York and
portions of Dutchess and Schenectady counties in New York. The Bank has been,
and intends to continue to be, a community-oriented financial institution
offering a variety of financial services. The Bank's principal business is
attracting deposits from customers within its market area and investing those
funds, together with funds from operations and, to a much lesser extent,
borrowings, in primarily residential mortgage loans, including home equity
loans, and to a lesser extent, in manufactured home loans, financed insurance
premiums and other consumer loans, commercial real estate, construction loans
and commercial business loans and government and corporate debt securities. See
"Business of the Bank - Lending Activities." The financial condition and
operating results of the Bank are dependent on its net interest income which is
the difference between the interest income earned on its assets, primarily loans
and investments, and the interest expense on its liabilities, primarily deposits
and borrowings. Net income is also affected by other operating income, such as
loan servicing income and fees on deposit related services, other operating
expenses, such as compensation and occupancy expenses, provisions for loan
losses, and Federal and state income taxes.
The Bank's results of operations are significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards and actions of
regulatory agencies. Future changes in applicable laws, regulations or
government policies may have a material impact on the Bank. Lending activities
are substantially influenced by the demand for and supply of housing,
competition among lenders, the level of interest rates and the availability of
funds. The ability to gather deposits and the cost of funds are influenced by
prevailing market interest rates, fees and terms on deposit products, as well as
the availability of alternative investments, including mutual funds and stocks.
MARKET RISK AND ASSET/LIABILITY MANAGEMENT
Interest rate risk is the most significant market risk affecting the
Bank. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of the Bank's
business activities.
Interest rate risk is defined as an exposure to a movement in interest
rates that could have an adverse effect on the Bank's net interest income. Net
interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than earning
assets. When interest-bearing liabilities mature or reprice more quickly than
earning assets in a given period, a significant increase in market rates of
interest could adversely affect net interest
31
<PAGE>
income. Similarly, when earning assets mature or reprice more quickly than
interest-bearing liabilities, falling interest rates could result in a decrease
in net income.
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. Management's asset/liability
committee meets weekly to review the Bank's interest rate risk position and
profitability, and to recommend adjustments for consideration by the Board of
Trustees. Management also reviews loan and deposit pricing, and the Bank's
securities portfolio, formulates investment strategies and oversees the timing
and implementation of transactions. Notwithstanding the Bank's interest rate
risk management activities, the potential for changing interest rates is an
uncertainty that can adversely affect net income.
In adjusting the Bank's asset/liability position, the Board and
management attempt to manage the Bank's interest rate risk while enhancing net
interest margins. At times, depending on the level of general interest rates,
the relationship between long- and short-term interest rates, market conditions
and competitive factors, the Board and management may determine to increase the
Bank's interest rate risk position somewhat in order to increase its net
interest margins. The Bank's results of operations and net portfolio values
remain vulnerable to changes in interest rates and to fluctuations in the
difference between long- and short-term interest rates.
Consistent with the asset/liability management philosophy described
above, the Bank has taken several steps to manage its interest rate risk. First,
the Bank has structured the security portfolio to shorten the maturities of its
earning assets. The Bank's recent purchases of securities have had terms to
maturity of seven years or less. At December 31, 1997, the Bank had securities
with a carrying value of $106.3 million with contractual maturities of five
years or less. Except for approximately $74.5 million of fixed rate products,
the Bank's residential real estate portfolio is composed of either one, three or
five year adjustable rate mortgages or floating-rate home equity loans. The Bank
also manages interest rate risk by emphasizing lower cost, more stable non-time
deposit accounts. In the current low rate environment, longer-term time deposits
are welcomed although not particularly popular with the Bank's customer base.
One approach used to quantify interest rate risk is the net market
value analysis. In essence, this analysis calculates the difference between the
present value of liabilities and the present value of expected cash flows from
assets and off-balance sheet contracts. A second approach is to quantify the
impact on net interest income due to changes in cash flows, interest income and
interest expense resulting from shifts in interest rates. The following tables
set forth, at December 31, 1997, an analysis of the Bank's interest rate risk as
measured by the estimated changes in net market value of its assets and
liabilities and net interest income resulting from instantaneous and sustained
parallel shifts in interest rates (+ or - 200 basis points, measured in 50 basis
point increments).
33
<PAGE>
Net Market Value of Assets and Liabilities
----------------------------------------------------------------
Change in
Interest Rates Net
in Basis Points Market
(Rate Shock) Value $ Change % Change
------------ ----- -------- --------
(Dollars in thousands)
200 89,641 (2,322) (2.52)%
150 90,468 (1,495) (1.63)%
100 91,142 (821) (0.89)%
50 91,636 (327) (0.36)%
0 91,963 0 --
(50) 91,551 (412) (0.45)%
(100) 90,698 (1,265) (1.38)%
(150) 89,938 (2,025) (2.20)%
(200) 89,100 (2,863) (3.11)%
Net Interest Income
----------------------------------------------------------------
Change in
Interest Rates Net
in Basis Points Interest
(Rate Shock) Income $ Change % Change
------------ -------- -------- --------
(Dollars in thousands)
200 26,651 1,111 4.35%
150 26,406 866 3.39%
100 26,136 596 2.33%
50 25,855 315 1.23%
0 25,540 0 --
(50) 25,032 (508) (1.99)%
(100) 24,569 (971) (3.80)%
(150) 24,105 (1,435) (5.62)%
(200) 23,635 (1,905) (7.46)%
Certain assumptions utilized by management in assessing the interest
rate risk of the Bank were employed in preparing data included in the preceding
table. These assumptions relate 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 would 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 Bank's assets and
liabilities would perform as set forth above. In addition, a change in US
Treasury rates in the designated amounts accompanied by a change in the shape of
the Treasury yield curve would cause significantly different changes to the net
market value and net interest income than indicated above.
The Bank does not currently engage in trading activities or use
derivative instruments to manage interest rate risk. Instruments such as
interest rate swaps, caps and floors may be utilized under certain interest rate
risk scenarios in order to manage interest rate risk. Such activities may
33
<PAGE>
be permitted with the approval of the Board of Trustees, and management
continually evaluates the usefulness of such instruments in managing interest
rate risk.
Analysis of Net Interest Income
The following table sets forth the Bank's average consolidated balance
sheets, interest income and expense, average yields and costs, and certain other
information for the periods noted.
34
<PAGE>
The following table presents, for the periods indicated, the total
dollar amount of interest and dividend income from average 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. Management believes that the use of average monthly balances instead
of average daily balances does not have a material effect on the information
presented. Non-accruing loans have been included in the loan balances.
<TABLE>
<CAPTION>
Nine Months Ended December 31, Year Ended March 31,
--------------------------------------------------------------- ---------------------------------
1997 1996 1997
--------------------------------- ---------------------------- ---------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate(1) Balance Paid Rate(1) Balance Paid Rate
------- ---- ------- ------- ---- ------- ------- ---- ----
(Dollars in Thousands)
Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold ............ $ 4,710 $ 202 5.69% $ 2,121 $ 87 5.44% $ 1,638 $ 89 5.43%
Securities available for sale . 39,703 1,960 6.55 55,729 2,879 6.86 53,445 3,658 6.84
Investment securities ......... 72,208 3,565 6.55 84,428 4,063 6.39 83,343 5,385 6.46
Federal Home Loan Bank of
NY stock .................... 2,812 151 7.13 2,565 124 6.42 2,575 164 6.37
Loans receivable .............. 509,634 35,575 9.27 465,883 32,220 9.18 471,295 43,585 9.25
------- ------ ---- ------- ------ ---- ------- ------ ----
Total earning assets ....... 629,067 41,453 8.75 610,726 39,373 8.56 612,296 52,881 8.64
------ ---- ------ ---- ------ ----
Cash and due from banks ....... 11,048 7,602 6,860
Allowance for loan losses ..... (6,953) (3,656) (3,886)
Other non-earning assets ...... 26,945 25,342 25,597
------ ------ ------
Total assets ............. 660,107 640,014 640,867
======= ======= =======
Interest-Bearing Liabilities:
Savings accounts .............. 137,841 3,584 3.45 132,886 3,388 3.38 133,209 4,523 3.40
N.O.W. and money market
accounts .................... 94,247 2,178 3.07 95,046 2,144 2.99 93,972 2,831 3.01
Time deposit accounts ......... 310,499 13,513 5.78 307,259 13,342 5.76 307,757 17,727 5.76
Escrow accounts ............... 5,088 89 2.32 5,198 87 2.22 4,579 106 2.31
Other borrowings .............. 4,266 176 5.48 3,303 130 5.22 4,459 239 5.36
----- --- ---- ----- --- ---- ----- --- ----
Total interest-bearing
liabilities ................ 551,941 19,540 4.70 543,692 19,091 4.66 543,976 25,426 4.67
------ ---- ------ ---- ------ ----
Non-interest-bearing
deposits ...................... 35,638 28,270 27,984
Other non-interest
bearing liabilities .......... 5,106 5,440 5,585
Equity ......................... 67,422 62,612 63,322
------ ------ ------
Total liabilities and
equity ..................... $ 660,107 $640,014 $640,867
========= ======== ========
Net interest income ............ $ 21,913 $ 20,282 27,455
========= ======== ======
Net interest rate spread........ 4.05% 3.90% 3.97%
==== ==== ====
Net interest margin............. 4.62% 4.41% 4.48%
==== ==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended March 31,
-------------------------------------------------------------------
1996 1995
------------------------------- ---------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ----
(Dollars in Thousands)
Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold ............ $4,908 $ 271 5.52% $7,206 $ 344 4.77%
Securities available for sale . 26,889 1,782 6.63 12,307 917 7.45
Investment securities ......... 92,243 6,062 6.57 94,001 6,503 6.92
Federal Home Loan Bank of
NY stock .................... 2,578 187 7.25 2,064 160 7.75
Loans receivable .............. 444,645 40,780 9.17 424,187 35,135 8.28
------- ------ ---- ------- ------ ----
Total earning assets ....... 571,263 49,082 8.59 539,765 43,059 7.98
------ ---- ------ ----
Cash and due from banks ....... 6,386 6,740
Allowance for loan losses ..... (3,304) (2,931)
Other non-earning assets ...... 23,090 22,869
------ ------
Total assets ............. 597,435 566,443
======= =======
Interest-Bearing Liabilities:
Savings accounts .............. 129,281 4,275 3.31 167,284 5,501 3.29
N.O.W. and money market
accounts .................... 93,813 2,932 3.13 97,131 2,769 2.85
Time deposit accounts ......... 283,149 16,713 5.90 219,008 10,796 4.93
Escrow accounts ............... 5,460 124 2.27 6,360 142 2.23
Other borrowings .............. 745 42 5.64 2,145 101 4.71
--- -- ---- ----- --- ----
Total interest-bearing
liabilities ................ 512,448 24,086 4.70 491,928 19,309 3.93
------ ---- ------ ----
Non-interest-bearing
deposits ...................... 24,096 21,021
Other non-interest
bearing liabilities .......... 4,630 3,983
Equity ......................... 56,261 49,511
------ ------
Total liabilities and
equity ..................... $597,435 $566,443
======== ========
Net interest income ............ $24,996 $ 23,750
======= ========
Net interest rate spread....... 3.89% 4.05%
==== ====
Net interest margin............ 4.38% 4.40%
==== ====
</TABLE>
- ------------------------
(1) Annualized
35
<PAGE>
The following schedule presents the dollar amount of changes in
interest and dividend income and interest expense for major components of
earning assets and interest-bearing liabilities. For each category of 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>
Nine Months Ended
December 31, Years Ended March 31, Years Ended March 31,
1997 vs. 1996 1997 vs. 1996 1996 vs. 1995
------------------------------ ------------------------------ ------------------------------
Increase Increase Increase
(Decrease) (Decrease) (Decrease)
Due to Total Due to Total Due to Total
----------------- Increase ------------------ Increase ----------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ---------- ------ ---- ----------
(Dollars in Thousands)
Interest and dividend income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal funds sold ............. $ 111 $ 4 $ 115 $ (178) $ (4) $ (182) $ (121) $ 48 $ (73)
Securities available for
sale ......................... (796) (123) (919) 1,816 60 1,876 977 (112) 865
Investment securities .......... (601) 103 (498) (577) (100) (677) (120) (321) (441)
Federal Home Loan Bank
of NY stock .................. 13 14 27 -- (23) (23) 38 (11) 27
Loans receivable ............... 3,051 304 3,355 2,462 343 2,805 1,751 3,894 5,645
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest and
dividend income ............ 1,778 302 2,080 3,523 276 3,799 2,525 3,498 6,023
------- ------- ------- ------- ------- ------- ------- ------- -------
Interest expense:
Savings accounts ................ 128 68 196 132 116 248 (1,256) 30 (1,226)
N.O.W. and money
market accounts .............. (18) 52 34 5 (106) (101) (97) 260 163
Time deposit accounts ........... 141 30 171 1,425 (411) 1,014 3,535 2,382 5,917
Escrow accounts ................. (2) 4 2 (20) 2 (18) (20) 2 (18)
Other borrowings ................ 39 7 46 199 (2) 197 (76) 17 (59)
------- ------- ------- ------- ------- ------- ------- ------- -------
Total interest expense ....... 288 161 449 1,741 (401) 1,340 2,086 2,691 4,777
------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income ............. $ 1,490 $ 141 $ 1,631 $ 1,782 $ 677 $ 2,459 $ 439 $ 807 $ 1,246
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
36
<PAGE>
OPERATING RESULTS
Comparison of nine months ended December 31, 1997 and nine months ended December
31, 1996
Net income for the nine months ended December 31, 1997 was $1.9
million, down $3.0 million from the $4.9 million earned during the nine months
ended December 31, 1996. This decrease was primarily a result of a higher
provision for loan losses (up $4.6 million) and higher other operating expenses
(up $2.4 million). These increased expenses were partially offset by increased
net interest income (up $1.6 million), increased other operating income (up $529
thousand) and lower income tax expense (down $1.8 million). The Bank's return on
average assets (ROA) was .38% for the nine months ended December 31, 1997, down
from 1.01% for the same period in 1996. The Bank's return on average equity
(ROE) was also lower, 3.71% for the nine months ended December 31, 1997 down
from 10.36% for the nine months ended December 31, 1996.
Net Interest Income. Net interest income for the nine months ended
December 31, 1997 was $21.9 million, up $1.6 million versus the nine months
ended December 31, 1996. The increase was primarily the result of an increase in
average earning assets from $610.7 million for the nine months ended December
31, 1996 to $629.1 million for the same period in 1997. Interest-bearing
liabilities also increased during this same period, up $8.2 million to $551.9
million for the nine months ended December 31, 1997. The impact of these volume
increases resulted in an increase in net interest income of $1.5 million. The
remaining $141 thousand increase in net interest income is the result of
slightly higher interest rates. The Bank's net interest margin for the nine
months ended December 31, 1997 was 4.62%, up from 4.41% for the nine months
ended December 31, 1996. The yield on average earning assets increased from
8.56% to 8.75%, while the rate paid on interest-bearing liabilities increased
slightly from 4.66% to 4.70%.
Interest Income. Interest income for the nine months ended December 31,
1997 was $41.5 million, up from $39.4 million for the comparable period in 1996.
The largest component of interest income, as well as the increase from 1996 to
1997, is interest on loans. Interest on loans increased from $32.2 million for
the nine months ended December 31, 1996 to $35.6 million for the nine months
ended December 31, 1997. This increase of $3.4 million is the result of both
volume increases and rate increases. The average balance of loans increased
$43.8 million, while the yield on loans increased from 9.18% to 9.27%. The
increase in interest on loans was offset by decreases in interest on securities
available for sale and investment securities. Interest income on these
categories of earning assets decreased $919 thousand and $498 thousand,
respectively. Substantially all of the decreases in interest income on these
assets are attributed to reductions in volume. The average balance of securities
available for sale decreased from $55.7 million for the nine months ended
December 31, 1996 to $39.7 million for the nine months ended December 31, 1997.
This decrease in volume resulted in a decrease in interest income of $796
thousand. The average balance of investment securities decreased from $84.4
million in 1996 to $72.2 million in 1997, resulting in a $601 thousand decrease
in interest income due to volume. Management expects the average balance of
investment securities to continue to decrease as new purchases of securities are
generally classified as securities available for sale. The changes in rates on
securities available for sale and
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investment securities, as well as the changes in volume and rate on other
categories of interest earning assets was not significant.
Interest Expense. Interest expense increased slightly during the nine
months ended December 31, 1997 to $19.5 million up from $19.1 million for the
comparable period in 1996. Substantially all of the Bank's interest expense is
from the Bank's interest-bearing deposits. The largest category of
interest-bearing deposits is time deposits. Interest on time deposits for the
nine months ended December 31, 1997 was $13.5 million, up from $13.3 million in
1996. Most of this increase is attributable to an increase in the average
balance of time deposits, from $307.3 million in 1996 to $310.5 million in 1997.
Interest expense on savings accounts increased $196 thousand, from $3.4 million
for the nine months ended December 31, 1996 to $3.6 million for the nine months
ended December 31, 1997. This increase is attributed to an increase in the
average balance of savings accounts (up $5.0 million) as well as an increase of
7 basis points in the rates paid on these savings accounts, from 3.38% to 3.45%.
Interest expense on NOW/Money Market accounts was relatively flat, increasing
only $34 thousand from 1996 to 1997. Fluctuations in interest expense on other
categories of interest-bearing liabilities were not significant.
Provision for Loan Losses. The provision for loan losses increased from
$1.9 million in the nine months ended December 31, 1996 to $6.4 million in the
nine months ended December 31, 1997. This increase is primarily the result of
increases in net charge-offs from $1.2 million for the nine months ended
December 31, 1996 to $5.5 million for the nine months ended December 31, 1997,
largely due to one large lending relationship. This increase in net charge-offs
combined with continued growth in the higher risk elements of the Bank's loan
portfolio, continued economic weaknesses in the Bank's market area, declining
real estate values securing much of the loan portfolio as well as management's
evaluation of the prospects for its market area resulted in the increase in the
provision charged during the nine months ended December 31, 1997. Although the
Bank anticipates that the provision for loan losses will continue at current
levels through at least fiscal 1999, there can be no assurance that such losses
will not exceed estimated amounts or that the provision for loan losses will not
increase in future periods. See "Business of the Bank--Allowance for Loan
Losses."
Other Operating Income. Total other operating income increased $529
thousand for the nine months ended December 31, 1997 as compared to the same
period in 1996. Other operating income is composed primarily of service charges
on deposit accounts and loan servicing income. Income from service charges on
deposits accounts increased from $815 thousand for the nine months ended
December 31, 1996 to $840 thousand for the nine months ended December 31, 1997.
This increase is attributed to the overall increase in the Bank's deposit
accounts during this time period. Loan servicing income decreased $49 thousand
from $402 thousand in the nine months ended December 31, 1996 to $353 thousand
in the nine months ended December 31, 1997. This decrease relates to the
termination of an agreement to service financed insurance premiums for an
unaffiliated premium finance company and the runoff of the corresponding
servicing portfolio. The servicing agreement was terminated due to the financial
difficulties and ultimate liquidation of the unaffiliated premium finance
company. Other income was $646 thousand for the nine months ended December 31,
1997, up from $121 thousand for the same period in 1996. A portion of this
increase is the result of a partial recovery of previous writedowns of the
Bank's investment in Nationar, a New York chartered
38
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institution that HCSI utilized for certain correspondent banking services prior
to its takeover and liquidation by the State Banking Department in 1995. A large
portion of the remaining increase resulted from the income generated by the
Bank's mortgage brokerage subsidiary, Hudson River Mortgage Company. This
subsidiary generates fee income on loan applications, which applications are
received and forwarded to independent third parties. Loan applications on
products not currently offered by the Bank or on credits which do not meet the
Bank's minimum credit standards are forwarded to other institutions, resulting
in brokerage fee income. Fluctuations in other categories of other operating
income were not significant.
Other Operating Expenses. Total other operating expenses increased $2.4
million to $14.2 million for the nine months ended December 31, 1997, up from
$11.8 million for the comparable period in 1996. Increases in compensation and
benefits ($549 thousand), equipment ($372 thousand), legal and other
professional fees ($529 thousand), and other expenses ($685 thousand) were the
primary contributors to the overall increase.
The increase in compensation and benefits is the result of establishing
a new branch in May 1997 in Hillsdale, New York, the increase in staff
necessitated by the Bank's acquisition (through its premium finance subsidiary)
of the customer list of an unaffiliated premium finance company and the related
sub-servicing agreement with this company, as well as general merit increases
for the Bank's employees during the nine months ended December 31, 1997.
The increase in equipment expenses is directly attributed to the
acquisition and integration of a new mainframe data processing system in
November 1996, as well as the addition of the new branch as referenced above.
The Bank's new data processing system resulted in increased depreciation and
maintenance expense during the nine months ended December 31, 1997. The Bank
anticipates that improvements in the products and services offered to its
customers as well the increased efficiencies the new system provides will
generally offset the increased expenses associated with this acquisition.
The increase in legal and other professional fees are the result of
several factors. During the nine months ended December 31, 1997, the Bank
considered several acquisition opportunities. Although only the aforementioned
acquisition of the customer list of an unaffiliated premium finance company was
consummated, legal and accounting expenses associated with considering these
opportunities resulted in higher expenses in 1997. In addition, the Bank hired
various consulting firms during the nine months ended December 31, 1997. These
firms assisted management in addressing certain strategic and organizational
issues as well as operational issues of the Bank.
The increase in other expenses is the result of increased goodwill
amortization from the previously mentioned acquisition of a premium finance
customer list, expenses relating to the consideration of various funding
alternatives relating to the Bank's premium finance subsidiary, a one-time
charge relating to a reduction of an asset deemed uncollectible, increases in
advertising, telephone and supplies relating to the Bank's new branch and
general increases in expenses relating to the servicing and collection of
nonperforming and other delinquent loans. The remaining categories of other
expenses and other operating expenses did not experience significant
fluctuations.
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Income Tax Expense. Income tax expense decreased from $3.1 million for
the nine months ended December 31, 1996 to $1.3 million for the comparable
period in 1997. The reduction is primarily the result of less income before
income tax expense; $3.2 million in 1997 as compared to $8.0 million in 1996.
The effect of reduced income before income tax expense was partially offset by
an increase in the Bank's effective tax rate due primarily to less tax-exempt
income and the effect of state taxes.
Comparison of year ended March 31, 1997 and year ended March 31, 1996
Net income for the year ended March 31, 1997 was $5.7 million, down
from $7.0 million for the year ended March 31, 1996. The provision for loan
losses increased $2.7 million and other operating expenses increased $2.0
million for the year ended March 31, 1997 as compared to the year previous.
These increases were offset in part by higher net interest income (up $2.5
million), increased other operating income (up $190 thousand), and lower income
tax expense (down $691 thousand). The Bank's ROA declined from 1.18% for the
year ended March 31, 1996 to .88% for the year ended March 31, 1997. The Bank's
ROE declined from 12.52% for the year ended March 31, 1996 to 8.94% for the year
ended March 31, 1997.
Net Interest Income. Net interest income for the year ended March 31,
1997 was $27.5 million, up $2.5 million versus the year ended March 31, 1996.
The increase was primarily the result of the increase of $41.0 million in
average earning assets from $571.3 million for the year ended March 31, 1996 to
$612.3 million for the same period in 1997. Interest-bearing liabilities also
increased during this same period, up $31.5 million. The net impact of these
volume increases resulted in an increase in net interest income of $1.8 million.
The remaining $677 thousand increase in net interest income is the result of
higher yields earned on interest earning assets and lower rates paid on interest
bearing liabilities. The Bank's net interest margin for the year ended March 31,
1997 was 4.48%, up 10 basis points from 4.38% for the year ended March 31, 1996.
The yield on average earning assets increased from 8.59% to 8.64%, while the
rate paid on average interest-bearing liabilities decreased slightly from 4.70%
to 4.67%.
Interest Income. Interest income for the year ended March 31, 1997 was
$52.9 million, up from $49.1 million for the comparable period in 1996. The
largest component of interest income, as well as the increase from 1996 to 1997,
is interest on loans. Interest on loans increased from $40.8 million for the
year ended March 31, 1996 to $43.6 million for the year ended March 31, 1997.
This increase of $2.8 million is primarily the result of volume increases. The
average balance of loans increased $26.7 million to $471.3 million, while the
yield on loans increased 8 basis points from 9.17% to 9.25%. The increase in
interest on loans was complemented by an increase in interest on securities
available for sale, offset by a decrease in interest on investment securities.
Interest income on securities available for sale increased $1.9 million while
interest income on investment securities fell $677 thousand. Substantially all
of the increases in interest income on securities available for sale are
attributed to higher volume. The average balance of securities available for
sale increased from $26.9 million for the year ended March 31, 1996 to $53.4
million for the year ended March 31, 1997. This increase in volume resulted in
an increase in interest income of $l.8 million. The average balance of
investment securities decreased from $92.2 million in 1996 to $83.3 million in
1997, resulting in a $577 thousand decrease in interest income due to volume.
The changes in
40
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rates on securities available for sale and investment securities account for the
remainder of the fluctuations in interest income on these asset categories. The
changes in volume and rate on other categories of interest earning assets were
not significant.
Interest Expense. Interest expense increased during the year ended
March 31, 1997 to $25.4 million, up from $24.1 million for the comparable period
in 1996. Substantially all of the Bank's interest expense is from the Bank's
interest-bearing deposits. The largest category of interest-bearing deposits is
time deposits. Interest on time deposits for the year ended March 31, 1997 was
$17.7 million, up $1.0 million from the $16.7 million in 1996. This increase is
the result of an increase in the average balance of time deposits, from $283.1
million in 1996 to $307.8 million in 1997, offset by a reduction of 14 basis
points in the rates paid on these deposits from 5.90% in 1996 to 5.76% in 1997.
Interest expense on savings accounts increased $248 thousand, from $4.3 million
for the year ended March 31, 1996 to $4.5 million for the year ended March 31,
1997. This increase is attributable to an increase in the average balance of
savings accounts (up $3.9 million) as well as an increase of 9 basis points in
the rates paid on these savings accounts, from 3.31% to 3.40%. Interest expense
on NOW/Money Market accounts was relatively flat, decreasing $101 thousand from
1996 to 1997, almost entirely attributed to lower interest rates. Fluctuations
in interest expense on other categories of interest-bearing liabilities were not
significant.
Provision for Loan Losses. The provision for loan losses increased from
$1.1 million in the year ended March 31, 1996 to $3.8 million in the year ended
March 31, 1997. This increase is primarily the result of increases in net
charge-offs from $774 thousand for the year ended March 31, 1996 to $1.5 million
for the year ended March 31, 1997. In addition, the increase of $9.1 million, or
84%, in nonperforming loans from $10.9 million to $20.0 million, necessitated
the increase in the provision during the year ended March 31, 1997. The increase
in net charge offs combined with the continued growth in the higher risk
elements of the loan portfolio, continued economic weaknesses in the Bank's
market area, declining real estate values securitizing much of the loan
portfolio as well as management's evaluation of the prospects for its market
area resulted in the increase in the provision. See "Business of the Bank -
Allowance for Loan Losses".
Other Operating Income. Total other operating income increased $190
thousand for the year ended March 31, 1997 as compared to the same period in
1996. Income from service charges on deposits accounts increased only slightly
to $1.1 million for the year ended March 31, 1997, from $1.0 million for the
year ended March 31, 1996. Loan servicing income increased $208 thousand from
$272 thousand in the year ended March 31, 1996 to $480 thousand in the year
ended March 31, 1997. This increase relates to the existence for a full year of
an agreement to service financed insurance premiums for an unaffiliated premium
finance company. As noted previously, the servicing agreement was terminated.
Fluctuations in other categories of other operating income were not significant.
Other Operating Expenses. Total other operating expenses increased $2.0
million to $16.2 million for the year ended March 31, 1997, up from $14.2
million for the comparable period in 1996. Increases in compensation and
benefits ($1.1 million), occupancy ($101 thousand), equipment ($173 thousand),
and other expenses ($709 thousand) were the primary contributors to the overall
increase, offset by a decrease in the FDIC assessment of $272 thousand.
41
<PAGE>
The increase in compensation and benefits is the result of establishing
two new branches, located in East Greenbush and Rotterdam, New York, in January
1996, the increase in staff associated with the growth of the Bank's premium
finance subsidiary, the establishment of the Bank's mortgage brokerage
subsidiary in July 1996, as well as general merit increases for the Bank's
employees during the year ended March 31, 1997.
The increases in occupancy and equipment expenses are attributed to the
addition of the two new branches and the mortgage brokerage subsidiary as
referenced above. Management believes that adding these new outlets for the
services offered by the Bank is an important investment and a strong commitment
to our customer base.
The increase in other expenses is the result of general increases in
printing and supplies, and telephone expenses related to the two new branches
and the mortgage brokerage subsidiary, expenses relating to the investigation of
financing alternatives at the Bank's premium finance subsidiary, increased
marketing expenses at the Bank's premium finance subsidiary and general
increases in expenses relating to the servicing and collection of nonperforming
and other delinquent loans. The increases in these expense items offset a
decrease in fiscal 1997 expense relating to the write down during fiscal 1996 of
the Bank's investment in Nationar. The remaining categories of other expenses
and other operating expenses did not experience significant fluctuations.
Income Tax Expense. Income tax expense decreased from $4.3 million for
the year ended March 31, 1996 to $3.6 million for the comparable period in 1997.
The reduction is primarily the result of less income before income tax expense,
$9.3 million in 1997 as compared to $11.3 million in 1996.
Comparison of year ended March 31, 1996 and year ended March 31, 1995
Net income for the year ended March 31, 1996 was up $1.1 million from
the $6.0 million earned for year ended March 31, 1995. This increase was
primarily the result of higher net interest income and lower operating expenses,
offset by higher income tax expense during the year ended March 31, 1996. The
provision for loan losses was relatively flat between the two years as was other
operating income. The increased net income contributed to an increase in the
Bank's ROA, 1.18% for the year ended March 31, 1996, up from 1.05% for the year
previous. The Bank's ROE was also higher for the year ended March 31, 1996 at
12.52%, up from 12.06% for the year ended March 31, 1995.
Net Interest Income. Net interest income for the year ended March 31,
1996 was $25.0 million, up $1.2 million versus the year ended March 31, 1995.
The increase was primarily the result of the increase of $31.5 million in
average earning assets from $539.8 million for the year ended March 31, 1995 to
$571.3 million for the same period in 1996. Interest-bearing liabilities also
increased during this same period, up $20.5 million. The net impact of these
volume increases resulted in an increase in net interest income of $439
thousand. The remaining $807 thousand increase in net interest income is the
result of generally higher interest rates. The effects of the 61 basis point
increase in the rates earned on earning assets from 7.98% in 1995 to 8.59% in
1996 more than offset the effects of the 77 basis point increase in the rates
paid on interest-bearing liabilities,
42
<PAGE>
from 3.93% in 1995 to 4.70% in 1996. The Bank's net interest margin for the year
ended March 31, 1996 was 4.38%, virtually unchanged from 4.40% for the year
ended March 31, 1995.
Interest Income. Interest income for the year ended March 31, 1996, was
$49.1 million, up from $43.1 million for the comparable period in 1995. The
largest component of interest income, as well as the increase from 1995 to 1996,
is interest on loans. Interest on loans increased from $35.1 million for the
year ended March 31, 1995 to $40.8 million for the year ended March 31, 1996. Of
the $5.6 million increase, rate increases accounted for $3.9 million, and volume
increases accounted for the remainder. The average balance of loans increased
$20.5 million to $444.6 million, while the yield on loans increased 89 basis
points from 8.28% to 9.17%. This increase in the yield earned on loans was
driven by increases in the balances of the higher yielding components of the
loan portfolio. See "Business - Consumer Lending". The increase in interest on
loans was complemented by an increase in interest on securities available for
sale, offset by a decrease in interest on investment securities. Interest income
on securities available for sale increased $865 thousand while interest income
on investment securities fell $441 thousand. Substantially all of the increases
in interest income on securities available for sale are attributed to higher
volume. The average balance of securities available for sale increased from
$12.3 million for the year ended March 31, 1995 to $26.9 million for the year
ended March 31, 1996. This increase in volume resulted in an increase in
interest income of $977 thousand. This increase was offset by a decrease in the
yield on securities available for sale of 82 basis points, resulting in a
reduction of interest income on securities available for sale due to rate of
$112 thousand. The average balance of investment securities decreased from $94.0
million in 1995 to $92.2 million in 1996, resulting in a $120 thousand decrease
in interest income. A decrease in the rate on investment securities from 6.92%
in the year ended March 31, 1995 to 6.57% in the year ended March 31, 1996
resulted in a reduction of interest income on investment securities of $321
thousand. The changes in volume and rate on other categories of interest earning
assets were not significant.
Interest Expense. Interest expense increased during the year ended
March 31, 1996 to $24.1 million, up from $19.3 million for the comparable period
in 1995. Substantially all of the Bank's interest expense is from the Bank's
interest-bearing deposits. The largest category of interest-bearing deposits is
time deposits. Interest on time deposits for the year ended March 31, 1996 was
$16.7 million, up $5.9 million from the $10.8 million in 1995. This increase is
the result of an increase in the average balance of time deposits, from $219.0
million in 1995 to $283.1 million in 1996, combined with an increase of 97 basis
points in the rates paid on these deposits from 4.93% in 1995 to 5.90% in 1996.
Interest expense on savings accounts decreased $l.2 million, from $5.5 million
for the year ended March 31, 1995 to $4.3 million for the year ended March 31,
1996. This decrease is attributable to a decrease in the average balance of
savings accounts (down $38.0 million) offset by an increase of 2 basis points in
the rates paid on these savings accounts, from 3.29% to 3.31%. The decrease in
savings accounts is attributable to customers seeking higher yielding investment
alternatives. Interest expense on NOW/Money Market accounts increased $163
thousand from 1995 to 1996, almost entirely attributed to higher interest rates.
Fluctuations in interest expense on other categories of interest-bearing
liabilities were not significant.
Provision for Loan Losses. The provision for loan losses of $1.1
million for the year ended March 31, 1996 remained level with the $1.2 million
provision in the year ended March 31, 1995.
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This level of provision is attributed to the slight decline in net charge-offs
from $899 thousand for the year ended March 31, 1995 to $774 thousand for the
year ended March 31, 1996.
Other Operating Income. Total other operating income for the year ended
March 31, 1996 was $1.6 million, an increase of $103 thousand over the $1.5
million for the same period in 1995. Other operating income is composed
primarily of service charges on deposit accounts ($1.0 million for each of the
years ended March 31, 1996 and 1995) and loan servicing income (approximately
$270 thousand for each of the years ended March 31, 1996 and 1995). There were
no significant fluctuations in other categories of other operating income.
Other Operating Expenses. Total other operating expenses decreased $1.0
million to $14.2 million for the year ended March 31, 1996, down from $15.2
million for the comparable period in 1995. An increase in compensation and
benefits ($631 thousand) was offset by decreases in the FDIC assessment ($871
thousand), and OREO and repossessed property expenses ($503 thousand).
The increase in compensation and benefits is the result of adding 2 new
branches (the Bank's Greenport Price Chopper and Millerton, New York locations
in June and August 1994, respectively) the increase in staff associated with the
growth of the Bank's premium finance subsidiary, as well as general merit
increases to the Bank's employees during the year ended March 31, 1996.
The decrease in the FDIC assessment is the result of legislation which
mandated a reduction in insurance rates when the Bank Insurance Fund achieved a
1.25% reserve ratio. That target was reached in May 1995, resulting in reduced
premiums for the September 1995 and December 1995 quarters as well as a refund
of premiums for the June 1995 quarter. The reduced premium level continued
through the remainder of the year ended March 31, 1996.
The decrease in OREO and repossessed property expenses during the year
ended March 31, 1996 as compared to the year ended March 31, 1995 is the result
of increased gains on sale of these properties during 1996, offset by slightly
higher writedowns to fair value of OREO and repossessed property during this
time period.
Income Tax Expense. Income tax expense increased from $2.9 million for
the year ended March 31, 1995 to $4.3 million for the comparable period in 1996.
The increase is the result of more income before income tax expense, $11.3
million in 1996 as compared to $8.9 million in 1995 as well as a reduction in
the Bank's deferred tax asset valuation allowance of $248 thousand and higher
tax-exempt income during the year ended March 31, 1995.
FINANCIAL CONDITION
Comparison of December 31, 1997 and March 31, 1997
Total assets at December 31, 1997 stood at $665.1 million, up $14.0
million, or 2.2% from the $651.0 million at March 31, 1997. Most of the increase
was concentrated in the loan portfolio, which increased $18.9 million, ending
December 31, 1997 at $511.9 million. This growth in loans
44
<PAGE>
was funded by an increase in deposits from $564.6 million on March 31, 1997 to
$586.2 at December 31, 1997.
Loans. The overall increase in total loans is primarily made up of
increases in residential real estate, commercial real estate, manufactured home
loans, and warehouse lines, offset by a decrease in commercial business loans.
Although total residential real estate increased $4.0 million, the level of
total residential real estate, as a percentage of total loans, remained
relatively flat at 54.3%, down slightly from 55.6%. The growth in this portfolio
is primarily a result of the Bank's decision to retain in its portfolio a
limited amount of 15 to 20 year fixed rate residential real estate loans at a
time when adjustable rate loans are less popular. Commercial real estate
increased from $67.7 million at March 31, 1997, or 13.7% of total loans, to
$73.9 million or 14.4% of total loans at December 31, 1997.
Manufactured home loans increased $5.7 million from $92.7 million at
March 31, 1997 to $98.3 million at December 31, 1997. The Bank utilizes a third
party institution to forward mobile home loan applications to the Bank for
underwriting and approval. In exchange for these loan referrals and other
specified activities, the Bank pays the third party institution a premium that
is capitalized and amortized over the estimated life of the loan originated. The
warehouse line of credit represents a relationship with a mortgage broker in the
Capital District area in which loans are funded via draws on the outstanding
line. The line is repaid upon ultimate sale of the loan to unrelated third
parties. The balance at December 31, 1997 was $7.1 million, up from $3.6 million
at March 31, 1997. Commercial loans decreased $2.2 million to a balance of $13.9
million at December 31, 1997 from $16.1 million at March 31, 1997. Most of this
decrease relates to a large lending relationship that was charged off during
December 1997.
Allowance for Loan Losses. The allowance for loan losses increased from
$5.9 million at March 31, 1997 to $6.8 million at December 31, 1997, an increase
of $884 thousand. This increase is the result of the $6.4 million provision for
loan losses taken in the nine months ended December 31, 1997 offset by $5.5
million in net charge offs for the same period. The adequacy of the allowance
for loan losses is evaluated monthly by management based upon a review of
significant loans, with particular emphasis on nonperforming and delinquent
loans that management believes warrant special attention. At December 31, 1997
the allowance for loan losses provided coverage of 41.2% of total nonperforming
loans, up from 29.4% at March 31, 1997. The balance of the allowance is
maintained at a level which is, in management's judgment, representative of the
amount of risk inherent in the loan portfolio. See "Business - Allowance for
Loan Losses."
Securities Available for Sale and Investment Securities. The balances
of securities available for sale and investment securities (collectively
"securities") decreased from $45.6 million and $79.1 million, respectively, at
March 31, 1997 to $43.3 million and $71.2 million, respectively, as of December
31, 1997. These decreases were driven by maturities and calls of these
securities totaling $31.8 million during the nine months ended December 31,
1997, offset by purchases of securities totaling $21.0 million. Management's
intention is to continue allowing investment securities to mature and paydown
with the reinvestment of the proceeds primarily in the securities available for
sale or loan portfolios. During the nine months ended December 31, 1997, loan
demand was higher.
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The proceeds were reinvested in loans and used to pay down short-term
borrowings, resulting in an overall decrease in securities during this time
period.
Premises and Equipment. The balance of premises and equipment increased
from $15.0 million at March 31, 1997 to $15.8 million at December 31, 1997. This
increase was a result of approximately $1.7 million in expenditures relating to
a new addition to the Bank's main office building to accommodate current and
future growth, as well as the relocation of the Bank's Warren Street, Hudson
branch to the first floor of the Bank's main office building. This relocation
occurred on January 5, 1998. During the month of January 1998, the former branch
building at Warren Street was sold resulting in a gain of approximately $450
thousand.
OREO and Repossessed Property. The balance of OREO and repossessed
property decreased from $3.4 million at March 31, 1997 to $l.1 million at
December 31, 1997, a decrease of approximately $2.4 million. The majority of
this decrease relates to the sale in November 1997 of the Bank's largest OREO
property that had a balance of $2.4 million at March 31, 1997.
Other Assets. The balance of other assets increased $2.6 million from
$2.6 million at March 31, 1997 to $5.1 million at December 31, 1997. This
increase is almost entirely a result of increases in the Bank's net deferred tax
asset and the amount of prepaid taxes resulting from the timing of the Bank's
estimated tax payments for Federal and state income taxes.
Deposits. Total deposits increased $21.6 million, or 3.8%, from $564.6
million at March 31, 1997 to $586.2 million at December 31, 1997. Of this total
increase, time deposits increased $7.9 million (2.6%), savings accounts
increased $4.4 million (3.2%), NOW/Money market accounts increased $1.7 million
(1.8%), and non-interest bearing accounts increased $7.7 million (26.7%). During
the nine months ended December 31, 1997, the Bank had a special 18-month CD
campaign centered on the Bank's supermarket branches to celebrate the opening of
its new Hillsdale branch. The addition of this branch, the CD campaign, as well
as general seasonal fluctuations have resulted in the increases noted above.
Short-term Borrowings. The balance of short-term borrowings decreased
$10.6 million from $12.6 million at March 31, 1997 to $2.0 million at December
31, 1997. This decrease was driven by the proceeds generated by the maturities
and calls of our securities portfolios as detailed above as well as the growth
in the deposit balances.
UDAG Payable. The balance of the Urban Development Action Grant
("UDAG") payable, which stood at $835 thousand at March 31, 1997, was satisfied
in September 1997. The UDAG payable was a loan received from a local economic
development agency during the original construction of the main office building
in the early 1990's. This loan, which was to be repaid at the end of calendar
year 2000, was repaid early in order to provide the economic development agency
with the funds available to spur further economic growth in the City of Hudson,
New York.
46
<PAGE>
Comparison of March 31, 1997 and March 31, 1996
Total assets at March 31, 1997 stood at $651.0 million, up $27.8
million, or 4.5%, from $623.2 million at March 31, 1996. Most of the increase
was concentrated in the loan portfolio which increased $42.3 million, ending
March 31, 1997 at $493.0 million, partially offset by a reduction in securities
(securities available for sale and investment securities) of $9.7 million. This
growth in loans was funded by an increase of $9.4 million in deposits from
$555.2 million on March 31, 1996 to $564.6 at March 31, 1997, as well as an
increase in short-term borrowings of $12.6 million. These increases as well as
fluctuations in other asset and liability categories are discussed below.
Loans. The overall increase in total loans is primarily made up of
increases in residential real estate, manufactured home loans, and financed
insurance premium loans, offset by decreases in the Bank's warehouse line of
credit, commercial real estate and commercial business loans. Total residential
real estate increased $32.9 million, or 13.7%, which increased the level of
total residential real estate as a percentage of total loans from 53.5% at March
31, 1996 to 55.6% at March 31, 1997. The growth in this portfolio is primarily a
result in the Bank's decision to retain in its portfolio a limited amount of
fixed rate 15 and 20 year residential real estate loans. Manufactured home loans
increased $12.3 million from $80.4 million at March 31, 1996 to $92.7 million at
March 31, 1997. Financed insurance premiums are generated by the Bank's premium
finance subsidiary. This loan category increased from $13.5 million or 3.0% of
total loans at March 31, 1996 to $23.5 million or 4.8% of total loans at March
31, 1997. The increase in this category is a result of management's efforts to
grow the Bank's investment in this area through marketing and new relationships
with insurance agents throughout primarily New York, New Jersey and
Pennsylvania.
The Bank's warehouse line of credit represents a relationship with a
mortgage broker in the Capital District area in which loans are funded via draws
on the outstanding line. The line is repaid upon ultimate sale of the loan to
unrelated third parties. The balance outstanding on this line decreased from
$11.8 million at March 31, 1996 to $3.6 million at March 31,1997. Commercial
real estate fell slightly from $70.9 million at March 31, 1996 to $67.7 million
at March 31, 1997. At March 31, 1997, commercial real estate represented 13.7%
of total loans. Commercial business loans decreased $1.2 million to a balance of
$16.1 million at March 31, 1997 from $17.4 million at March 31, 1996. Commercial
business loans are loans to businesses which are either unsecured or are secured
by non-real estate business assets.
Allowance for Loan Losses. The allowance for loan losses increased from
$3.5 million at March 31, 1996 to $5.9 million at March 31, 1997, an increase of
$2.3 million. This increase is the result of the $3.8 million provision for loan
losses taken in the year ended March 31, 1997 offset by $1.5 million in net
charge offs for the same period. At March 31, 1997 the allowance for loan losses
provided coverage of 29.4% of total non-performing loans, down slightly from
32.6% at March 31, 1996. The balance of the allowance is maintained at a level
which is, in management's judgment, representative of the amount of risk
inherent in the Bank's loan portfolio. See "Business Allowance for Loan Losses."
Securities Available for Sale and Investment Securities. The balances
of securities available for sale and investment securities (collectively
"securities") decreased from $51.4 million and $83.0 million, respectively, at
March 31, 1996 to $45.6 million and $79.1 million, respectively, as of March 31,
1997. These decreases during the year ended March 31, 1997 were driven by
maturities
47
<PAGE>
and calls of these securities totaling $30.4 million, sales totaling $10.0
million, offset by purchases of securities totaling $30.9 million. During the
year ended March 31, 1997, loan demand was higher, therefore more of the
proceeds were reinvested in loans, resulting in an overall decrease in
securities during this time period.
Premises and Equipment. The balance of premises and equipment increased
from $14.3 million at March 31, 1996 to $15.0 million at March 31, 1997. This
increase was a result of expenditures relating to a new data processing system
during November 1996.
OREO and Repossessed Property. The balance of OREO and repossessed
property increased from $1.7 million at March 31, 1996 to $3.4 million at March
31, 1997, an increase of approximately $1.7 million. This increase directly
relates to the addition during the year ended March 31, 1997 of an OREO property
that had a balance of $2.4 million at March 31, 1997.
Deposits. Total deposits increased $9.4 million, or 1.7%, from $555.2
million at March 31, 1996 to $564.6 million at March 31, 1997. Of this total
increase, time deposits increased $4.6 million (1.5%), savings accounts
increased $6.1 million (4.7%), while NOW/Money market accounts and non-interest
bearing accounts remained relatively flat.
Short-term Borrowings. Short-term borrowings increased $12.6 during the
year ended March 31, 1997. There were no short-term borrowings at March 31,
1996. This increase was a result of the growth in loan demand that exceeded our
increase in deposit balances.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity is defined as the ability to generate sufficient cash flow to
meet all present and future funding commitments, depositor withdrawals and
operating expenses. Management monitors the Bank's liquidity position on a daily
basis and evaluates its ability to meet depositor withdrawals or make new loans
or investments. The Bank's liquid assets are defined as cash and cash
equivalents, investment securities that mature within one year, and its
portfolio of securities available for sale. At December 31, 1997, the Bank's
liquid assets as a percentage of deposits which have no withdrawal restrictions,
time deposits which mature within one year, and short-term borrowings was 18.8%.
The Bank's cash inflows result primarily from loan repayments,
maturities, calls and pay downs of securities, new deposits, and to a lesser
extent, drawing upon the Bank's credit lines with other financial institutions,
including the Federal Home Loan Bank of New York. The Bank's cash outflows are
substantially new loan originations, securities purchases, and deposit
withdrawals. The timing of cash inflows and outflows are closely monitored by
management although changes in interest rates, economic conditions, and
competitive forces strongly impact the predictability of these cash flows. The
Bank attempts to provide stable and flexible sources of funding through the
management of its liabilities, including core deposit products offered through
its branch network as well as with limited use of borrowings. Management
believes that the level of the Bank's liquid
48
<PAGE>
assets combined with daily monitoring of cash inflows and outflows provide
adequate liquidity to fund outstanding loan commitments, meet daily withdrawal
requirements of our depositors, and meet all other daily obligations of the
Bank.
Capital
Consistent with its goals to operate a sound and profitable financial
organization, the Bank actively seeks to maintain a "well capitalized"
institution in accordance with regulatory standards. Total equity was $67.4
million at December 31, 1997, 10.1% of total assets on that date. As of March
31, 1997 and 1996, total equity was $65.1 million and $59.6 million,
respectively, or 10.0% and 9.6% of total assets at the respective dates. As of
December 31, 1997, the Bank exceeded all of the capital requirements of the
FDIC. The Bank's regulatory capital ratios at December 31, 1997 were as follows:
Tier I (leverage) capital, 10.1%; Tier I risk-based capital, 14.1%; and Total
risk- based capital, 15.4%. The regulatory capital minimum requirements to be
considered well capitalized are 5.0%, 6.0%, and 10.0% respectively.
IMPACT OF THE YEAR 2000
The Bank has conducted a comprehensive review of its computer systems
to identify applications that could be affected by the "Year 2000" issue, and
has developed an implementation plan to address the issue. The Bank's data
processing is performed primarily in-house; however software and hardware
utilized is under maintenance agreements with third party vendors, consequently
the Bank is very dependent on those vendors to conduct its business. The Bank
has already contacted each vendor to request time tables for year 2000
compliance and expected costs, if any, to be passed along to the Bank. To date,
the Bank has been informed that its primary service providers anticipate that
all reprogramming efforts will be completed by December 31, 1998, allowing the
Bank adequate time for testing. Certain other vendors have not yet responded,
however, the Bank will pursue other options if it appears that these vendors
will be unable to comply. Management does not expect these costs to have a
significant impact on its financial position or results of operations however,
there can be no assurance that the vendors' systems will be 2000 compliant,
consequently the Bank could incur incremental costs to convert to another
vendor.
The risks associated with this issue go beyond the Bank's own ability
to solve year 2000 problems. Should significant commercial customers fail to
address year 2000 issues effectively, their ability to meet debt service
requirements could be impaired, resulting in increased credit risk and potential
increases in loan charge offs. In addition, should suppliers of critical
services fail in their efforts to become year 2000 compliant, or if significant
third party interfaces fail to be compatible with the Bank's or fail to be year
2000 compliant, it could have significant adverse affects on the operations and
financial results of the Bank.
IMPACT ON INFLATION AND CHANGING PRICES
The Bank's consolidated financial statements are prepared in accordance
with generally accepted accounting principles which require the measurement of
financial position and operating
49
<PAGE>
results in terms of historical dollars without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increasing cost of the Bank's operations. Unlike
most industrial companies, nearly all assets and liabilities of the Bank are
monetary. As a result, interest rates have a greater impact on the Bank's
performance than do the effects of general levels of inflation. In addition,
interest rates do not necessarily move in the direction, or to the same extent
as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
In November 1993, the AICPA issued Statement of Position 93-6 ("SOP
93-6"), "Employers' Accounting for Employee Stock Ownership Plans," which is
effective for years beginning after December 15, 1993. SOP 93-6 requires the
measure of compensation expense recorded by employers for leveraged ESOPs to be
the fair value of ESOP shares. The Holding Company has adopted an ESOP in
connection with the Conversion, which is expected to purchase 8% of the Common
Stock issued in the conversion, including shares issued to the Foundation. Under
SOP 93- 6, the Holding Company will recognize compensation cost equal to the
average fair value of the ESOP shares during the periods in which they become
committed to be released. Employers with internally leveraged ESOPs such as the
Holding Company will not report the loan receivable from the ESOP as an asset
and will not report the ESOP debt from the employer as a liability. The effects
of SOP 93-6 on future operating results cannot be determined at this time.
In November 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock Based Compensation" ("SFAS No. 123"). This statement establishes
financial accounting standards for stock-based employee compensation plans. SFAS
No. 123 permits the Bank to choose either a new fair value based method or the
Accounting Principles Board ("APB") Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. SFAS No. 123 requires
pro forma disclosures of net income and earnings per share computed as if the
fair value based method had been applied in financial statements of companies
that follow accounting for such arrangements under APB Opinion 25. SFAS No. 123
applies to all stock-based employee compensation plans in which an employer
grants shares of its stock or other equity instruments to employees except for
employee stock ownership plans. SFAS No. 123 also applies to plans in which the
employer incurs liabilities to employees in amounts based on the price of the
employer's stock, (e.g., stock option plans, stock purchase plans, restricted
stock plans, and stock appreciation rights). The Statement also specifies the
accounting for transactions in which a company issues stock options or other
equity instruments for services provided by nonemployees or to acquire goods or
services from outside suppliers or vendors. The Company expects to utilize the
intrinsic value based method prescribed by APB Opinion No. 25. Accordingly, the
impact of adopting this Statement will not be material to the Company's
consolidated financial statements.
In February 1997, the FASB issued SFAS No. 128,"Earnings per Share".
SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS). This Statement supersedes APB Opinion No. 15, "Earnings per Share"
and related interpretations. SFAS No. 128 replaces the presentation of primary
EPS with the presentation of basic EPS. It also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
50
<PAGE>
complex capital structures and requires a reconciliation of the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Unvested restricted stock awards are considered
outstanding common shares and included in the computation of basic EPS as of the
date that they are fully vested. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. This Statement is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Bank will adopt this Statement for all
financial statements prepared after the Bank's conversion.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure", which establishes standards for disclosure
about an entity'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 disclosures required by SFAS
No. 129 are for financial statements for periods ending after December 15, 1997.
Management anticipates providing the required information in the March 31, 1998
consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and displaying
comprehensive income. SFAS No. 130 states that comprehensive income includes the
reported net income of an enterprise 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 both interim and annual
periods after December 15, 1997. Management anticipates developing the required
information in accordance with this new Statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosure 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. At this time, management does not
anticipate that the adoption of this Statement will significantly impact the
Company's financial reporting.
BUSINESS OF THE HOLDING COMPANY
The Holding Company, a Delaware corporation, was organized on March 5,
1998 at the direction of the Board of Trustees of the Bank for the purpose of
owning all of the outstanding capital stock of the Bank upon consummation of the
Conversion. Upon consummation of the Conversion, the Holding Company, as the
sole stockholder of the Bank, will be a savings and loan holding company
regulated by the OTS. See "Regulation--Holding Company Regulation."
51
<PAGE>
The Holding Company is currently not an operating company. Following
the Conversion, in addition to directing, planning and coordinating the business
activities of the Bank, the Holding Company will initially invest the proceeds
of the Conversion primarily in federal funds, government and federal agency
mortgage-backed securities, other debt securities, equity securities, deposits
of or loans to the Bank or a combination thereof. In addition, the Holding
Company intends to fund the loan to the ESOP to enable the ESOP to purchase up
to 8% of the Common Stock to be issued in the Conversion, including shares
issued to the Foundation. See "Use of Proceeds." In the future, the Holding
Company may acquire or organize other operating subsidiaries, including other
financial institutions, or it may merge with or acquire other financial
institutions and financial services related companies, although there are no
current plans for any such expansion. Initially, the Holding Company will
neither own nor lease any property but will instead use the premises, equipment
and furniture of the Bank. The Holding Company does not currently intend to
employ any persons other than certain officers of the Bank who will not be
separately compensated by the Holding Company. The Holding Company may utilize
the support staff of the Bank from time to time, if needed. Additional employees
will be hired as appropriate to the extent the Holding Company expands its
business in the future.
BUSINESS OF THE BANK
General
The Bank is a community-oriented mutual savings bank which was
chartered by the State of New York in 1850. The principal business of the Bank
consists of attracting retail deposits from the general public and using those
funds, together with funds from operations and, to a much lesser extent,
borrowings, to originate primarily one- to four-family residential mortgage
loans, including home equity loans, and, to a lesser extent, manufactured home
loans, financed insurance premiums and other consumer loans, commercial real
estate, construction and commercial business loans. The Bank originates its
loans in the Bank's primary market area, with the exception of manufactured home
loans, which are primarily originated outside the Bank's primary market area
including states contiguous with New York, and financed insurance premiums,
which are originated primarily in New York, New Jersey and Pennsylvania. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Bank also invests in corporate debt securities and U.S.
Government and agency obligations. Revenues are derived primarily from interest
on loans and securities.
HCSI offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank's deposit accounts are insured up to
applicable limits by the Federal Deposit Insurance Corporation (the "FDIC"). The
Bank only solicits deposits in its primary market area and does not have
brokered deposits. HCSI is a member of the Federal Home Loan Bank of New York.
Market Area
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. HCSI's primary market area is comprised of
Columbia, Albany and Rensselaer Counties in New York and
52
<PAGE>
portions of Dutchess and Schenectady Counties in New York, which are serviced
through the Bank's main office and eleven other full service banking offices and
one loan production office. The Bank's main office and six of its branch offices
are located in Columbia County. Based on the most recent information available,
the Bank had approximately 59.5% of total bank and thrift deposits in Columbia
County.
HCSI's primary market area consists principally of suburban and rural
communities with service, wholesale/retail trade, government and manufacturing
serving as the basis of the local economy. Service jobs represent the largest
type of employment in the Bank's primary market area, with jobs in
wholesale/retail trade accounting for the second largest employment sector.
Management believes that its market area continues to show economic weakness
with declining real estate values.
Lending Activities
General. The Bank primarily originates fixed- and adjustable-rate, one-
to four-family mortgage loans, including home equity loans, secured by the
borrower's primary residence. Currently, the Bank's general practice is to
originate fixed-rate mortgage loans with terms between 15 and 30 years and to
sell substantially all 30-year fixed rate mortgage loans on the secondary
market. The Bank generally retains 15 and 20-year fixed rate mortgage loans in
its portfolio. The Bank also originates to a lesser extent commercial real
estate, manufactured home, financed insurance premiums and other consumer loans,
construction and commercial business loans. In- market loan originations are
generated by the Bank's marketing efforts, which include print, radio and
television advertising, lobby displays and direct contact with local civic and
religious organizations, as well as by the Bank's present customers, walk-in
customers and referrals from real estate agents, brokers and builders. The
marketing for manufactured home loans is conducted through Tammac Corporation
with which the Bank has an agreement relating to such loans. The marketing for
financed insurance premiums is conducted through the Bank's premium finance
subsidiary. See "-- Consumer Lending." At December 31, 1997, the Bank's total
loan portfolio totaled approximately $511.9 million.
The Bank originates fixed and adjustable rate consumer loans.
Adjustable rate mortgage ("ARM") and consumer loans are originated in order to
increase the percentage of loans with more frequent terms to repricing or
shorter maturities than long-term fixed-rate, one-to four-family mortgage loans.
See "--Loan Portfolio Composition" and "--One- to Four-Family Residential Real
Estate Lending."
Loan applications are initially considered and approved at various
levels of authority, depending on the type and amount of the loan. Bank
employees with lending authority are designated, and their lending limit
authority defined, by the Board of Trustees of the Bank. The approval of the
Bank's Board of Trustees is required for any loans over $250,000. Pursuant to
the Bank's lending policy, senior lending officers may approve loans up to
$250,000. The Bank generally requires personal guarantees for all commercial
loans.
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<PAGE>
At December 31, 1997, the Bank's largest lending relationship consisted
of a commitment to lend up to $10 million pursuant to a warehouse line of credit
to a mortgage broker for residential mortgages. The line of credit is secured by
assignments of the underlying mortgages. The next largest lending relationship
consisted of five loans aggregating approximately $4.0 million primarily secured
by a nursing home. The third largest lending relationship consisted of two loans
totaling approximately $3.5 million secured by a medical office facility. The
fourth largest lending relationship consisted of three loans totaling
approximately $2.3 million secured by a commercial shopping plaza. The fifth
largest lending relationship was a $2.4 million loan secured by a hotel.
Subsequent to December 31, 1997, the Bank extended additional credit to this
borrower to finance the construction of an adjoining restaurant, which increased
the size of this lending relationship to $4.0 million. As of December 31, 1997,
each of the five relationships discussed above were performing in accordance
with their applicable terms.
The types of loans that the Bank may originate are subject to federal
and state laws and regulations. Interest rates charged by the Bank on loans are
affected by the demand for such loans, the supply of money available for lending
purposes and the rates offered by competitors. These factors are in turn
affected by, among other things, economic conditions, monetary policies of the
federal government, including the FRB, and tax policies.
54
<PAGE>
Loan Portfolio Composition. The following table sets forth the
composition of the Bank's loan portfolio in dollar amounts and in percentages as
of the dates indicated.
<TABLE>
<CAPTION>
March 31,
December 31, -----------------------------------------------------------------------------
1997 1997 1996 1995
--------------------- ------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential mortgage . $ 250,649 48.96% $246,462 49.99 $ 214,226 47.53% $225,437 51.37%
Home equity .......... 27,441 5.36 27,630 5.60 26,936 5.98 27,938 6.37
------ ---- ------ ---- ------ ---- ------ ----
Total residential
real estate ..... 278,090 54.32 274,092 55.59 241,162 53.51 253,375 57.74
Commercial ........... 73,902 14.44 67,697 13.73 70,854 15.72 70,328 16.02
Construction ......... 3,980 0.78 2,725 0.55 4,317 0.96 6,446 1.47
----- ---- ----- ---- ----- ---- ----- ----
Total real estate
loans ........... 355,972 69.54 344,514 69.87 316,333 70.19 330,149 75.23
Consumer loans:
Manufactured home
loans ............... 98,307 19.20 92,651 18.79 80,399 17.84 72,184 16.45
Financed insurance
premiums(1) ......... 23,395 4.57 23,535 4.78 13,503 3.00 8,674 1.98
Other consumer loans . 12,140 2.37 11,577 2.35 10,155 2.25 8,448 1.93
------ ---- ------ ---- ------ ---- ----- ----
Total consumer loans 133,842 26.14 127,763 25.92 104,057 23.09 89,306 20.36
Commercial business
loans ............... 13,907 2.72 16,146 3.27 17,393 3.86 13,821 3.15
Warehouse lines of
credit .............. 7,062 1.38 3,567 0.72 11,797 2.62 4,599 1.05
Net deferred loan
costs and unearned
discount ............ 1,115 0.22 1,029 0.22 1,091 0.24 1,000 0.21
----- ---- ----- ---- ----- ---- ----- ----
Total loans .......... 511,898 100.00% 493,019 100.00% 450,671 100.00% 438,875 100.00%
====== ====== ====== ======
Less:
Allowance for loan
losses .............. (6,756) (5,872) (3,546) (3,187)
------ ------ ------ ------
Total loans
receivable, net .. $ 505,142 $487,147 $447,125 $435,688
========= ======== ======== ========
</TABLE>
<PAGE>
March 31,
----------------------------------------------
1994 1993
-------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Real Estate Loans:
Residential mortgage . $ 203,819 49.83% $ 186,874 47.94%
Home equity .......... 26,620 6.51 25,540 6.55
------ ---- ------ ----
Total residential
real estate ..... 230,439 56.34 212,414 54.49
Commercial ........... 65,571 16.03 59,268 15.20
Construction ......... 9,899 2.42 11,159 2.86
- ---------------------- ----- ---- ------ ----
Total real estate
loans ........... 305,909 74.79 282,841 72.55
Consumer loans:
Manufactured home
loans ............... 65,285 15.96 78,858 20.23
Financed insurance
premiums(1) ......... 7,098 1.74 5,248 1.35
Other consumer loans . 7,789 1.90 9,727 2.50
----- ---- ----- ----
Total consumer loans 80,172 19.60 93,833 24.08
Commercial business
loans ............... 12,827 3.14 8,086 2.07
Warehouse lines of
credit .............. 9,520 2.33 8,901 2.28
Net deferred loan
costs and unearned
discount ............ 561 0.14 (3,856) (.98)
--- ---- ------ ----
Total loans .......... 408,989 100.00% 389,805 100.00%
====== ======
Less:
Allowance for loan
losses .............. (2,917) (1,999)
------ ------
Total loans
receivable, net .. $ 406,072 $ 387,806
========= =========
- -------------------
(1) Includes personal as well as commercial insurance premiums.
55
<PAGE>
The following table shows the composition of the Bank's loan portfolio
by fixed-and adjustable-rate as of December 31, 1997.
December 31,
1997
-----------------------------
Amount Percent
------ -------
(Dollars in Thousands)
Fixed-Rate Loans:
Real estate:
Residential(1) .............................. $ 74,528 14.56%
Commercial .................................. 28,556 5.58
--------- ------
Total real estate loans ................... 103,084 20.14
Consumer:
Manufactured home loans ..................... 47,175 9.21
Financed insurance premiums ................. 23,395 4.57
Other consumer loans ........................ 12,140 2.37
--------- ------
Total consumer loans ...................... 82,710 16.15
Commercial business loans ................... 2,084 0.41
--------- ------
Total fixed-rate loans ................... 187,878 36.70
Adjustable-Rate Loans
Real estate:
Residential(1) .............................. 203,562 39.76
Construction ................................ 3,980 0.78
Commercial .................................. 45,346 8.86
--------- ------
Total real estate loans ................... 252,888 49.40
Consumer:
Manufactured home loans ..................... 51,132 9.99
Other consumer loans ........................ -- --
--------- ------
Total consumer loans ...................... 51,132 9.99
Commercial business loans(2) ................ 18,885 3.69
--------- ------
Total adjustable-rate loans ............... 322,905 63.08
Net deferred loan costs and
unearned discount ....................... 1,115 0.22
--------- ------
Total loans ............................... 511,898 100.00%
Less:
Allowance for loan losses ................... (6,756)
-------
Total loans receivable, net ............... $ 505,142
=======
- -----------------
(1) Includes home equity loans.
(2) Includes warehouse lines of credit.
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<PAGE>
The following table illustrates the contractual maturity of the Bank's
loan portfolio at December 31, 1997. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate Loans Consumer Loans
--------------------------- ---------------------------------------
Commercial Financed Other
Residential Commercial Business Manufactured Insurance Consumer
Real Estate(1) Real Estate Loans(2) Home Loans Premiums Loans Total
-------------- ----------- -------- ---------- -------- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts Due:
0 months to 1 year.......... $ 5,706 $11,843 $12,986 $ 222 $23,395 $ 3,174 $57,326
After 1 year:
1 to 2 years.............. 1,165 6,217 707 304 --- 1,227 9,620
2 to 3 years.............. 998 7,213 2,524 608 --- 2,425 13,768
3 to 5 years.............. 6,649 24,280 2,707 2,096 --- 4,287 40,019
5 to 10 years ............ 17,895 13,219 2,045 15,477 --- 811 49,447
10 to 15 years............ 59,037 4,245 --- 42,422 --- 213 105,917
Over 15 years............. 190,620 6,885 --- 37,178 --- 3 234,686
--------- --------- ------------- ------- ------------ ------------ -------
Total due after one year.... 276,364 62,059 7,983 98,085 --- 8,966 453,457
--------- -------- ---------- -------- ------------ --------- -------
Total amount due............ $282,070 $73,902 $ 20,969 $98,307 $23,395 $12,140 510,783
======== ======= ======== ======= ======= =======
Net deferred loan costs
and unearned discount..... 1,115
---------
Total loans............ 511,898
Less:
Allowance for loan losses... (6,756)
--------
Total loans receivable,
net.................... $505,142
========
</TABLE>
- ------------
(1) Includes home equity and construction loans.
(2) Includes warehouse lines of credit.
57
<PAGE>
The following table sets forth the dollar amounts in each loan category
at December 31, 1997 that are contractually due after December 31, 1998, and
whether such loans have fixed interest rates or adjustable interest rates.
Due after December 31, 1998
-------------------------------------
Fixed Adjustable Total
----- ---------- -----
(In Thousands)
Residential real estate(1) ........... $ 74,222 $202,142 $276,364
Commercial real estate ............... 23,671 38,388 62,059
Commercial business loans(2) ......... 1,884 6,099 7,983
Manufactured home loans ............. 47,135 50,950 98,085
Other consumer loans ............... 8,966 -- 8,966
-------- -------- --------
Total ................................ $155,878 $297,579 $453,457
======== ======== ========
- -----------
(1) Includes home equity loans.
(2) Includes warehouse lines of credit.
Residential Real Estate Lending
HCSI's residential real estate loans consist of primarily one- to
four-family, owner occupied mortgage loans, including home equity loans. At
December 31, 1997, $278.1 million, or 54.3% of HCSI's total loans consisted of
one- to four-family residential first mortgage loans and home equity loans. Of
such loans, $27.4 million, or 5.4% of total loans receivable, consisted of home
equity loans secured by the borrower's primary residence. At December 31, 1997,
approximately $74.5 million of HCSI's one- to four-family residential first
mortgage loans and home equity loans provided for fixed rates of interest and
for repayment of principal over a fixed period not to exceed 30 years. HCSI does
not originate fixed-rate loans for terms longer than 30 years. HCSI's fixed-rate
one- to four-family residential mortgage loans and home equity loans are priced
competitively with the market. Accordingly, HCSI attempts to distinguish itself
from its competitors based on quality of service.
HCSI generally underwrites its fixed-rate one- to four-family
residential first mortgage loans using accepted secondary market standards. The
Bank sells substantially all fixed-rate residential mortgage loans it originates
with terms in excess of 20 years to the secondary market, and continues to
service substantially all the loans it sells. HCSI generally holds for
investment all adjustable and 15 and 20 year fixed one- to four-family
residential first mortgage loans it originates. In underwriting one- to
four-family residential first mortgage loans, HCSI evaluates, among other
things, the borrower's ability to make monthly payments and the value of the
property securing the loan. Properties securing real estate loans made by HCSI
are appraised by independent fee appraisers approved by the Bank's Board of
Trustees. HCSI requires borrowers to obtain title insurance, and fire and
property insurance (including flood insurance, if necessary) in an amount not
less than the amount of the loan.
58
<PAGE>
The Bank currently offers one- and three-year residential ARM loans
with an interest rate that adjusts annually in the case of one-year ARM loans,
and every three years in the case of a three-year ARM loan, based on the change
in the relevant United States Treasury index. These loans provide for up to a
2.0% periodic cap and a lifetime cap of 6.0% over the initial rate. As a
consequence of using caps, the interest rates on these loans may not be as rate
sensitive as the Bank's cost of funds. Borrowers of one-year residential ARM
loans are generally qualified at a rate of 2.0% above the initial interest rate.
The Bank offers ARM loans that are convertible into fixed-rate loans with
interest rates based upon the then current market rates. ARM loans generally
pose greater credit risks than fixed-rate loans, primarily because as interest
rates rise, the required periodic payment by the borrower rises, increasing the
potential for default. However, as of December 31, 1997, the Bank had not
experienced higher default rates on these loans relative to its other loans. See
"--Asset Quality-Non-Performing Assets."
The Bank's one- to four-family mortgage loans do not contain prepayment
penalties and do not permit negative amortization of principal. Real estate
loans originated by the Bank generally contain a "due on sale" clause allowing
the Bank to declare the unpaid principal balance due and payable upon the sale
of the security property. The Bank has waived the due on sale clause on loans
held in its portfolio from time to time to permit assumptions of the loans by
qualified borrowers.
Generally, HCSI does not originate residential mortgage loans where the
ratio of the loan amount to the value of the property securing the loan (i.e.,
the "loan-to-value" ratio) exceeds 95%, although HCSI may lend up to 97% of the
value of the property securing the loan. If the loan-to-value ratio exceeds 80%,
HCSI generally requires that the borrower obtain private mortgage insurance in
amounts intended to reduce the Bank's exposure to 80% or less of the lower of
the appraised value or the purchase price of the property securing the loan. See
"-- Loan Origination and Sale of Loans."
HCSI's home equity loans and lines of credit are secured by a lien on
the borrower's residence and generally do not exceed $250,000. HCSI uses the
same underwriting standards for home equity loans as it uses for one- to
four-family residential mortgage loans. Home equity loans are generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 80% of the appraised value of the property securing the loan. The
interest rates for home equity loans and lines of credit either float at a
stated margin over the prime rate or have fixed interest rates. Home equity
lines of credit require interest and principal payments on the outstanding
balance for the term of the loan. The terms of the Bank's home equity lines of
credit are generally five years, with a 15- year payback period. The Bank also
has home equity lines of credit with terms of ten years, with a 20-year payback
period; such lines of credit are not frequently utilized. As of December 31,
1997, HCSI had $27.4 million, or 5.4% of the Bank's total loan portfolio
outstanding, in home equity loans and lines of credit, with an additional $11.9
million of unused home equity lines of credit.
Commercial Real Estate Lending
The Bank has engaged in commercial real estate lending secured
primarily by apartment buildings, office buildings, motels, nursing homes, strip
shopping centers and mobile home parks
59
<PAGE>
located in the Bank's primary market area. At December 31, 1997, the Bank had
$73.9 million of commercial real estate loans, representing 14.4% of the Bank's
total loan portfolio.
Commercial real estate loans generally have adjustable rates and terms
to maturity that do not exceed 25 years. HCSI's current lending guidelines
generally require that the property securing a loan generate net cash flows of
at least 125% of debt service after the payment of all operating expenses,
excluding depreciation, and the loan-to-value ratio not exceed 75% on loans
secured by such properties. As a result of a decline in the value of some
properties in the Bank's primary market area and due to economic conditions, the
current loan-to-value ratio of some commercial real estate loans in the Bank's
portfolio may exceed the initial loan-to-value ratio and the current debt
service ratio may exceed the initial debt service ratio. Adjustable rate
commercial real estate loans provide for interest at a margin over a designated
index, often a designated prime rate, with periodic adjustments, generally at
frequencies of up to five years. In underwriting commercial real estate loans,
the Bank analyzes the financial condition of the borrower, the borrower's credit
history, the reliability and predictability of the net income generated by the
property securing the loan and the value of the property itself. The Bank
generally requires personal guarantees of the borrowers in addition to the
security property as collateral for such loans. Appraisals on properties
securing commercial real estate loans originated by the Bank are performed by
independent fee appraisers approved by the Board of Trustees.
Commercial real estate loans generally 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 effect of general economic conditions on income
producing properties and the increased difficulty of evaluating and monitoring
these types of loans. Furthermore, the repayment of loans secured by commercial
real estate is typically 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, or a bankruptcy court modifies a lease
term, or a major tenant is unable to fulfill its lease obligations), the
borrower's ability to repay the loan may be impaired and the value of the
property may be reduced.
Construction Lending
HCSI makes construction loans to individuals for the construction of
their personal residences. The Bank has occasionally made loans to builders for
the construction of homes. The Bank generally requires construction stage
inspections before funds may be released to borrowers pursuant to such loans.
Such inspections are generally performed by Bank personnel or independent fee
appraisers approved by the Bank's Board of Trustees.
At December 31, 1997, the Bank's construction loan portfolio totaled
$4.0 million, or .8% of its total loan portfolio. Substantially all of these
construction loans were to individuals intending to occupy the homes being
constructed and were secured by properties located within the Bank's primary
market area. Although no construction loans were classified as non-performing as
of December 31, 1997, such loans do involve a higher level of risk than
conventional one- to four-family residential mortgage loans. For example, if a
project is not completed and the borrower defaults, HCSI may have to hire
another contractor to complete the project at a higher cost.
60
<PAGE>
Consumer Lending
HCSI offers a variety of secured and unsecured consumer loans,
including manufactured home loans (i.e., mobile and modular homes), financed
insurance premiums and, to a lesser extent, lines of credit and loans secured by
automobiles. Substantially all of the Bank's manufactured home loans and
financed insurance premium loans are originated outside the Bank's primary
market area. The balance of the Bank's consumer loans are originated inside the
Bank's market area. At December 31, 1997, the Bank's consumer loan portfolio
totaled $133.8 million, or 26.1% of the Bank's total loan portfolio.
The underwriting standards employed by the Bank for consumer loans
other than financed insurance premiums generally include a determination of the
applicant's payment history on other debts and an assessment of ability to meet
existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is the primary consideration, the underwriting
process also includes a comparison of the value of the property securing the
loan, if any, in relation to the proposed loan amount. For information regarding
underwriting of financed insurance premiums, see "- Financed Insurance
Premiums."
Manufactured Home Loans. In order to expand its origination of
manufactured home lending, the Bank is party to an agreement with Tammac
Corporation ("Tammac"), pursuant to which Tammac solicits manufactured home loan
applications on behalf of the Bank. Under the agreement, the Bank may refuse to
accept for any reason any application referred to it by Tammac. Tammac provides
certain collection services to the Bank, which include, for any loan that is
more than 30 days past due, attempting to cause the borrower to pay delinquent
installments and to bring his or her delinquent loan payments up to date. Tammac
also provides repossession and liquidation services, at the direction of the
Bank, for certain delinquent loans. Tammac is paid a fixed percentage of the
amount financed by the borrower and does not receive additional compensation for
collection, repossession or any other services provided to the Bank.
Substantially all of the manufactured home loans originated by the Bank have
been referred to it by Tammac. See "Risk Factors--Source of Manufactured Home
Loan Applications."
Manufactured home loans represent the largest component of the Bank's
consumer loan portfolio. At December 31, 1997, the Bank's portfolio of
manufactured home loans totaled $98.3 million, or 19.2% of its total loan
portfolio. HCSI's manufactured home loans are typically originated at a higher
rate than one- to four-family residential first mortgage loans, and generally
have terms of up to 20 years. Historically, HCSI's manufactured home loans have
been made with both fixed and adjustable rates of interest. Currently, however,
the Bank originates only fixed rate manufactured home loans. The Bank's
adjustable-rate manufactured home loans typically have an interest rate of 4%
above the one year United States Treasury index, adjusted annually, with a 2%
maximum annual adjustment and a 16% interest rate cap. The initial interest rate
represents the floor. Because the loan may be based on the cost of the
manufactured home as well as improvements and because manufactured homes may
decline in value due to wear and tear following their initial sale, the value of
the collateral securing a manufactured home loan may be substantially less than
the loan balance. At the time of origin, inspections are made to substantiate
current market values on all manufactured homes.
61
<PAGE>
Financed Insurance Premiums. The second largest component of the Bank's
consumer loan portfolio is financed insurance premiums. The Bank conducts such
lending through a general partnership known as Premium Payment Plan ("PPP") in
which Hudson City Associates, Inc., a wholly owned subsidiary of the Bank, holds
a 65% ownership interest. The remaining 35% interest is held by F.G.O.
Corporation, which is responsible for the marketing of PPP's business. Hudson
City Associates receives 65% of any profits but absorbs 100% of any losses of
PPP. No profit distributions are made to F.G.O. Corporation until any past
losses have been recouped. PPP is currently licensed to provide insurance
premium financing in nine states, but does business primarily in New York, New
Jersey and Pennsylvania. Management estimates that approximately 75% of premiums
financed are for non-standard and sub-standard (assigned risk) personal
automobile insurance and the remaining 25% are for various commercial lines of
insurance. Interest rates charged on these loans are substantially higher than
those charged on other types of loans. Terms on these loans are primarily eight
months.
The Bank has experienced a relatively high level of delinquencies in
its financed insurance premium portfolio resulting in higher charge-offs. See
"--Asset Quality - Non-Performing Assets." The Bank may continue to experience a
high level of delinquencies and charge-offs in this class of loans due to the
nature of this type of lending. The underwriting of these loans is generally not
based upon the credit risk of the borrower. In the typical case, Bank funds are
advanced to the insurance company for the full amount of the premium upon
receipt of a down payment from the insured. If the insured defaults on the loan,
the Bank sustains a loss to the extent the premium has been earned by (and is
therefore unrecoverable from) the insurance company. The Bank's most significant
exposure to loss occurs when the initial insurance premium quoted by an
insurance broker, and used as the basis for the loan and the related down
payment, is increased by the underwriting insurance company subsequent to making
the loan. In these instances, if the borrower decides not to pay the increased
premium amount, the Bank is left with an insufficient down payment, relative to
the increased premium, and little or no collateral in the way of insurance
premiums refundable by the insurance company. Accordingly, writing financed
insurance premiums through insurance brokers who accurately quote the initial
insurance premium is critical to this type of lending. At December 31, 1997, the
Bank had $23.4 of financed insurance premiums through PPP, representing 4.6% of
the Bank's total loan portfolio.
Consumer loans may entail greater credit risk than residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by assets which may decline in value. 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 high initial
loan-to-value ratios, repossession, rehabilitation and carrying costs, and the
greater likelihood of damage, loss or depreciation of the property, and thus are
more likely to be affected by adverse personal circumstances. In the case of
manufactured home loans, which may have loan balances in excess of the resale
value of the collateral, borrowers may abandon the collateral property making
repossession by the Bank and subsequent losses more likely. The application of
various federal and state laws, including bankruptcy and insolvency laws, may
limit the amount which can be recovered on consumer loans, including
manufactured home loans.
62
<PAGE>
Commercial Business Lending
At December 31, 1997, commercial business loans comprised $13.9
million, or 2.7% of the Bank's total loan portfolio. Most of the Bank's
commercial business loans have been extended to finance local businesses and
include primarily short term loans to finance machinery and equipment purchases,
inventory and accounts receivable. Commercial business loans also involve the
extension of revolving credit for a combination of equipment acquisitions and
working capital needs.
The terms of loans extended on machinery and equipment are based on the
projected useful life of such machinery and equipment, generally not to exceed
seven years. Lines of credit are available to borrowers provided that the
outstanding balance is paid in full (i.e., the credit line has a zero balance)
for at least 30 days every year. All lines of credit are reviewed on an annual
basis. In the event the borrower does not meet this 30 day requirement, the line
of credit may be terminated and the outstanding balance may be converted into a
fixed term loan. The Bank has a few standby letters of credit outstanding which
are offered at competitive rates and terms and are generally on a secured basis.
Unlike residential mortgage loans, commercial business loans are
typically 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, is often dependent in part upon
general economic conditions). The Bank's commercial business loans are usually,
but not always, secured by business assets. However, the collateral securing the
loans may depreciate over time, may be difficult to appraise and may fluctuate
in value based on the success of the business.
HCSI's commercial business lending policy includes credit file
documentation and analysis of the borrower's background, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of other conditions affecting the borrower. Analysis of the
borrower's past, present and future cash flows is also an important aspect of
HCSI's current credit analysis. The Bank generally obtains personal guarantees
on its commercial business loans. Nonetheless, such loans are believed to carry
higher credit risk than more traditional savings bank loans.
Warehouse Lines of Credit. The Bank maintains a $10.0 million warehouse
line of credit with a mortgage brokerage service located in the Capital District
area of New York. The mortgage brokerage service primarily originates
residential real estate loans in the Bank's market area. The line of credit is
secured by assignments of the underlying mortgages. At December 31, 1997, the
Bank had $7.1 million outstanding under this warehouse line of credit.
Loan Originations and Sales
Mortgage and commercial loan originations are developed from the
continuing business with depositors and borrowers, soliciting realtors and other
brokers and walk-in customers. Residential and commercial loans are originated
by the Bank's staff of salaried and commissioned loan officers. Manufactured
home loans are originated indirectly through Tammac Corporation (see "- Consumer
63
<PAGE>
Lending - Manufactured Home Loans.") and financed insurance premiums are
originated through a partnership of the Bank's wholly owned subsidiary, Hudson
City Associates, Inc. and its relationship with insurance brokers (see "-
Consumer Lending - Financed Insurance Premiums.")
While the bank originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon demand for loans in the markets in
which it serves. Demand is affected by the applicable local economies and the
interest rate environment. The Bank generally retains new 15 and 20 year
fixed-rate and 30 year adjustable-rate real estate loans in its portfolio. To
reduce its vulnerability to changes in interest rates, the Bank's general
practice is to sell in the secondary market all conforming fixed rate
residential loans with maturities of greater than 20 years. The Bank's general
practice is to retain servicing on the loans it sells. At December 31, 1997, the
Bank serviced approximately $56.2 million of loans for others.
For the nine months ended December 31, 1997, the Bank originated $155.8
million of loans. During the year ended March 31, 1997, the Bank originated
$196.8 million of loans, compared to $127.0 million in fiscal 1996.
In periods of economic uncertainty, the Bank's ability to originate
large dollar volumes of loans with acceptable underwriting characteristics may
be substantially reduced or restricted which may result in a decrease in
operating earnings.
64
<PAGE>
The following table shows the loan origination and repayment activities
of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Residential Commercial Commercial Warehouse Financed Other
Real Estate Real Estate Business Lines of Manufactured Insurance Consumer
Loans(1) Loans Loans Credit(2) Home Loans Premiums Loans Subtotals
-------- ----- ----- --------- ---------- -------- ----- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
March 31, 1995 ............ $ 259,821 $ 70,328 $ 13,821 $ 4,599 $ 72,184 $ 8,674 $ 8,448 $ 437,875
Add: loan originations,
other advances and
transfers ................ 27,246 9,145 16,997 7,198 23,402 34,417 8,601 127,006
Less: principal repayments
and other reductions ...... (41,477) (8,524) (13,425) -- (14,815) (29,015) (6,848) (114,104)
Less: charge-offs .......... (111) (95) -- -- (372) (573) (46) (1,197)
--------- -------- --------- -------- -------- -------- -------- ---------
Balance as of
March 31, 1996 ............ 245,479 70,854 17,393 11,797 80,399 13,503 10,155 449,580
Add: loan originations,
other advances and
transfers ................ 68,086 14,030 13,201 -- 26,773 63,932 10,749 196,771
Less: principal repayments
and other reductions ...... (36,586) (16,733) (14,321) (8,230) (14,305) (52,830) (9,286) (152,291)
Less: charge-offs .......... (162) (454) (127) -- (216) (1,070) (41) (2,070)
--------- -------- -------- ------- -------- -------- ------- ---------
Balance as of
March 31, 1997 ............ 276,817 67,697 16,146 3,567 92,651 23,535 11,577 491,990
Add: loan originations,
other advances and
transfers ................ 49,879 12,160 11,601 3,495 17,222 54,233 7,189 155,779
Less: principal repayments
and other reductions ...... (44,235) (4,722) (11,531) -- (11,235) (52,765) (6,545) (131,033)
Less: charge-offs .......... (391) (1,233) (2,309) -- (331) (1,608) (81) (5,953)
--------- --------- --------- --------- --------- --------- --------- ----------
Balance as of
December 31, 1997 ......... $ 282,070 $ 73,902 $ 13,907 $ 7,062 $ 98,307 $ 23,395 $ 12,140 $ 510,783
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
Net Deferred
Loan Costs
and Unearned Total
Discount Loans
-------- -----
(In thousands)
Balance as of
March 31, 1995 .............................. $ 1,000 $438,875
======== ========
Add: loan originations,
other advances and
transfers ..................................
Less: principal repayments
and other reductions ........................
Less: charge-offs ............................
Balance as of
March 31, 1996 .............................. $ 1,091 $450,671
======== ========
Add: loan originations,
other advances and
transfers ..................................
Less: principal repayments
and other reductions ........................
Less: charge-offs ............................
Balance as of
March 31, 1997 .............................. $ 1,029 $493,019
======== ========
Add: loan originations,
other advances and
transfers ..................................
Less: principal repayments
and other reductions ........................
Less: charge-offs ............................
Balance as of December 31, 1997 .............. $ 1,115 $511,898
======== ========
- -------------
(1) Includes home equity and construction loans.
(2) Activity represents the net drawdowns and repayments.
65
<PAGE>
Asset Quality
Delinquency Procedures. When a borrower fails to make a required
payment on a one- to four-family residential mortgage loan, the Bank attempts to
cure the deficiency by contacting the borrower. Written contacts are made after
payment is 15 days past due and, in most cases, deficiencies are cured promptly.
If the delinquency is not cured by the 30th day, the Bank attempts to contact
the borrower by telephone to arrange payment of the delinquency. If these
efforts have not resolved the delinquency within 45 days after the due date, a
second written notice is sent to the borrower, and on the 60th day a notice is
sent to the borrower warning that foreclosure proceedings will be commenced
unless the delinquent amount is paid. If the delinquency has not been cured
within a reasonable period of time after the foreclosure notice has been sent,
the Bank may obtain a forbearance agreement or may institute appropriate legal
action to foreclose upon the property. If foreclosed, property collateralizing
the loan is sold at a public sale and may be purchased by the Bank. If the Bank
is in fact the successful bidder at the foreclosure sale, upon receipt of a deed
to the property, the Bank generally sells the property at the earliest possible
date.
Collection efforts on consumer and commercial real estate loans are
similar to efforts on one- to four-family residential mortgage loans, except
that collection efforts on consumer and commercial real estate loans generally
begin within 15 days after the payment date is missed. In the case of
manufactured home loans, the Company's agreement with Tammac requires Tammac to
provide collection services on any loan that is more than 30 days past due. The
Bank also maintains periodic contact with commercial loan customers and monitors
and reviews the borrowers' financial statements and compliance with debt
covenants on a regular basis.
Real estate and other assets acquired by the Bank as a result of
foreclosure or by deed-in-lieu of foreclosure or repossession are classified as
Other Real Estate Owned ("OREO") and Repossessed Property until sold. When
property is classified as OREO and Repossessed Property, it is recorded at the
lower of cost or fair value (net of disposition costs) at that date and any
writedown resulting therefrom is charged to the allowance for loan losses.
Subsequent writedowns are charged to operating expenses. Net expense from OREO
is expensed as incurred.
66
<PAGE>
Non-Performing Assets. The table below sets forth the amounts and
categories of non-performing assets. Loans are generally placed on non-accrual
status when the loan is contractually past due 90 days or more or when the
collection of principal and/or interest in full becomes doubtful. When loans are
designated as non-accrual, all accrued but unpaid interest is reversed against
current period income and, as long as the loan remains on non-accrual status,
interest is recognized only when received, if considered appropriate by
management. Foreclosed assets include assets acquired in settlement of loans.
<TABLE>
<CAPTION>
March 31,
December 31, ----------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Non-accruing loans:
<S> <C> <C> <C> <C> <C> <C>
Residential real estate(1)....... $4,485 $4,553 $3,496 $1,900 $2,418 $2,198
Commercial real estate........... 4,279 3,239 1,587 1,884 1,805 2,651
Commercial business.............. --- 2,318 75 27 125 112
Manufactured home loans.......... 3,241 2,260 1,597 1,581 1,363 1,125
Financed insurance premiums...... 3,013 2,867 1,527 819 1,114 1,172
Other consumer loans............. 63 45 4 10 39 96
------ -------- -------- ------- ------- --------
Total....................... 15,081 15,282 8,286 6,221 6,864 7,354
------ ------ ----- ----- ----- -----
Accruing loans contractually
past due 90 days or more:
Residential real estate(1)....... 435 570 1,262 400 125 617
Commercial real estate........... 867 3,874 1,316 591 1,686 1,131
Commercial business.............. --- 244 --- --- --- ---
Manufactured home loans.......... --- --- 22 16 63 54
Financed insurance premiums...... --- --- --- --- --- ---
Other consumer loans............. --- 23 --- 122 473 237
------ -------- -------- ------ ------ -------
Total....................... 1,302 4,711 2,600 1,129 2,347 2,039
------ ------- ----- ----- ----- ------
Total non-performing loans......... 16,383 19,993 10,886 7,350 9,211 9,393
====== ====== ====== ===== ===== =====
Foreclosed assets:
Residential real estate.......... 59 48 160 49 10 250
Commercial real estate........... 300 2,860 921 726 1,969 569
Repossessed property............. 700 539 635 503 577 468
------ ------- ------ ------ ------ ------
Total....................... 1,059 3,447 1,716 1,278 2,556 1,287
====== ====== ===== ===== ===== =====
Total non-performing assets........ 17,442 23,440 12,602 8,628 11,767 10,680
====== ====== ====== ===== ====== ======
Allowance for loan losses.......... 6,756 5,872 3,546 3,187 2,917 1,999
====== ======= ======= ===== ======= =======
Allowance for loan losses
as a percentage of
non-performing loans.............. 41.24% 29.37% 32.57% 43.36% 31.67% 21.28%
====== ====== ======= ===== ====== ======
Non-performing loans as
a percentage of total loans....... 3.20% 4.06% 2.42% 1.67% 2.25% 2.41%
==== ==== ==== ==== ==== ====
Non-performing assets
as a percentage of total assets... 2.62% 3.60% 2.02% 1.50% 2.12% 2.07%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------
(1) Includes home equity loans.
Non-Accruing Loans. At December 31, 1997, the Bank had approximately
$15.1 million in non-accruing loans, which constituted 2.9% of the Bank's total
loan portfolio. As of such date, there
67
<PAGE>
were no non-accruing loans or aggregate non-accruing loans-to-one-borrower in
excess of $1.0 million.
For the year ended March 31, 1997 and for the nine months ended
December 31, 1997, gross interest income which would have been recorded had the
non-accruing loans been current in accordance with their original terms amounted
to $1.5 million and $1.1 million, respectively. The amounts that were included
in interest income on such loans were $937 thousand and $586 thousand for the
year ended March 31, 1997, and for the nine months ended December 31, 1997,
respectively, which represented actual receipts. During the periods shown, there
were no troubled debt restructurings.
Accruing Loans Contractually Past Due 90 Days or More. As of December
31, 1997, the Bank had approximately $1.3 million in accruing loans
contractually past due 90 days or more. At December 31, 1997, there were no
accruing loans contractually past due 90 days or more in excess of $1.0 million.
Other Loans of Concern. As of December 31, 1997, there were $6.2
million of other loans not included in the table or discussed above where known
information about the possible credit or other problems of borrowers caused
management to have doubts as to the ability of the borrower to comply with
present loan repayment terms.
The largest of such other loans of concern was a $1.1 million
commercial real estate loan. Although this loan is current and has never been
delinquent, environmental issues related to the property require management to
monitor this loan closely.
There were no other loans in excess of $1.0 million being specially
monitored by the Bank as of December 31, 1997. These loans 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 replenished
through a provision for loan losses charged to operations. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Recoveries on loans previously
charged-off are credited to the allowance for loan losses. The allowance is an
amount that management believes will be adequate to absorb losses on existing
loans that may become uncollectible. Management's evaluation of the adequacy of
the allowance for loan losses is performed on a periodic basis and takes into
consideration such factors as the historical loan loss experience, changes in
the nature and volume of the loan portfolio, overall portfolio quality, review
of specific problem loans and current economic conditions that may affect
borrowers' ability to pay.
Although management believes that it uses the best information
available to determine the allowance, unforeseen market conditions could result
in adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in determining the level of the
allowance. Future additions to the Bank's allowance will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. In addition, regulatory agencies, as an integral part of the
examination process, periodically review the Bank's allowance
68
<PAGE>
for loan losses. Such agencies may require the Bank to recognize additions to
the allowance based upon their judgment of the information available to them at
the time of their examination. At December 31, 1997, the Bank had a total
allowance for loan losses of $6.8 million, representing 41.2% of total
non-performing loans.
The following table sets forth an analysis of the Bank's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended March 31,
December 31, ---------------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total loans outstanding
(end of period) ......................... $ 511,898 $ 493,019 $ 450,671 $ 438,875 $ 408,989 $ 389,805
========= ========= ========= ========= ========= =========
Average total loans
outstanding(period to date) ............. 509,634 471,295 444,645 424,187 422,752 376,218
========= ========= ========= ========= ========= =========
Allowance for loan losses
at beginning of period .................. 5,872 3,546 3,187 2,917 1,999 1,994
Loan charge-offs:
Residential real estate(1) ............. (391) (162) (111) (88) (9) (360)
Commercial real estate ................. (1,233) (454) (95) (36) (41) (943)
Commercial business(2) ................. (2,309) (127) -- (86) (113) (118)
Manufactured home loans ................ (331) (216) (372) (288) (95) (10)
Financed insurance premiums ............ (1,608) (1,070) (573) (711) (97) (939)
Other consumer loans ................... (81) (41) (46) (54) (31) (323)
--------- --------- --------- --------- --------- ---------
Total charge-offs ................... (5,953) (2,070) (1,197) (1,263) (386) (2,693)
--------- --------- --------- --------- --------- ---------
Loan recoveries:
Residential real estate(1) ............. 8 3 21 93 -- 8
Commercial real estate ................. 17 11 16 7 -- 45
Commercial business(2) ................. 7 74 6 4 1 1
Manufactured home loans ................ 82 45 70 33 18 15
Financed insurance premiums ............ 284 386 261 161 -- --
Other consumer loans ................... 31 51 49 66 84 86
--------- --------- --------- --------- --------- ---------
Total recoveries .................... 429 570 423 364 103 155
--------- --------- --------- --------- --------- ---------
Loan charge-offs, net
of recoveries ........................... (5,524) (1,500) (774) (899) (283) (2,538)
Provision charged to
operations .............................. 6,408 3,826 1,090 1,169 1,201 2,543
Allowance acquired from
acquisition ............................. -- -- 43 -- -- --
--------- --------- --------- --------- --------- ---------
Allowance for loan losses
at end of period ........................ 6,756 5,872 3,546 3,187 2,917 1,999
========= ========= ========= ========= ========= =========
Ratio of net charge-offs
during the period to
average loans outstanding
during the period ....................... 1.08% 0.32% 0.17% 0.21% 0.07% 0.67%
========= ========= ========= ========= ========= =========
Provision as a percentage
of average loans ........................ 1.26% 0.81% 0.25% 0.28% 0.28% 0.68%
========= ========= ========= ========= ========= =========
Allowance as a percentage
of non-performing loans ................. 41.24% 29.37% 32.57% 43.36% 31.67% 21.28%
========= ========= ========= ========= ========= =========
Allowance as a percentage
of total loans (end
of period) .............................. 1.32% 1.19% 0.79% 0.73% 0.71% 0.51%
========= ========= ========= ========= ========= =========
</TABLE>
- ---------
(1) Includes home equity and construction loans.
(2) Includes warehouse lines of credit.
69
<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 Bank. 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 may be 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>
March 31,
December 31, ----------------------------------------------------------------------
1997 1997 1996
------------------------------- -------------------------------- -----------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Percent of in Each Percent of in Each Percent of in Each
Allowance Allowance Category Allowance Allowance Category Allowance Allowance Category
for Loan to Total to Total for Loan to Total to Total for Loan to Total to Total
Losses Allowance Loans Losses Allowance Loans Losses Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in Thousands)
Allocation of allowance
for loan losses:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate(1) $1,285 19.02% 55.10% $ 998 17.00% 56.14% $ 846 23.86% 54.47%
Commercial real estate ... 1,719 25.44 14.44 758 12.91 13.73 658 18.56 15.72
Commercial business ...... 154 2.28 4.10 1,833 31.21 3.99 213 6.01 6.48
loans(2)
Manufactured home loans .. 1,879 27.81 19.20 1,040 17.71 18.79 1,049 29.58 17.84
Financed insurance ....... 1,479 21.90 4.57 1,127 19.19 4.78 442 12.46 3.00
premiums
Other consumer loans ..... 134 1.98 2.37 52 0.89 2.35 25 0.70 2.25
Net deferred loan costs
and unearned discount ... -- -- 0.22 -- -- 0.22 -- -- 0.24
Unallocated .............. 106 1.57 -- 64 1.09 -- 313 8.83 --
--- ---- ---- -- ---- ---- --- ---- ----
Total .................. $6,756 100.00% 100.00% $5,872 100.00% 100.00% $3,546 100.00% 100.00%
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- -------------------------------- ----------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Percent of in Each Percent of in Each Percent of in Each
Allowance Allowance Category Allowance Allowance Category Allowance Allowance Category
for Loan to Total to Total for Loan to Total to Total for Loan to Total to Total
Losses Allowance Loans Losses Allowance Loans Losses Allowance Loans
------ --------- ----- ------ --------- ----- ------ --------- -----
(Dollars in Thousands)
Allocation of allowance
for loan losses:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate(1) $ 815 25.57% 59.21% $ 480 16.46% 58.76% $ 826 41.32% 57.35%
Commercial real estate ... 538 16.88 16.02 356 12.20 16.03 287 14.36 15.20
Commercial business ...... 275 8.63 4.20 157 5.38 5.47 169 8.46 4.35
loans(2)
Manufactured home loans .. 699 21.93 16.45 418 14.33 15.96 334 16.71 20.23
Financed insurance ....... 272 8.54 1.98 355 12.17 1.74 184 9.20 1.35
premiums
Other consumer loans ..... 24 0.75 1.93 49 1.68 1.90 91 4.55 2.50
Net deferred loan costs
and unearned discount ... -- -- 0.21 -- -- 0.14 -- -- (0.98)
Unallocated .............. 564 17.70 -- 1,102 37.78 -- 108 5.40 --
--- ----- ---- ----- ----- ---- --- ---- ----
Total .................. $3,187 100.00% 100.00% $2,917 100.00% 100.00% $1,999 100.00% 100.00%
====== ====== ======
</TABLE>
- -------------
(1) Includes home equity and construction loans.
(2) Includes warehouse lines of credit.
70
<PAGE>
Investment Activities
The Bank is authorized 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, the Bank may also invest its assets in
investment grade commercial paper and corporate debt securities and mutual funds
whose assets conform to the investments that the Bank is otherwise authorized to
make directly.
Generally, the investment policy of the Bank is to invest funds among
various categories of investments and maturities based upon the Bank's need for
liquidity, to achieve the proper balance between its desire to minimize risk and
maximize yield, and, to a much lesser extent, to provide collateral for
borrowings and to fulfill the Bank's asset/liability management policies. To
date, the Bank's investment strategy has been directed toward high-quality
assets (primarily federal agency obligations and high grade corporate debt
securities) with short and intermediate terms (five years or less) to maturity.
At December 31, 1997, the weighted average term to maturity or repricing of the
security portfolio was 2.8 years. This did not take into account securities
which may be called prior to their contractual maturity or repricing. See Notes
3 and 4 of the Notes to Consolidated Financial Statements for information
regarding the maturities of the Bank's securities.
Management determines the appropriate classification of securities at
the time of purchase. If management has the intent and ability to hold debt
securities to maturity, they are stated at amortized cost. If securities are
purchased for the purpose of selling them in the near term, they are classified
as trading securities and are reported at fair value with unrealized holding
gains and losses reflected in current earnings. All other debt and marketable
equity securities are classified as securities available for sale and are
reported at fair value, with net unrealized gains or losses reported, net of
income taxes, as a separate component of equity. As a member of the FHLB of New
York, the Bank is required to hold FHLB of New York stock which is carried at
cost since there is no readily available market value. Historically, the Bank
has not held any securities considered to be trading securities.
71
<PAGE>
The following table sets forth the composition of the Bank's securities
portfolios at the dates indicated.
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------------------
December 31, 1997 1997 1996 1995
------------------ ----------------- ------------------ ------------------
Carrying % of Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total Value Total
----- ----- ----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Securities available for sale, at fair value:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and Agency securities......... $36,943 85.35% $37,329 81.82% $33,452 65.05% $2,937 29.78%
Corporate debt securities..................... 6,339 14.65 8,294 18.18 17,977 34.95 6,926 70.22
-------- ----- ------- ------- -------- ------- ------- -------
Total securities available for sale......... $43,282 100.00% $45,623 100.00% $51,429 100.00% $9,863 100.00%
======= ====== ======= ====== ======= ====== ====== ======
Investment securities, at amortized cost:
U.S. Government and Agency securities......... $19,974 28.04% $17,960 22.71% $13,957 16.81% $14,937 16.67%
Mortgage-backed securities.................... 4,517 6.34 3,050 3.86 4,221 5.09 2,591 2.89
Corporate debt securities..................... 46,743 65.61 57,648 72.91 63,557 76.57 69,238 77.29
State, county and municipal.................... 10 .01 410 .52 1,268 1.53 2,820 3.15
-------- -------- -------- -------- -------- -------- --------- ------
Total investment securities................. $71,244 100.00% $79,068 100.00% $83,003 100.00% $89,586 100.00%
======= ====== ======= ====== ======= ====== ======= ======
Investment securities, at fair value............ $71,608 100.51% $78,753 99.60% $83,122 100.14% $87,608 97.79%
======= ====== ======= ===== ======= ====== ======= =====
</TABLE>
72
<PAGE>
The following table sets forth information regarding the scheduled
maturities, amortized cost, and weighted average yields for the Bank's
securities portfolios at December 31, 1997 by contractual maturity. The table
does not take into consideration the effects of scheduled repayments or possible
prepayments.
<TABLE>
<CAPTION>
Less than 1 year 1 to 5 years 5 to 10 years Over 10 years
--------------------- -------------------- -------------------- --------------------
Weighted Weighted Weighted Weighted
Amortized Average Amortized Average Amortized Average Amortized Average
Cost Yield Cost Yield Cost Yield Cost Yield
---- ----- ---- ----- ---- ----- ---- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available
for sale:
U.S. Government and
Agency securities ......... $ -- --% $ 33,955 6.38% $3,000 6.94% $ -- --%
Corporate debt
securities ................ 1,000 7.27 5,274 6.88 -- -- -- --
-------- ----- --------- ---- ------ ---- ----- ----
Total securities
available for sale ........ $ 1,000 7.27% $39,229 6.45% $3,000 6.94% $ -- --%
======= ===== ========= ===== ====== ===== ====== ====
Investment securities:
U.S. Government
and Agency securities ..... $ 4,998 5.34% $14,976 6.41% $ -- --% $ -- --%
Mortgage-backed securities . -- -- 280 6.00 2,586 7.22 1,651 6.88
Corporate debt securities .. 20,894 6.21 24,863 6.72 986 6.64 -- --
State, county and municipal -- -- -- -- 10 9.32 -- --
------- ----- ------- ----- ------ ---- -------- -----
Total investment securities $25,892 6.04% $40,119 6.60% $3,582 7.07% $ 1,651 6.88%
======= ===== ======= ===== ======= ===== ======== =====
</TABLE>
Total Securities
--------------------------------
Weighted
Amortized Average Fair
Cost Yield Value
---- ----- -----
(Dolars in Thousands)
Securities available
for sale:
U.S. Government and
Agency securities ........ $ 36,955 6.43% $36,943
Corporate debt
securities ................ 6,274 6.94 6,339
------- ----- -------
Total securities
available for sale ........ $ 43,229 6.50% $43,282
======= ===== =======
Investment securities:
U.S. Government
and Agency securities ..... $ 19,974 6.14% $20,034
Mortgage-backed securities . 4,517 7.02 4,515
Corporate debt securities .. 46,743 6.49 47,049
State, county and municipal 10 9.32 10
-------- ---- -------
Total investment securities $ 71,244 6.43% $71,608
======= ===== =======
73
<PAGE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, amortization
and prepayment of loan principal, maturities of securities, short-term
investments, funds provided from operations and borrowings.
Deposits. HCSI offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of passbook and statement
savings accounts, money market accounts, transaction accounts, and time deposits
currently ranging in terms from three months to six years. The Bank only
solicits deposits from its primary market area and does not have brokered
deposits. The Bank relies primarily on competitive pricing policies, advertising
and customer service to attract and retain these deposits. At December 31, 1997,
the Bank's deposits totaled $586.2 million, of which $549.8 million were
interest bearing deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The variety of deposit accounts offered by the Bank has allowed it
to be competitive in obtaining funds and to respond with flexibility to changes
in consumer demand. The Bank has become more susceptible to short-term
fluctuations in deposit flows, as customers have become more interest rate
conscious. The Bank manages the pricing of its deposits in keeping with its
asset/liability management, liquidity and profitability objectives. Based on its
experience, the Bank believes that its passbook and statement savings, money
market accounts and transaction accounts are relatively stable sources of
deposits. However, the ability of the Bank to attract and maintain time deposits
and the rates paid on these deposits has been and will continue to be
significantly affected by market conditions.
74
<PAGE>
The following table illustrates the Bank's deposit flows by account
type during the periods indicated.
<TABLE>
<CAPTION>
Time N.O.W./Money Non-interest Total Number
Savings Deposits Markets Bearing Total of Accounts
------- -------- ------- ------- ----- -----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Balance as of March 31, 1995........ $138,621 $263,840 $92,511 $19,479 $514,451
Net deposits/withdrawals............ (12,864) 22,201 (1,524) 9,004 16,817
Interest credited................... 4,275 16,713 2,932 --- 23,920
--------- ---------- --------- ---------- ----------
Balance as of March 31, 1996........ 130,032 302,754 93,919 28,483 555,188 60,138
Net deposits/withdrawals............ 1,554 (13,095) (4,403) 274 (15,670)
Interest credited................... 4,523 17,727 2,831 --- 25,081
---------- -------- --------- --------- --------
Balance as of March 31, 1997........ 136,109 307,386 92,347 28,757 564,599 63,866
Net deposits/withdrawals............ 790 (5,618) (479) 7,664 2,357
Interest credited................... 3,584 13,513 2,178 --- 19,275
---------- --------- --------- ---------- ----------
Balance as of December 31, 1997..... $140,483 $315,281 $94,046 $36,421 $586,231 76,854
======== ======== ======= ======= ========
</TABLE>
75
<PAGE>
The following tables sets forth the dollar amount of deposits in the
various types of deposit programs offered by the Bank as of the dates indicated.
<TABLE>
<CAPTION>
Balance as of
Balance as of March 31,
December 31, ---------------------------------------------------------------------
1997 1997 1996 1995
--------------------- ------------------- --------------------- ---------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Savings accounts
(3.00% to 3.92%) .............. $140,483 23.97% $136,109 24.11% $130,032 23.42% $138,621 26.94%
N.O.W. and money
market accounts
(2.00% to 4.88%) ............... 94,046 16.04 92,347 16.36 93,919 16.92 92,511 17.98
Time deposits:
2.00 - 2.99% ................... 470 0.08 -- -- -- -- -- --
3.00 - 3.99% ................... 419 0.07 824 0.15 958 0.17 6,625 1.29
4.00 - 4.99% ................... 3,497 0.60 15,319 2.71 32,165 5.79 44,052 8.56
5.00 - 5.99% ................... 259,419 44.25 228,732 40.51 149,852 26.99 93,839 18.24
6.00 - 6.99% ................... 15,659 2.67 27,070 4.79 84,703 15.26 86,972 16.91
7.00 - 7.99% ................... 35,817 6.11 35,441 6.28 34,516 6.22 31,024 6.03
8.00 - 8.99% ................... -- -- -- -- 560 0.10 1,328 0.26
-------- ------ ------- ----- ------- ----- ------ ------
Total time
deposit accounts ........... 315,281 53.78 307,386 54.44 302,754 54.53 263,840 51.29
-------- ------ -------- ----- -------- ------ ------- ------
Non-interest bearing
accounts ...................... 36,421 6.21 28,757 5.09 28,483 5.13 19,479 3.79
Total deposits ................. $586,231 100.00% $564,599 100.00% $555,188 100.00% $514,451 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
76
<PAGE>
The following table shows rate and maturity information for the Bank's
time deposits as of December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------------------------------------------------
12 month 12 month 12 month 12 month 12 month
period ended period ended period ended period ended period ended
December 31, December 31, December 31, December 31, December 31,
1998 1999 2000 2001 2002 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
(In Thousands)
Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C>
2.00 - 2.99%..... $ 470 $ --- $ --- $ --- $ --- $ --- $ 470
3.00 - 3.99%..... 419 --- --- --- --- --- 419
4.00 - 4.99%..... 3,377 120 --- --- --- --- 3,497
5.00 - 5.99%..... 164,824 69,240 14,155 8,364 2,037 799 259,419
6.00 - 6.99%..... 7,737 5,609 1,203 902 208 --- 15,659
7.00 - 7.99%..... 1,533 26,050 2,824 5,410 --- --- 35,817
8.00 - 8.99%..... --- --- --- --- --- --- ---
-------- -------- ------- ------- ------ ------ --------
Total......... $178,360 $101,019 $18,182 $14,676 $2,245 $ 799 $315,281
======== ======== ======= ======= ====== ====== ========
</TABLE>
77
<PAGE>
The following table indicates, as of December 31, 1997, the amount of
the Bank's time deposits of $100,000 or more by time remaining until maturity.
<TABLE>
<CAPTION>
Maturity
-----------------------------------------------
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 of $100,000 or more....... $ 5,861 $4,401 $11,839 $20,344 $42,445
</TABLE>
Borrowings. Although deposits are the Bank's primary source of funds,
the Bank's practice has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when the
Bank needs additional funds to satisfy loan demand.
HCSI's borrowings historically have consisted of advances from the FHLB
of New York. Such advances can be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. The
Bank currently maintains available lines of credit and is currently authorized
to borrow up to $65.2 million on lines of credit with the FHLB of New York. At
December 31, 1997, the Bank had outstanding $2.0 million in borrowings from the
FHLB of New York. See Note 15 of the Notes to Consolidated Financial Statements.
The Bank may increase its borrowings in order to fund the acquisition of
additional securities following the conversion.
Subsidiary and Other Activities
Hudson City Associates, Inc. Hudson City Associates, Inc. ("HCAI"), a
wholly owned subsidiary of the Bank, was incorporated in 1984 but remained
inactive until 1990. In 1990, HCAI formed a partnership known as Premium Payment
Plan (referred to herein as "PPP"), pursuant to which the Bank provides premium
financing for non-standard and sub-standard personal automobile insurance and
certain lines of commercial insurance. See "Lending Activities -- Consumer
Lending."
Hudson River Mortgage Corporation. A wholly owned subsidiary of the
Bank, Hudson River Mortgage Corporation ("HRMC") was organized in 1996 to broker
mortgages to the Bank and other financial institutions.
Hudson River Funding Corp. Hudson River Funding Corp. ("HRFC") is a
Real Estate Investment Trust formed in 1997 to enhance liquidity, portfolio
yields and capital growth. The Bank funded HRFC with approximately $185.0
million of earning assets consisting of one- to four-family mortgage loans,
commercial real estate loans, home equity loans, home improvement loans and debt
securities. Interest income earned on the assets held by HRFC is passed through
to the Bank in the form of dividends.
Trust Operations. The Bank began operating a trust department in 1995.
The Trust Department provides trust-related services for a variety of trust
account types, including personal trusts and estates and employee benefit
trusts. The Trust Department is administered by the Trust
78
<PAGE>
Committee of the Bank. Income from the Trust Department is currently an
immaterial portion of the Bank's total other operating income.
Competition
HCSI faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions, commercial banks, credit
unions and mortgage bankers making loans secured by real estate located in the
Bank's primary market area. Other savings institutions, commercial banks, credit
unions and finance companies provide vigorous competition in consumer lending.
The Bank also faces strong competition in its efforts to provide insurance
premium financing through PPP from a variety of other lenders, some of which
have much greater assets and resources than the Bank.
The Bank attracts all of its deposits through its branch offices,
primarily from the communities in which those branch offices are located;
therefore, competition for those deposits is principally from mutual funds and
other savings institutions, commercial banks and credit unions located in the
same communities. The Bank competes for these deposits by offering a variety of
deposit accounts at competitive rates, convenient business hours, and convenient
branch locations with interbranch deposit and withdrawal privileges. Automated
teller machine facilities are also available.
Employees
At December 31, 1997, the Bank had 269 full-time employees and 30
part-time employees. The Bank's employees are not represented by any collective
bargaining group. Management considers its employee relations to be good.
Properties
The Bank conducts its business at its main office and 11 other banking
offices. The following table sets forth information relating to each of the
Bank's offices as of December 31, 1997. The net book value of the Bank's
premises and equipment (including land, building and leasehold improvements and
furniture, fixtures and equipment) at December 31, 1997 was $15.8 million. See
Note 7 of Notes to Consolidated Financial Statements. HCSI believes that its
current facilities are adequate to meet the present and foreseeable needs of the
Bank and the Holding Company, subject to possible future expansion.
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<TABLE>
<CAPTION>
Total
Owned Lease Approximate
Date or Expiration Square Net Book
Location Acquired Leased Date Footage Value
- -------- -------- ------ ---- ------- -----
Main Office:
<S> <C> <C> <C> <C> <C>
One Hudson City Centre(1) 1990 Owned --- 64,433 $ 8,611,213
Corner of State and Green Streets
Hudson, New York 12534
Branch Offices:
Coleman Street 1970 Owned --- 6,330 402,466
Chatham, New York 12037
Route 9 (3) 1994 Owned --- 4,873 1,508,599
Valatie, New York 12184
Church Street 1974 Owned --- 1,798 270,073
Copake, New York 12516
Route 20 and McClellen 1975 Owned --- 3,260 269,316
Nassau, New York 12123
23 Fairview Plaza 1983 Leased April 1998(5) 4,500 48,368
160 Fairview Avene
Hudson, New York 12534
41 State Street 1989 Leased September 1999(5) 3,200 1,038
Albany, New York 12201
Greenport Town Center(2) 1994 Leased June 1999(5) 362 32,148
Fairview Avenue
Hudson, New York 12534
Route 44 East 1994 Owned --- 2,560 269,508
Millerton, New York 12546
622 Columbia Turnpike (4) 1996 Owned/ July 2000(5) 2,996 643,478
East Greenbush, New York 12061 Leased
3-93 Carman Road 1996 Leased December 2000(5) 2,300 137,638
Schenectady, New York 12303
2628 Route 23(2) 1997 Leased May 2002(5) 374 34,807
Hillsdale, New York 12529
</TABLE>
- ------------
(1) On January 5, 1998, the Bank's Warren Street branch was relocated to the
Bank's main office.
(2) Banking operations are located inside of supermarkets at these locations.
(3) Branch relocated to this address in 1994 from previous location.
(4) Bank owns the building and leases the land.
(5) Does not include renewable terms.
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Legal Proceedings
HCSI is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing HCSI in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Bank's results of operations.
REGULATION
Set forth below is a brief description of certain laws and regulations
which are applicable to the Holding Company and the Bank. The description of the
laws and regulations hereunder, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.
The Holding Company
General. Upon consummation of the Conversion, the Holding Company will
become subject to regulation as a savings and loan holding company under the
Home Owners Loan Act, as amended ("HOLA"), instead of being subject to
regulation as a bank holding company under the Bank Holding Company Act of 1956
because the Bank has made an election under Section 10(1) of HOLA to be treated
as a "savings association" for purposes of Section 10(e) of HOLA. As a result,
the Company will be required to register with the OTS and will be subject to OTS
regulations, examinations, supervision and reporting requirements relating to
savings and loan holding companies. The Holding Company will also be required to
file certain reports with, and otherwise comply with the rules and regulations
of, the New York State Banking Board ("NYBB") and the Securities and Exchange
Commission ("SEC"). As a subsidiary of a savings and loan holding company, the
Bank will be subject to certain restrictions in its dealings with the Company
and affiliates thereof.
Activities Restrictions. Upon consummation of the Conversion, the Bank
will be the sole savings association subsidiary of the Holding Company. There
are generally no restrictions on the activities of a savings and loan holding
company which holds only one subsidiary savings institution. However, if the
Director of the OTS determines that there is reasonable cause to believe that
the continuation by a savings and loan holding company of an activity
constitutes a serious risk to the financial safety, soundness or stability of
its subsidiary savings institution, he may impose such restrictions as are
deemed necessary to address such risk, including limiting (i) payment of
dividends by the savings institution; (ii) transactions between the savings
institution and its affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the liabilities of the holding
company and its affiliates may be imposed on the savings institution.
Notwithstanding the above rules as to permissible business activities of unitary
savings and loan holding companies, if the savings institution subsidiary of
such a holding company fails to meet the qualified thrift lender
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("QTL") test, as discussed under "--Qualified Thrift Lender Test," then such
unitary holding company also shall become subject to the activities restrictions
applicable to multiple savings and loan holding companies and, unless the
savings institution requalifies as a QTL within one year thereafter, shall
register as, and become subject to the restrictions applicable to, a bank
holding company. See "--Qualified Thrift Lender Test."
If the Holding Company were to acquire control of another savings
institution, other than through merger or other business combination with the
Bank, the Holding Company would thereupon be become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
institution meets the QTL test, as set forth below, the activities of the
Holding Company and any of its subsidiaries (other than the Bank or other
subsidiary savings institutions) would thereafter be subject to further
restrictions. Among other things, no multiple savings and loan holding company
or subsidiary thereof which is not a savings institution shall commence or
continue for a limited period of time after becoming a multiple savings and loan
holding company or subsidiary thereof any business activity other than: (i)
furnishing or performing management services for a subsidiary savings
institution; (ii) conducting an insurance agency or escrow business; (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings institution; (iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi)
those activities authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies; or (vii) unless the Director of
the OTS by regulation prohibits or limits such activities for savings and loan
holding companies, those activities authorized by the FRB as permissible for
bank holding companies. Those activities described in clause (vii) above also
must be approved by the Director of the OTS prior to being engaged in by a
multiple savings and loan holding company.
Qualified Thrift Lender Test. Under Section 2303 of the Economic Growth
and Regulatory Paperwork Reduction Act of 1996, a savings association can comply
with the QTL test by either meeting the QTL test set forth in the HOLA and
implementing regulations or qualifying as a domestic building and loan
association as defined in Section 7701(a)(19) of the Internal Revenue Code of
1986, as amended. A savings bank subsidiary of a savings and loan holding
company that does not comply with the QTL test must comply with the following
restrictions on its operations: (i) the institution may not engage in any new
activity or make any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank; (ii) the branching
powers of the institution shall be restricted to those of a national bank, (iii)
the institution shall not be eligible to obtain any advances from its FHLB; and
(iv) payment of dividends by the institution shall be subject to the rules
regarding payment of dividends by a national bank. Upon the expiration of three
years from the date the savings institution ceases to meet the QTL test, it must
cease any activity and not retain any investment not permissible for a national
bank and immediately repay any outstanding FHLB advances (subject to safety and
soundness considerations).
The QTL test set forth in the HOLA requires that qualified thrift
investments ("QTls") represent 65% of portfolio assets of the savings
institution and its consolidated subsidiaries. Portfolio assets are defined as
total assets less intangibles, property used by a savings association in its
business and liquidity investments in an amount not exceeding 20% of assets.
Generally, QTls
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are residential housing related assets. The 1996 amendments allow small business
loans, credit card loans, student loans and loans for personal, family and
household purposes to be included without limitation as qualified investments.
At December 31, 1997, approximately 88% of the Bank's assets were invested in
QTIs, which was in excess of the percentage required to qualify the Bank under
the QTL test in effect at that time.
Limitations on Transactions with Affiliates. Transactions between
savings institutions and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings institution is any company or
entity which controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent holding company of
a savings institution (such as the Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
institution. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and contain an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus and
(ii) require that all such transactions be on terms substantially the same, or,
at least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and other similar transactions.
In addition, Sections 22(g) and (h) of the Federal Reserve Act place
restrictions on loans to executive officers, directors and principal
stockholders. Under Section 22 (h), loans to a director, an executive officer
and to a greater than 10% stockholder of a savings institution, and certain
affiliated interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the savings
institution's loans to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus). Section 22(h) also requires that
loans to directors, executive officers and principal stockholders be made on
terms substantially the same as offered in comparable transactions to other
persons unless the loans are made pursuant to a benefit or compensation program
that (i) is widely available to employees of the institution and (ii) does not
give preference to any director, executive officer or principal stockholder, or
certain affiliated interests of either, over other employees of the savings
institution. Section 22(h) also requires prior board approval for certain loans.
In addition, the aggregate amount of extensions of credit by a savings
institution to all insiders cannot exceed the institution's unimpaired capital
and surplus. Furthermore, Section 22(g) places additional restrictions on loans
to executive officers. At December 31, 1997, the Bank was in compliance with the
above restrictions.
Restrictions on Acquisitions. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director, (i) control of any other savings institution or
savings and loan holding company or substantially all the assets thereof or (ii)
more than 5% of the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior approval of the
Director, no director or officer of a savings and loan holding company or person
owning or controlling by proxy or otherwise more than 25% of such company's
stock, may acquire control of any savings institution, other than a subsidiary
savings institution, or of any other savings and loan holding company.
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The Director may only approve acquisitions resulting in the formation
of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant,,to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state chartered savings institutions).
Federal Securities Laws. The Company has filed with the SEC a
registration statement under the Securities Act, for the registration of the
Common Stock to be issued pursuant to the Conversion. Upon completion of the
Conversion, the Company's Common Stock will be registered with the SEC under
Section 12(g) of the Exchange Act. The Company will then be subject to the proxy
and tender offer rules, insider trading reporting requirements and restrictions,
and certain other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares. Shares
of Common Stock purchased by persons who are not affiliates of the Company may
be sold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks.
The Bank
General. The Bank is subject to extensive regulation and examination by
the NYSBD, as its chartering authority, and by the FDIC, as the insurer of its
deposits, and, upon Conversion, will be subject to certain requirements
established by the OTS as a result of the Company's savings and loan holding
company status. The federal and state laws and regulations which are applicable
to banks regulate, among other things, the scope of their business, their
investments, their reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain loans.
The Bank must file reports with the NYBB and the FDIC concerning its activities
and financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as establishing branches and mergers
with, or acquisitions of, other depository institutions. There are periodic
examinations by the NYBB and the FDIC to test the Bank's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement
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activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulation, whether by the NYBB, the
FDIC or as a result of the enactment of legislation, could have a material
adverse impact on the Company, the Bank and their operations.
Capital Requirements. The FDIC has promulgated regulations and adopted
a statement of policy regarding the capital adequacy of state-chartered banks
which, like the Bank, will not be members of the Federal Reserve System.
The FDIC's capital regulations establish a minimum 3.0% Tier I leverage
capital requirement for the most highly-rated state-chartered, non-member banks,
with an additional cushion of at least 100 to 200 basis points for all other
state-chartered, non-member banks, which effectively will increase the minimum
Tier I leverage ratio for such other banks to 4.0% to 5.0% or more. Under the
FDIC's regulation, the highest-rated banks are those that the FDIC determines
are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and, in general, which are
considered a strong banking organization and are rated composite I under the
Uniform Financial Institutions Rating System. Leverage or core capital is
defined as the sum of common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, and minority
interests in consolidated subsidiaries, minus all intangible assets other than
certain qualifying supervisory goodwill and certain mortgage servicing rights.
The FDIC also requires that savings banks meet a risk-based capital
standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier 1 capital and
supplementary (Tier 2) capital) to risk-weighted assets of 8%. In determining
the amount of risk-weighted assets, all assets, plus certain off-balance sheet
assets, are multiplied by a risk-weight of 0% to 100%, based on the risks the
FDIC believes are inherent in the type of asset or item. The components of Tier
I capital are equivalent to those discussed above under the 3% leverage capital
standard. The components of supplementary capital include certain perpetual
preferred stock, certain mandatory convertible securities, certain subordinated
debt and intermediate preferred stock and general allowances for loan and lease
losses. Allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, the amount of
capital counted toward supplementary capital cannot exceed 100% of core capital.
At December 31, 1997, the Bank met each of its capital requirements.
In August 1995, the FDIC, along with the other federal banking
agencies, adopted a regulation providing that the agencies will take account of
the exposure of a bank's capital and economic value to changes in interest rate
risk in assessing a bank's capital adequacy. According to the agencies,
applicable considerations include the quality of the bank's interest rate risk
management process, the overall financial condition of the bank and the level of
other risks at the bank for which capital is needed. Institutions with
significant interest rate risk may be required to hold additional capital. The
agencies recently issued a joint policy statement providing guidance on interest
rate risk management, including a discussion of the critical factors affecting
the agencies' evaluation of interest rate risk in connection with capital
adequacy. The agencies have determined
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not to proceed with a previously issued proposal to develop a supervisory
framework for measuring interest rate risk and an explicit capital component for
interest rate risk.
See "Regulatory Capital Requirements" for information with respect to
the Bank's historical leverage and risk-based capital at December 31, 1997 and
pro forma after giving effect to the issuance of shares in the Offerings.
Activities and Investments of New York-Chartered Savings Banks. The
Bank derives its lending, investment and other authority primarily from the
applicable provisions of New York State Banking Law and the regulations of the
Department, as limited by FDIC regulations and other federal laws and
regulations. See "--Activities and Investments of Insured State--Chartered
Banks." These New York laws and regulations authorize savings banks, including
the Bank, to invest in real estate mortgages, consumer and commercial loans,
certain types of debt securities, including certain corporate debt securities
and obligations of federal, State and local governments and agencies, certain
types of corporate equity securities and certain other assets. Under the
statutory authority for investing in equity securities, a savings bank may
directly invest up to 7.5% of its assets in certain corporate stock and may also
invest up to 7.5% of its assets in certain mutual fund securities. Investment in
stock of a single corporation is limited to the lesser of 2% of the outstanding
stock of such corporation or 1% of the savings bank's assets, except as set
forth below. Such equity securities must meet certain tests of financial
performance. A savings bank's lending powers are not subject to percentage of
asset limitations, although there are limits applicable to single borrowers. A
savings bank may also, pursuant to the "leeway" authority, make investments not
otherwise permitted under the New York State Banking Law. This authority permits
investments in otherwise impermissible investments of up to 1% of the savings
bank's assets in any single investment, subject to certain restrictions and to
an aggregate limit for all such investments of up to 5% of assets. Additionally,
in lieu of investing in such securities in accordance with the reliance upon the
specific investment authority set forth in the New York State Bank Law, savings
banks are authorized to elect to invest under a "prudent person" standard in a
wider range of debt and equity securities as compared to the types of
investments permissible under such specific investment authority. However, in
the event a savings bank elects to utilize the "prudent person" standard, it
will be unable to avail itself of the other provisions of the New York State
Banking Law and regulations which set forth specific investment authority. A New
York chartered stock savings bank may also exercise trust powers upon approval
of the Department.
Under recently enacted legislation, the Department has been granted the
authority to maintain the power of state-chartered banks reciprocal with those
of a national bank. Under the terms of the legislation, the Department is
granted such authority for only one year unless legislation is adopted within
such period which extends the effective period of such power. However, any
regulations adopted by the Department pursuant to the authority granted by such
legislation would be effective regardless of whether legislation is enacted
extending the effective period.
New York-chartered savings banks may also invest in subsidiaries under
their service corporation investment power. A savings bank may use this power to
invest in corporations that engage in various activities authorized for savings
banks, plus any additional activities which may be authorized by the Department.
Investment by a savings bank in the stock, capital notes and
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debentures of its service corporations is limited to 3% of the bank's assets,
and such investments, together with the bank's loans to its service
corporations, may not exceed 10% of the savings bank's assets.
With certain limited exceptions, a New York-chartered savings bank may
not make loans or extend credit for commercial, corporate or business purposes
(including lease financing) to a single borrower, the aggregate amount of which
would be in excess of 15% of the bank's net worth. The Bank currently complies
with all applicable loans-to-one-borrower limitations.
Activities and Investments of FDIC-Insured State-Chartered Banks. The
activities and equity investments of FDIC-insured, state-chartered banks are
generally limited to those that are permissible for national banks. Under
regulations dealing with equity investments, an insured state bank generally may
not directly or indirectly acquire or retain any equity investment of a type, or
in an amount, that is not permissible for a national bank. An insured state bank
is not prohibited from, among other things, (i) acquiring or retaining a
majority interest in a subsidiary, (ii) investing as a limited partner in a
partnership the sole purpose of which is direct or indirect investment in the
acquisition, rehabilitation or new construction of a qualified housing project,
provided that such limited partnership investments may not exceed 2% of the
bank's total assets, (iii) acquiring up to 10% of the voting stock of a company
that solely provides or reinsures directors', trustees' and officers' liability
insurance coverage or bankers' blanket bond group insurance coverage for insured
depository institutions, and (iv) acquiring or retaining the voting shares of a
depository institution if certain requirements are met. In addition, an
FDIC-insured state-chartered bank may not directly, or indirectly through a
subsidiary, engage as "principal" in any activity that is not permissible for a
national bank unless the FDIC has determined that such activities would pose no
risk to the insurance fund of which it is a member and the bank is in compliance
with applicable regulatory capital requirements.
Regulatory Enforcement Authority. Applicable banking laws include
substantial enforcement powers available to federal banking regulators. 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 against banking organizations and institution-affiliated
parties, as defined. 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 regulatory authorities.
Under the New York State Banking Law, the Department may issue an order
to a New York- chartered banking institution to appear and explain an apparent
violation of law, to discontinue unauthorized or unsafe practices and to keep
prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Department to
discontinue such practices, such director, trustee or officer may be removed
from office by the Department after notice and an opportunity to be heard. The
Bank does not know of any past or current practice, condition or violation that
might lead to any proceeding by the Department against the Bank or any of its
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directors or officers. The Department also may take possession of a banking
organization under specified statutory criteria.
Prompt Corrective Action. Section 38 of the Federal Deposit Insurance
Act ("FDIA") provides the federal banking regulators with broad power to take
"prompt corrective action" to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Under regulations adopted by the federal banking regulators,
an institution shall be deemed to be (i) "well capitalized" if it has total
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio
of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital level
for any capital measure, (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of "well capitalized,"
(iii) "undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I
leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a Tier I leverage capital ratio that is less
than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. The regulations also
provide that a federal banking regulator may, after notice and an opportunity
for a hearing, reclassify a "well capitalized" institution as "adequately
capitalized" and may require an "adequately capitalized" institution or an
"undercapitalized" institution to comply with supervisory actions as if it were
in the next lower category if the institution is in an unsafe or unsound
condition or engaging in an unsafe or unsound practice. The federal banking
regulator may not, however, reclassify a "significantly undercapitalized"
institution as "critically undercapitalized."
An institution generally must file a written capital restoration plan
which meets specified requirements, as well as a performance guaranty by each
company that controls the institution, with an appropriate federal banking
regulator within 45 days of the date that the institution receives notice or is
deemed to have notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Immediately upon becoming
undercapitalized, an institution becomes subject to statutory provisions which,
among other things, set forth various mandatory and discretionary restrictions
on the operations of such an institution.
At December 31, 1997, the Bank had capital levels which qualified it as
a "well capitalized" institution.
FDIC Insurance Premiums. The Bank is a member of the BIF administered
by the FDIC but has accounts insured by both the BIF and the SAIF. The
SAIF-insured accounts are held by the Bank as a result of certain acquisitions
and branch purchases and amounted to $4.1 million as of December 31, 1997. As
insurer, the FDIC is authorized to conduct examinations of, and to require
reporting by, FDIC-insured institutions. It also may prohibit any FDIC-insured
institution from
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engaging in any activity the FDIC determines by regulation or order to pose a
serious threat to the FDIC.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.
Brokered Deposits. The FDIA restricts the use of brokered deposits by
certain depository institutions. Under the FDIA and applicable regulations, (i)
a "well capitalized insured depository institution" may solicit and accept,
renew or roll over any brokered deposit without restriction, (ii) an "adequately
capitalized insured depository institution" may not accept, renew or roll over
any brokered deposit unless it has applied for and been granted a waiver of this
prohibition by the FDIC and (iii) an "undercapitalized insured depository
institution" may not (x) accept, renew or roll over any brokered deposit or (y)
solicit deposits by offering an effective yield that exceeds by more than 75
basis points the prevailing effective yields on insured deposits of comparable
maturity in such institution's normal market area or in the market area in which
such deposits are being solicited. The term "undercapitalized insured depository
institution" is defined to mean any insured depository institution that fails to
meet the minimum regulatory capital requirement prescribed by its appropriate
federal banking agency. The FDIC may, on a case-by-case basis and upon
application by an adequately capitalized insured depository institution, waive
the restriction on brokered deposits upon a finding that the acceptance of
brokered deposits does not constitute an unsafe or unsound practice with respect
to such institution. The Bank had no brokered deposits outstanding at December
31, 1997.
Community Investment and Consumer Protection Laws. In connection with
its lending activities, the Bank is subject to a variety of federal laws
designed to protect borrowers and promote lending to various sectors of the
economy and population. Included among these are the federal Home Mortgage
Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending Act,
Equal Credit Opportunity Act, Fair Credit Reporting Act and CRA.
The CRA requires insured institutions to define the communities that
they serve, identify the credit needs of those communities and adopt and
implement a "Community Reinvestment Act Statement" pursuant to which they offer
credit products and take other actions that respond to the credit needs of the
community. The responsible federal banking regulator (in the case of the Bank,
the FDIC) must conduct regular CRA examinations of insured financial
institutions and assign to them a CRA rating of "outstanding," "satisfactory,"
"needs improvement" or "unsatisfactory." The Bank's current federal CRA rating
is "outstanding."
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The Bank is also subject to provisions of the New York State Banking
Law which impose continuing and affirmative obligations upon banking
institutions organized in New York State to serve the credit needs of its local
community ("NYCRA"), which are similar to those imposed by the CRA. Pursuant to
the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA
reports with the Department. The NYCRA requires the Department to make an annual
written assessment of a bank's compliance with the NYCRA, utilizing a
four-tiered rating system, and make such assessment available to the public. The
NYCRA also requires the Department to consider a bank's NYCRA rating when
reviewing a bank's application to engage in certain transactions, including
mergers, asset purchases and the establishment of branch offices or automated
teller machines, and provides that such assessment may serve as a basis for the
denial of any such application. The Bank's latest NYCRA rating, received from
the Department was "satisfactory."
Limitations on Dividends. The Company is a legal entity separate and
distinct from the Bank. The Company's principal source of revenue consists of
dividends from the Bank. The payment of dividends by the Bank is subject to
various regulatory requirements including a requirement, as a result of the
Company's savings and loan holding company status, that the Bank notify the
Director not less than 30 days in advance of any proposed declaration by its
directors of a dividend.
Under New York State Banking Law, a New York-chartered stock savings
bank may declare and pay dividends out of its net profits, unless there is an
impairment of capital, but approval of the Department is required if the total
of all dividends declared in a calendar year would exceed the total of its net
profits for that year combined with its retained net profits of the preceding
two years, subject to certain adjustments.
Miscellaneous. The Bank is subject to certain restrictions on loans to
the Company or its non-bank subsidiaries, on investments in the stock or
securities thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of credit on
behalf of the Company or its non-bank subsidiaries. The Bank also is subject to
certain restrictions on most types of transactions with the Company or its
non-bank subsidiaries, requiring that the terms of such transactions be
substantially equivalent to terms of similar transactions with non-affiliated
firms.
Federal Home Loan Bank System. The Bank 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 institutions. 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. The Bank had
$2.0 million of FHLB advances at December 31, 1997.
As a FHLB member, the Bank is required to purchase and maintain stock
in the FHLB of New York in an amount equal to at least 1% of its aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year or 5% of its advances
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from the FHLB of New York, whichever is greater. At December 31, 1997, the Bank
had approximately $2.8 million in FHLB stock, which resulted in its compliance
with this requirement.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid in the past and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB stock in the future.
Federal Reserve System. The FRB requires all depository institutions to
maintain reserves against their transaction accounts (primarily checking
accounts, including NOW and Super NOW accounts) and non-personal time deposits.
As of December 31, 1997, the Bank was in compliance with applicable
requirements. However, because required reserves must be maintained in the form
of vault cash or a non-interest-bearing account at a Federal Reserve Bank, the
effect of this reserve requirement is to reduce an institution's earning assets.
TAXATION
Federal Taxation
General. The Company and the Bank will be subject to federal income
taxation in the same general manner as other corporations with some exceptions
discussed below. The following discussion of federal taxation is intended only
to summarize certain pertinent federal income tax matters and is not a
comprehensive description of the tax rules applicable to the Bank. The Bank's
federal income tax returns have been audited or closed without audit by the
Internal Revenue Service through 1993.
Method of Accounting. For federal income tax purposes, the Bank
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its consolidated federal
income tax returns. As of March 31, 1998, the Bank will file its consolidated
federal income tax returns using a tax year ending March 31. The Small Business
Protection Act of 1996 (the "1996 Act") eliminated the use of the reserve method
of accounting for bad debt reserves by savings institutions, effective for
taxable years beginning after 1995.
Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return. In addition, the federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The amount of
such reserve subject to recapture as of December 31, 1997 is approximately
$540,000.
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As discussed more fully below, the Bank and subsidiaries file combined
New York State Franchise tax returns. The basis of the determination of the tax
is the greater of a tax on entire net income (or on alternative entire net
income) or a tax computed on taxable assets. However, for state purposes, New
York State enacted legislation in 1996, which among other things, decoupled the
Federal and New York State tax laws regarding thrift bad debt deductions and
permits the continued use of the bad debt reserve method under section 593.
Thus, provided the Bank continues to satisfy certain definitional tests and
other conditions, for New York State income tax purposes, the Bank is permitted
to continue to use the special reserve method for bad debt deductions. The
deductible annual addition to the state reserve may be computed using a specific
formula based on the Bank's loss history ("Experience Method") or a statutory
percentage equal to 32% of the Bank's New York State taxable income ("Percentage
Method").
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank make certain non-dividend distributions, dividend distributions in
excess of historical earnings and profits or cease to maintain a bank charter.
At March 31, 1997, the Bank's total federal base-year reserve was
approximately $2.7 million and the "supplemental" reserve (as defined) was
approximately $10.3 million. These reserves reflect the cumulative effects of
federal tax deductions by the Bank for which no Federal income tax provision has
been made.
Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount and regular income tax. Net
operating losses can offset no more than 90% of AMTI. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities
in future years. The Bank has not been subject to the alternative minimum tax
and has no such amounts available as credits for carryover.
Net Operating Loss Carryovers. For the years beginning after August 5,
1997, a financial institution may carry back net operating losses to the
preceding two taxable years and forward to the succeeding 20 taxable years. At
March 31, 1997, the Bank had no net operating loss carryforwards for federal
income tax purposes.
Corporate Dividends-Received Deduction. The Company may exclude from
its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
80% in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated tax return, and corporations which own
less than 20% of the stock of a corporation distributing a dividend may deduct
only 70% of dividends received or accrued on their behalf.
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State and Local Taxation
New York State Taxation. The Company and the Bank will report income on
a combined basis utilizing a fiscal year. New York State Franchise Tax on
corporations is imposed in an amount equal to the greater of (a) 9% of "entire
net income" allocable to New York State (b) 3% of "alternative entire net
income" allocable to New York State (c) 0.01% of the average value of assets
allocable to New York State or (d) nominal minimum tax. Entire net income is
based on federal taxable income, subject to certain modifications.
Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempt from Delaware corporate income tax but
is required to file an annual report with and pay an annual franchise tax to the
State of Delaware. The tax is imposed as a percentage of the capital base of the
Company with an annual maximum of $150,000.
MANAGEMENT OF THE HOLDING COMPANY
Directors and Executive Officers
The Board of Directors of the Holding Company currently consists of
nine members, each of whom is also a trustee of the Bank. As discussed below,
upon consummation of the Conversion, the current trustees of the Bank will
become directors of the stock-chartered Bank. See "Management of the Bank --
Trustees." Each director of the Holding Company has served as such since the
Holding Company's incorporation in March 1998. 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. One class of directors,
consisting of Schram, Collins and Florio, has a term of office expiring at the
Holding Company's first Annual Meeting of Stockholders, a second class,
consisting of Herrington, Kelly and Bardwell, has a term of office expiring at
the Holding Company's second Annual Meeting of Stockholders, and a third class,
consisting of Race, Jones and Phelan, has a term expiring at the Holding
Company's third Annual Meeting of Stockholders. For biographical information
regarding each director of the Holding Company, see "Management of the Bank --
Trustees."
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 executive
officers of the Holding Company are as follows: Carl A. Florio, President and
Chief Executive Officer; Timothy E. Blow, Chief Financial Officer; Sidney D.
Richter, Senior Vice President; and Pamela M. Wood, Senior Vice President and
Secretary. It is not anticipated that the executive officers of the Holding
Company will receive any remuneration in their capacity as Holding Company
executive officers. For information regarding compensation of trustees and
executive officers of the Bank, see "Management of the Bank--Meetings and
Committees of the Board of Trustees of the Bank" and "--Executive Compensation."
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
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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 conduct was unlawful.
The certificate of incorporation of the Holding Company 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, or provision of the
certificate of incorporation, bylaws of the Holding Company, agreement, vote of
shareholders or disinterested directors or otherwise.
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.
In addition, the certificate of incorporation of the Holding Company
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 intends to obtain such insurance.
MANAGEMENT OF THE BANK
Trustees
The direction and control of the Bank, as a mutual savings bank, has
been vested in its Board of Trustees. Upon consummation of the Conversion, each
of the current trustees of the Bank will become directors of the Bank in stock
form who will serve in such capacity for life. The Board of Directors of the
converted Bank will consist of nine directors divided into three classes, with
approximately one-third of the directors elected at each annual meeting of
stockholders. Because the Holding Company will own all of the issued and
outstanding shares of capital stock of the Bank after the Conversion, the
Holding Company, as sole stockholder, will elect the directors of the Bank.
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The following table sets forth certain information regarding the
trustees of the Bank.
Position(s) Held Trustee
Name With the Bank Age(1) Since
---- ------------- ------ -----
Carl A. Florio, CPA Trustee, President and Chief 49 1997
Executive Officer
Earl Schram, Jr. Trustee and Chairman 74 1987
of the Board
Stanley Bardwell, M.D. Trustee 73 1981
William E. Collins Trustee 72 1983
John E. Kelly Trustee 72 1981
Joseph W. Phelan Trustee 55 1990
William H. Jones Trustee 54 1991
Marilyn A. Herrington Trustee 54 1994
Marcia M. Race Trustee 53 1989
- ------------
(1) At December 31, 1997.
The business experience of each trustee for at least the past five
years is set forth below.
Carl A. Florio, CPA. Mr. Florio has served as President and Chief
Executive Officer of the Bank since 1996. From 1993 until his appointment as
President and Chief Executive Officer, Mr. Florio served as Chief Financial
Officer of the Bank. Prior to his becoming the Bank's Chief Financial Officer,
Mr. Florio was a partner in the accounting firm of Pattison, Koskey, Rath &
Florio. Mr. Florio serves on the Executive Committee, Trust Committee and as a
director of Hudson City Associates, Inc.
Earl Schram, Jr. Mr. Schram is currently Chairman of the Board of
Trustees of the Bank, a position he has held since 1995. Mr. Schram is an
attorney and President of the law firm of Connor, Curran & Schram, P.C. in
Hudson, New York. He is also Vice President and Director of Taconic Farms, Inc.
Mr. Schram serves on the Charitable Contributions Committee, Executive Committee
and Trust Committee.
Stanley Bardwell, M.D. Dr. Bardwell is a retired physician in
Craryville, New York. From 1958 until 1988, Dr. Bardwell specialized in internal
medicine and cardiology. He has served as Chief of Medicine in Columbia Memorial
Hospital and Greene County Hospital, served on the Board of Health and was
President of the Potts Memorial Foundation as well as other various charitable
groups. Dr. Bardwell serves on the Executive Committee, Examining Committee and
Charitable Contributions Committee.
William E. Collins. Mr. Collins served as President and Chief Executive
Officer of the Bank from 1983 until his retirement in 1990. Prior to becoming
President and Chief Executive Officer, Mr. Collins served as Executive Vice
President of the Bank from March 1982 to December 1982. From 1991 to 1996, Mr.
Collins served as a director of Hudson City Associates, Inc., a wholly owned
subsidiary of the Bank and general partner of Premium Payment Plan. See
"Business of the Bank--Lending Activities-Consumer Lending," and"--Subsidiaries
and Other Activities." Mr. Collins serves on the Executive Committee and the
Examining Committee.
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John E. Kelly. Since 1992, Mr. Kelly has owned and operated Berkshire
Telephone Corp. Kinderhook, New York. Mr. Kelly is Chairman of the Board of
Berkshire Telephone Corp. He has been with Berkshire Telephone Company since
1946 in various capacities. Berkshire Telephone Corp. provides long distance,
internet, cellular, paging and TV cable services. Mr. Kelly serves on the
Executive Committee and Compensation Committee.
Joseph W. Phelan. Since 1983, Mr. Phelan has served as President of
Taconic Farms, Inc. Germantown, New York, a provider of laboratory animals for
research. He is also Treasurer of the Reformed Church in Germantown, New York.
Mr Phelan serves on the Executive Committee, Trust Committee and Compensation
Committee.
William H. (Tony) Jones. Since 1986, Mr. Jones has owned and served as
President and Publisher of Roe Jan Independent Publishing Co., Inc., Hillsdale,
New York, a publisher of community newspapers and similar publications. Mr.
Jones serves on the Executive Committee, Charitable Contributions Committee,
Examining Committee and as a director of Hudson City Associates, Inc.
Marilyn A. Herrington. Ms. Herrington is the Vice President and
Secretary of Herrington- Yaffe Auto Center, an auto repair facility, Secretary
of Richmond Telephone Company, a provider of long distance telephone service and
involved in real estate investments. Ms. Herrington serves on the Executive
Committee, Charitable Contributions Committee and Compensation Committee.
Marcia M. Race. Ms. Race was employed by the Bank from 1962 until her
retirement in 1997. Ms. Race served as Assistant Secretary of the Bank from 1972
to 1978, Corporate Secretary from 1978 to 1989 and Assistant to the President
from 1989 to 1997. She is also Trustee of the Nativity/St. Mary's Parish
Community Church. Ms. Race serves on the Executive Committee.
Executive Officers Who Are Not Trustees
Each of the executive officers of the Bank will retain his or her
office in the Bank after the Conversion. Officers are elected annually by the
Board of Directors of the Bank. There are no arrangements or understandings
between the person named and any other person pursuant to which such officer was
selected.
The business experience of the executive officers who are not also
trustees is set forth below.
Timothy E. Blow, CPA. Mr. Blow, age 31, became Chief Financial
Officer of the Bank in May 1997. Prior to his appointment as Chief Financial
Officer, Mr. Blow was a senior manager at the accounting firm of KPMG Peat
Marwick LLP. Mr. Blow also serves as a director of Hudson City Associates, Inc.
and as Secretary and Treasurer of Hudson River Funding Corp., wholly owned
subsidiaries of the Bank. See "Business of the Bank--Subsidiary and Other
Activities."
Pamela M. Wood. Ms. Wood, age 50, has been employed by the Bank since
1969 and has served as Senior Vice President and Corporate Secretary since 1993.
She also serves as Secretary of Hudson River Mortgage Corporation, Hudson City
Center, Inc. and Hudson City Associates, Inc. From 1990 to 1993, she served as
Vice President and Corporate Secretary. From 1984 to 1990 she
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served as Assistant Vice President. From 1969 to 1984 she served as
Administrative Assistant and Executive Secretary.
Sidney D. Richter. Mr. Richter, age 57, has served as the Bank's Senior
Vice President of Lending since 1993. From 1990 to 1993, Mr. Richter served as
the Bank's Vice President for Commercial Lending. Mr. Richter also serves as a
director of each of the Bank's wholly owned subsidiaries. See
"Business--Subsidiary and Other Activities."
Meetings and Committees of the Board of Trustees of the Bank
The Bank's Board of Trustees meets at least monthly and held 12
meetings during the fiscal year ended March 31, 1997. During fiscal 1997, no
trustee of the Bank 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 Trustee on which he or she served. The current committees of the Board
of Trustees of the Bank are the Executive Committee, Trust Committee, Audit
Committee, Examining Committee and the [compensation committee]. Following the
Conversion, the Board of Directors of the Bank may revise the membership and
structure of the current committees of the Board of Trustees.
The Executive Committee is comprised of all of the Trustees with Jack
Kelly serving as Chairman. The Executive Committee meets on an as needed basis
and exercises the power of the Board of Trustees between Board meetings, to the
extent permitted by applicable law. The Executive Committee met 14 times during
fiscal 1997.
The Audit Committee is responsible for the oversight of the Bank's
Internal Audit Department and for the review of the Bank's annual audit report
prepared by the Bank's independent auditors. Only non-employee directors may
serve on the Audit Committee. The current members of the committee are Trustees
Bardwell (Chairman), Collins and Phelan. The Audit Committee met one time during
fiscal 1997.
The Trust Committee oversees the Bank's trust operations. The current
members of the Trust Committee are Trustees Phelan and Schram and officers
Richter and Blow. The Trust Committee met 12 times during fiscal 1997.
Trustee Compensation
During fiscal 1997, each trustee of the Bank received a fee of $1,100
per Board meeting attended. During fiscal 1997, members of the Executive
Committee each received $550 per committee meeting attended, members of the
Audit Committee each received $450 per committee meeting attended and members of
the Trust Committee each received $200 per committee meeting attended. In
addition, non-employee Directors of Hudson City Associates, Inc. receive $200
per meeting attended.
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Trustees Emeritus
Under the Bank's Bylaws, a retiring Trustee may, with the approval of
the Board of Trustees, serve as a Trustee Emeritus of the Bank. A Trustee
Emeritus is entitled to attend all meetings of the Board of Trustees,
participate in all discussions and receive the same fees as a Trustee. Trustees
Emeritus are not, however, entitled to vote or meet as a separate body. Warren
H. Bohnsack and Morton A. Ginsberg currently serve as Trustees Emeritus of the
Bank. It is anticipated that following the Conversion, Messrs. Bohnsack and
Ginsberg will serve as Directors Emeritus of the Bank and the Holding Company.
Executive Compensation
The following table sets forth information concerning the compensation
paid to the Bank's Chief Executive Officer and the Bank's only other executive
officer whose salary and bonus for fiscal 1997 exceeded $100,000.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
--------------------------------------- --------------------------
Other Annual Restricted Stock Options All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Award ($)(1) (#)(1) Compensation($)(2)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
Carl A. Florio, President
and Chief Executive Officer 1997 $150,000(3) $13,125 $--- N/A N/A $ 4,700
Sidney D. Richter
Senior Vice President 1997 103,000 13,375 --- N/A N/A 4,300
===================================================================================================================================
</TABLE>
- -------
(1) As a mutual institution, the Bank does not have any stock options or
restricted stock plans. The Holding Company does, however, intend to adopt
such plans following the Conversion. See "-- Benefit Plans - Stock Option
Plan" and "-- Management Recognition Plan."
(2) Represents $400 and $400 of life insurance premiums paid by the Bank and
the Bank's contributions of $4,300 and $3,900 to the Bank's 401(k) plan on
behalf of Messrs. Florio and Richter, respectively.
(3) Salary represents service as the Chief Financial Officer of the Bank from
April 1996 to June 1996 and as the Chief Executive Officer from June 1996
to March 1997.
Employment Agreements
Upon the Conversion, the Bank and the Company intends to enter into
employment agreements with Mr. Florio and three other officers of the Bank
(individually, the "Executive") and the Company intend to enter into employment
agreements with Carl Florio, Sidney Richter and two other executive officers of
the Bank (collectively, the "Employment Agreements"). The Employment Agreements
are intended to ensure that the Bank and the Company will be able to maintain a
stable and competent management base after the Conversion. The continued success
of the Bank and the Company depends to a significant degree on the skills and
competence of the above referenced officers.
The Employment Agreements provide for either three-year or two-year terms
for each Executive. The terms of the Employment Agreements shall be extended on
a daily basis unless written notice of non-renewal is given by the Board of
Directors. The Employment Agreements provide that the Executive's base salary
will be reviewed annually. The base salary which will be effective for such
Employment Agreement for Mr. Florio will be $235,000. In addition to the base
salary, the Employment Agreements provide for, among other things, participation
in stock benefits plans and other fringe benefits applicable to executive
personnel. The agreements provide for
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termination by the Bank or the Company for cause, as defined in the Employment
Agreements, at any time. In the event the Bank or the Company chooses to
terminate the Executive's employment for reasons other than for cause, or in the
event of the Executive's resignation from the Bank and the Company upon; (i)
failure to re-elect the Executive to his current offices; (ii) a material change
in the Executive's functions, duties or responsibilities; (iii) a reduction in
the benefits and perquisites being provided to the Executive under the
Employment Agreement; (iv) liquidation or dissolution of the Bank or the
Company; or (v) a breach of the agreement by the Bank or the Company, the
Executive or, in the event of death, his beneficiary would be entitled to
receive an amount equal to the remaining base salary payments due to the
Executive for the remaining term of the Employment Agreement and the
contributions that would have been made on the Executive's behalf to any
employee benefit plans of the Bank and the Company during the remaining term of
the agreement. The Bank and the Company would also continue and pay for the
Executive's life, health, dental and disability coverage for the remaining term
of the Agreement. Upon any termination of the Executive, other than following a
change in control, the Executive is subject to a one year non-competition
agreement.
Under the Employment Agreements, if voluntary or involuntary termination
follows a change in control of the Bank or the Company, the Executive or, in the
event of the Executive's death, his beneficiary, would be entitled to a
severance payment equal to the greater of: (i) the payments due for the
remaining terms of the agreement; or (ii) three times the average of the five
preceding taxable years' annual compensation. The Bank and the Company would
also continue the Executive's life, health, and disability coverage for
thirty-six months. Under the Employment Agreements, a voluntary termination
following a change in control means the executive's voluntary resignation
following any demotion, loss of title, office authority or responsibility, a
reduction in compensation or benefits or relocation. Notwithstanding that both
the Bank and Company Employment Agreements provide for a severance payment in
the event of a change in control, the Executive would only be entitled to
receive a severance payment under one agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company's Employment Agreement would be made by the
Company. The Company's Employment Agreement also provides that the Company will
compensate the Executive for excise taxes imposed on any "excess parachute
payments," as defined under section 280G of the Code, made thereunder, and any
additional income and excise taxes imposed as a result of such compensation. All
reasonable costs and legal fees paid or incurred by the Executive pursuant to
any dispute or question of interpretation relating to the Employment Agreements
shall be paid by the Bank or Company, respectively, if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under New York and
Delaware law, respectively. In the event of a change in control of the Bank or
the Company, the total amount of payments due under the Agreements, based solely
on cash compensation paid to the officers who will receive Employment Agreements
over the past five fiscal years and excluding any benefits under any employee
benefit plan which may be payable, would be approximately $___ million.
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Change in Control Agreements
Upon Conversion, the Bank intends to enter into two-year Change in Control
Agreements (the "CIC Agreements") with five officers of the bank, none of whom
will be covered by employment contracts. Commencing on the first anniversary
date and continuing on each anniversary thereafter, the Bank CIC Agreements may
be renewed by the Board of Directors of the Bank for an additional year. The
Bank's CIC Agreements will provide that in the event voluntary or involuntary
termination follows a change in control of the Company or the Bank, the officer
would be entitled to receive a severance payment equal to two times the
officer's average annual compensation for the five most recent taxable years.
The Bank would also continue and pay for the officer's life, health and
disability coverage for twenty-four months following termination. Under the CIC
Agreements, a voluntary termination following a change in control means the
executive's voluntary resignation following any demotion, loss of title, office
authority or responsibility, a reduction in compensation or benefits or
relocation. In the event of a change in control of the Company or the Bank, the
total payments that would be due under the CIC Agreements, based solely on the
current annual compensation paid to the officers covered by the CIC Agreements
and excluding any benefits under any employee benefit plan which may be payable,
would be approximately $_________.
Employee Severance Compensation Plan
The Bank's Board of Directors intends to, upon Conversion, establish the
Hudson River Bank & Trust Company Employee Severance Compensation Plan
("Severance Plan") which will provide eligible employees with severance pay
benefits in the event of a change in control of the Bank or the Company
following Conversion. Management personnel with Employment Agreements or CIC
Agreements are not eligible to participate in the Severance Plan. Generally,
employees are eligible to participate in the Severance Plan if they have
completed at least one year of service with the Bank. The Severance Plan vests
in each participant a contractual right to the benefits such participant is
entitled to thereunder. Under the Severance Plan, in the event of a change in
control of the Bank or the Company, eligible employees who are terminated from
or terminate their employment within one year (for reasons specified under the
Severance Plan), will be entitled to receive a severance payment. If the
participant, whose employment has terminated, has completed at least one year of
service, the participant will be entitled to a cash severance payment equal to
one-twelfth of annual compensation for each year of service up to a maximum of
100% of annual compensation. Such payments may tend to discourage takeover
attempts by increasing costs to be incurred by the Bank in the event of a
takeover. In the event the provisions of the Severance Plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $_____ million. However, it is
management's belief that substantially all of the Bank's employees would be
retained in their current positions in the event of a change in control, and
that any amount payable under the Severance Plan would be considerably less than
the total amount that could possibly be paid under the Severance Plan.
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Report of Independent Compensation Expert
Pursuant to NYBB regulations, the Bank must obtain the opinion of an
independent compensation consultant as to whether or not the total compensation
for the executive officers and trustees of the Bank, viewed as a whole and on an
individual basis, is reasonable and proper in comparison to the compensation
provided to executive officers, directors or trustees of similar publicly-traded
financial institutions. The Bank has obtained an opinion from William M. Mercer,
Incorporated, which provides that, based upon published professional survey data
of similarly situated publicly-traded financial institutions operating in the
relevant markets, with respect to the total cash compensation for executive
officers and total remuneration for trustees of the Bank, such compensation,
viewed as a whole and on an individual basis, is reasonable and proper in
comparison to the compensation provided to similarly situated publicly-traded
financial institutions, and that, with respect to the amount of shares of Common
Stock to be reserved under the ESOP, and expected to be reserved under the RRP
and the Stock Option Plan, as a whole, such amounts reserved for granting are
reasonable in comparison to similar publicly-traded financial institutions.
Benefit Plans
General. The Bank currently provides health care benefits to its employees,
including hospitalization, major medical, dental, life and disability insurance,
subject to certain deductibles and copayments by employees.
Defined Benefit Pension Plan. The Bank sponsors a defined benefit pension
plan for its employees (the "Pension Plan"). Salaried employees are eligible to
participate in the Pension Plan following the completion of one year of service
(1,000 hours worked during a continuous 12-month period) and attainment of 21
years of age. A participant must reach five years of service before attaining a
vested interest in his or her retirement benefits, after which such participant
is 100% vested. The Pension Plan is funded solely through contributions made by
the Bank.
The benefit provided to a participant at normal retirement age (generally
age 65) is based on the average of the participant's basic annual compensation
during the 36 consecutive months of service within the last 120 completed months
of a participant's service which yields the highest average compensation
("average annual compensation"). Compensation for this purpose is the
participant's basic annual salary, including any contributions through a salary
reduction arrangement to a cash or deferred plan under Section 401(k) of the
Code, but exclusive of overtime, bonuses, severance pay, or any special payments
or other deferred compensation arrangements. The annual benefit provided to a
participant, without offset for the participant's anticipated Social Security
benefit, who retires at age 65 is equal to 2% of average annual compensation for
each year of service up to a maximum of 30 years.
The annual benefit provided to participants (i) at early retirement age
(generally age 62) with five years of service who elect to defer the payment of
their benefits to normal retirement age, (ii) at early retirement age with five
years of service who elect to receive payment of their benefits prior to normal
retirement age, or (iii) who postpone annual benefits beyond normal retirement
age, are calculated basically the same as the benefits for normal retirement
age, with annual average
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compensation being multiplied by 2% for each year of such individual's actual
years of service. A participant eligible for early retirement benefits who does
not meet the requirements set forth above will have his or her benefits adjusted
as further described in the Pension Plan.
The Pension Plan also provides for disability and death benefits.
The following table sets forth, as of March 31, 1997, estimated annual
pension benefits for individuals at age 65 payable in the form of a life annuity
under the most advantageous plan provisions for various levels of compensation
and years of service. The figures in this table are based upon the assumption
that the Pension Plan continues in its present form and does not reflect offsets
for Social Security benefits and does not reflect benefits payable under the
ESOP. At March 31, 1997, the estimated years of credited service of Messrs.
Florio and Richter were three and six years, respectively.
Pension Plan Table
Years of Credited Service
----------------------------------------------------------
Remuneration 15 20 25 30 35*
- ------------ -- -- -- -- ---
$ 75,000 $22,500 $30,000 $37,500 $45,000 $46,875
$100,000 $30,000 $40,000 $50,000 $60,000 $62,500
$125,000 $37,500 $50,000 $62,500 $75,000 $78,125
$150,000 $45,000 $60,000 $75,000 $90,000 $93,750
$175,000 $45,000 $60,000 $75,000 $90,000 $93,750
$200,000 $45,000 $60,000 $75,000 $90,000 $93,750
$225,000 $45,000 $60,000 $75,000 $90,000 $93,750
$250,000 $45,000 $60,000 $75,000 $90,000 $93,750
$300,000 $45,000 $60,000 $75,000 $90,000 $93,750
$400,000 $45,000 $60,000 $75,000 $90,000 $93,750
$500,000 $45,000 $60,000 $75,000 $90,000 $93,750
- -----------
* Assumes that participant had 30 or more years of Credited Servie as of July
14, 1995.
401(k) Savings Plan. The Bank has a qualified, tax-exempt savings plan with
a cash or deferred feature qualifying under Section 401(k) of the Code (the
"401(k) Plan"). All salaried employees who have attained age 21 and completed
one year of employment, 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 between 2% to 10% of the participant's annual salary. Each
participant's salary reduction contribution is matched by the Bank in an amount
equal to 50% of the participant's before-tax contribution up to a maximum
contribution by the Bank of 4% of such participant's annual salary
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for the Plan Year. All participant contributions and earnings are fully and
immediately vested. All matching contributions are vested at a rate of 20% per
year over a five year period commencing after one year of employment with the
Bank. However, in the event of retirement, permanent disability or death, a
participant will automatically become 100% vested in the value of all matching
contributions and earnings thereon, regardless of the number of years of
employment with the Bank.
Participants may invest amounts contributed to their 401(k) Plan accounts
in one or more investment options available under the 401(k) Plan. Changes in
investment directions among the funds are permitted on a quarterly basis
pursuant to procedures established by the Plan Administrator. Each participant
receives a quarterly statement which provides information regarding, among other
things, the market value of his investments and contributions made to the 401(k)
Plan on his behalf. Participants are permitted to borrow against their account
balance in the 401(k) Plan. For the year ended March 31, 1997, the Bank's
contributions to the 401(k) Plan on behalf of Messrs. Florio and Richter were
$4,300 and $3,900, respectively.
Employee Stock Ownership Plan. The Boards of Directors of HCSI and the
Holding Company have approved the adoption of an ESOP for the benefit of
full-time salaried employees of HCSI. The ESOP is 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 Holding Company's Common Stock.
It is anticipated that the ESOP will be initially funded with a loan from
the Holding Company. The proceeds from this loan are expected to be used by the
ESOP to purchase 8% of the Common Stock issued in the Conversion, including
shares issued to the Foundation. After the Conversion, as a qualified employee
pension plan under Section 401(a) of the Code, the ESOP will be in the form of a
stock bonus plan and will provide for contributions, predominantly in the form
of either the Holding Company's Common Stock or cash, which will be used within
a reasonable period after the date of contributions primarily to purchase the
Holding Company Common Stock. The maximum tax-deductible contribution by the
Bank in any year is an amount equal to the maximum amount that may be deducted
by the Bank under Section 404 of the Code, subject to reduction based on
contributions to other tax-qualified employee plans. Additionally, the Bank will
not make contributions if such contributions would cause the Bank to violate its
regulatory capital requirements. The assets of the ESOP will be invested
primarily in the Holding Company's Common Stock. The Bank will receive a tax
deduction equal to the amount it contributes to the ESOP.
From time to time the ESOP may purchase additional shares of Common Stock
for the benefit of plan participants through purchases of outstanding shares in
the market, upon the original issuance of additional shares by the Holding
Company or upon the sale of shares held in treasury by the Holding Company. Such
purchases, which are not currently contemplated, would be subject to
then-applicable laws, regulations and market conditions.
All full-time salaried employees of the Bank are eligible to participate in
the ESOP after they attain age 21 and complete one year of service during which
they work at least 1,000 hours.
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Employees will be credited for years of service to the Bank prior to the
adoption of the ESOP for participation and vesting purposes. The Bank's
contribution to the ESOP is allocated among participants on the basis of
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. A participant will become vested
in his or her ESOP account at a rate of 20% per year and after completing five
years of service a participant will be 100% vested in his or her ESOP account.
ESOP participants are entitled to receive distributions from their ESOP accounts
only upon termination of service. Distribution 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.
Participating employees are entitled to instruct the trustee of the ESOP as
to how to vote the shares held in their account. The trustee, who has
dispositive power over the shares in the Plan, will not be affiliated with the
Holding Company or HCSI. The ESOP may be amended by the Board of Directors of
the Holding Company, 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 to purposes other than the benefit of participants or
their beneficiaries.
Stock Option and Incentive Plan. Among the benefits to the Bank and the
Holding Company anticipated from the Conversion is the ability to attract and
retain directors and key personnel through stock option and other stock-related
incentive programs. A Stock Option Plan is intended to be adopted by the Board
of Directors of the Holding Company and then submitted to the Holding Company's
Stockholders for their approval (at a meeting to be held no earlier than six
months following the Conversion).
The Company anticipates reserving an amount equal to 10% of the shares of
Common Stock issued in the Conversion, including shares issued to the Foundation
(or 1,552,500 shares based upon the issuance of 15,525,000 shares), for issuance
under the Stock Option Plan. If the Holding Company implements an option plan
within one year following completion of the Conversion, NYBB regulations provide
that no individual officer or employee of the Bank may receive more than 25% of
the options granted under the plan and non-employee directors may not receive
more than 5% individually, or 30% in the aggregate, of the options granted under
the plan. NYBB and FDIC regulations also provide that the exercise price of any
options granted under any such plan implemented within one year after the
Conversion must equal or exceed the market price of the Common Stock as of the
date of grant. Additionally, OTS regulations, as applied by the FDIC, provide
that with respect to any stock option plan adopted within one year after
conversion, the vesting or the exercisability of any options granted under such
a plan may not be accelerated except upon death or disability.
It is anticipated that the Stock Option Plan will allow for the granting
of: (i) stock options for employees intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Stock Options"), (ii) options
for all plan participants that do not qualify as incentive stock options
("Non-Statutory Stock Options"); and (iii) Limited Option Rights (discussed
below) which participants may exercise only upon a change in control of the Bank
or the Holding Company. Unless sooner terminated, the Stock Option Plan will
remain in effect for a period of ten years from
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the earlier of adoption by the Board of Directors or approval by the Holding
Company's stockholders. Subject to applicable regulations, upon exercise of a
"Limited Option Right" in the event of a change in control, the optionee will be
entitled to receive a lump sum cash payment equal to the difference between the
exercise price of any unexercised option, whether exercisable or unexercisable
at such time, and the fair market value of the shares of common stock subject to
the option on the date of exercise in lieu of purchasing the stock underlying
the option. A change in control would be defined in the Stock Option Plan and
would generally occur when a person or group of person acting in concert
acquires beneficial ownership of 20% or more of any class of equity security of
the Holding Company or the Bank or in the event of a tender or exchange offer,
merger or other form of business combination, sale of all or substantially all
of the assets of the Holding Company or the Bank or contested election of
directors which resulted in the replacement of a majority of the Board of
Directors by persons not nominated by the directors in office prior to the
contested election.
The Stock Option Plan will be administered by a committee (the
"Compensation Committee") the members of which are each "non-employee
directors," as defined in the SEC's regulations, and "outside directors," as
defined under Section 162(m) of the Code and the regulations thereunder. The
Stock Option Committee will determine which directors, officers and employees
may receive options and Limited Options, whether such options will qualify as
Incentive Stock Options, the number of shares subject to each option, the
exercise price of each option, the manner of exercise of the options and the
time when such options will become exercisable.
The Holding Company anticipates that options granted pursuant to the Stock
Option Plan will remain exercisable for at least three months following the date
on which a participant ceases to perform services for the Bank or the Holding
Company, except in the event of death or disability, in which case options would
accelerate and become fully vested and remain exercisable for up to one year
thereafter, or such longer period as determined by the Stock Option Committee.
However, any Incentive Stock Option exercised more than three months following
the date on which an employee ceased to perform services as an employee, other
than termination due to death or disability, would not be treated for tax
purposes as an Incentive Stock Option. It is intended that the Stock Option Plan
would provide that the Stock Option Committee, if requested by the optionee,
could elect, in exchange for vested options, to pay the optionee, or beneficiary
in the event of death, the amount by which the fair market value of the Common
Stock exceeds the exercise price of the options on the date of the employee's
termination of employment.
Recognition and Retention Plan. Following consummation of the Conversion,
the Board of Directors of the Company intends to adopt a Recognition and
Retention Plan ("RRP") for directors, officers and employees. The objective of
the RRP will be to enable the Company to provide directors, officers and
employees with a proprietary interest in the Company as an incentive to
contribute to its success. The Company intends to present the RRP to
stockholders for their approval at a meeting of stockholders which, pursuant to
applicable NYBB and FDIC regulations, may be held no earlier than six months
subsequent to completion of the Conversion.
The RRP will be administered by the Compensation Committee of the Board of
Directors. The Holding Company will contribute funds to the RRP to enable it to
acquire in the open market
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or from authorized but unissued shares, following stockholder ratification of
such plan, an amount of stock equal to 4% of the shares of Common Stock issued
in the Conversion, including shares issued to the Foundation. Although no
specific award determinations have been made, the Holding Company anticipates
that it will provide stock awards to the directors, executive officers and
employees of the Holding Company or the Bank or their affiliates to the extent
permitted by applicable regulations. NYBB regulations provide that, to the
extent the Holding Company implements the RRP within one year after Conversion,
no individual employee may receive more than 25% of the shares of any plan and
non-employee directors may not receive more than 5% of any plan individually or
30% in the aggregate for all directors. Additionally, OTS regulations, as
applied by the FDIC, provide that Awards granted under the RRP may not be
accelerated except upon death or disability for plans adopted within one year
after conversion.
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. Recipients will earn (i.e., become vested
in), over a period of time, the shares of Common Stock covered by the Award.
Certain Transactions
The Bank's policies do not permit the Bank to make loans to any of its
Trustees. Federal laws require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. As of March
31, 1997, all outstanding loans to the Bank's executive officers were made in
the ordinary course of business and on the same terms, including collateral and
interest rates, as those prevailing at the time for comparable transactions with
the general public, and do not involve more than the normal risk of
collectiblity.
Chairman of the Board of Trustees Earl Schram, Jr. is President of the law
firm of Connor, Curran & Schram P.C. ("Connor Curran"). Connor Curran serves as
outside counsel to the Bank and performs various legal services for the Bank.
During fiscal 1997, the Bank paid Connor Curran approximately $184 thousand in
fees for services rendered. Connor Curran also receives an indirect benefit from
the Bank to the extent borrowers of Hudson City engage Connor Curran to close
their loans.
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Proposed Purchases by Executive Officers and Trustees
The following table sets forth the number of shares of Common Stock
that the executive officers and trustees, and their associates, propose to
purchase in the Offerings, assuming shares of Common Stock are issued at $10.00
per share at the minimum ($111,407,770) and maximum ($150,728,150) of the
Estimated Valuation Range and that sufficient shares will be available to
satisfy their orders. The table also sets forth the total expected beneficial
ownership of Common Stock as to all trustees and executive officers as a group.
<TABLE>
<CAPTION>
At the Minimum of the At the Maximum of the
Estimated Valuation Estimated Valuation
Range(1) Range(1)
------------------------- -----------------------------
As a Percent
of
Number of Shares Number of As a Percent of
Name Amount Shares Offered Shares Shares Offered
---- ------ ------ ------- ------ --------------
<S> <C> <C> <C> <C> <C>
Carl A. Florio...................... $ 400,000 40,000 .36% 40,000 .27%
Earl Schram, Jr..................... 1,000,000 100,000 .90 100,000 .66
Stanley Bardwell.................... 200,000 20,000 .18 20,000 .13
William E. Collins.................. 150,000 15,000 .13 15,000 .10
John E. Kelly....................... 3,000 300 -(2) 300 -(2)
Joseph W. Phelan.................... 250,000 25,000 .22 25,000 .17
William H. Jones.................... 200,000 20,000 .18 20,000 .13
Marilyn A. Herrington............... 250,000 25,000 .22 25,000 .17
Marcia M. Race...................... 15,000 1,500 .01 1,500 .01
Timothy E. Blow..................... 20,000 2,000 .02 2,000 .01
Pamela M. Wood...................... 20,000 2,000 .02 2,000 .01
Sidney D. Richter................... 200,000 20,000 .18 20,000 .13
------------ -------- ----- ------- ----
All directors and executive
officers as a group
(12 persons)...................... $2,708,000 270,800 2.43% 270,800 1.80%
========== ======= ===== ======== =====
</TABLE>
- -------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares issued in the Conversion, including shares
issued to the Foundation. Also does not include shares to be contributed to
the Foundation equal to 3% of the Common Stock sold or 334,223 shares and
452,184 shares at the minimum and the maximum, respectively of the
Estimated Valuation Range, Common Stock which may be awarded under the
Recognition and Retention Plan to be adopted equal to 4% of the Common
Stock issued in the Conversion, including shares issued to the Foundation,
(or 459,000 shares and 621,000 shares at the minimum and the maximum,
respectively, of the Estimated Valuation Range), and Common Stock which may
be purchased pursuant to options which may be granted under the Stock
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Option Plan equal to 10% of the number of shares of Common stock issued in
the Conversion, including shares issued to the Foundation, (or 1,147,500
shares or 1,552,500 shares at the minimum and the maximum, respectively, of
the Estimated Valuation Range.)
(2) Less than .01%.
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THE CONVERSION
THE BOARD OF TRUSTEES OF THE BANK AND THE SUPERINTENDENT OF BANKS OF THE
STATE OF NEW YORK HAVE APPROVED THE PLAN OF CONVERSION, SUBJECT TO APPROVAL BY
THE BANK'S DEPOSITORS ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. SUCH APPROVAL, HOWEVER, DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY THE SUPERINTENDENT.
General
On November 20, 1997, the Bank's Board of Trustees unanimously adopted
the Plan of Conversion pursuant to which the Bank will be converted from a New
York mutual savings bank to a New York stock savings bank. The Plan was amended
by the Board of Trustees as of February 19, 1998. It is currently intended that
all of the outstanding capital stock issued by the Bank pursuant to the Plan
will be held by the Holding Company, which is incorporated under Delaware law.
The Plan was approved by the Superintendent, and the Bank has received a notice
of intent not to object to the Plan from the FDIC, subject to, among other
things, approval of the Plan by the Bank's depositors. A special meeting of
depositors has been called for this purpose to be held on _____________, 1998.
The Holding Company has received approval from the OTS to become a
savings and loan holding company and to acquire all of the capital stock of the
Bank to be issued in the Conversion. The Holding Company plans to retain 50% of
the net proceeds from the sale of the Common Stock and to use the remaining net
proceeds to purchase all of the then issued and outstanding capital stock of the
Bank. The Conversion will be effected only upon completion of the sale of all of
the shares of Common Stock of the Holding Company (or of the Bank, if the
holding company form of organization is not utilized) to be issued pursuant to
the Plan.
The Plan provides that the Board of Trustees of the Bank may, at any
time prior to the issuance of the Common Stock and for any reason, decide not to
use the holding company form of organization. Such reasons may include possible
delays resulting from overlapping regulatory processing or policies which could
adversely affect the Bank's or the Holding Company's ability to consummate the
Conversion and transact its business as contemplated herein and in accordance
with the Bank's operating policies. In the event such a decision is made, the
Bank will withdraw the Holding Company's registration statement from the SEC and
take steps necessary to complete the Conversion without the Holding Company,
including filing any necessary documents with the NYBB and the FDIC. In such
event, and provided there is no regulatory action, directive or other
consideration upon which basis the Bank determines not to complete the
Conversion, if permitted by the NYBB, the Bank will issue and sell the common
stock of the Bank and subscribers will be notified of the elimination of a
holding company and will be solicited (i.e., be permitted to affirm their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
funds will be promptly refunded with interest at the Bank's passbook rate of
interest; or be permitted to modify or rescind their subscriptions), and
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notified of the time period within which the subscriber must affirmatively
notify the Bank of such subscriber's intention to affirm, modify or rescind such
subscriber's subscription. The following description of the Plan assumes that a
holding company form of organization will be used in the Conversion. In the
event that a holding company form of organization is not used, all other
pertinent terms of the Plan as described below will apply to the conversion of
the Bank from the mutual to stock form of organization and the sale of the
Bank's common stock.
The Plan provides generally that (i) the Bank will convert from a
mutual savings bank to a capital stock savings bank and (ii) the Holding Company
will offer shares of Common Stock for sale in the Subscription Offering to the
Bank's Eligible Account Holders, Employee Plans, including the ESOP,
Supplemental Eligible Account Holders and Other Depositors. The Plan also
provides that shares not subscribed for in the Subscription Offering may be
offered in a Community Offering to certain members of the general public. It is
anticipated that all shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by the Holding Company to the general public
in a Syndicated Community Offering. The Holding Company and the Bank have
reserved the right to accept or reject, in whole or in part, any orders to
purchase shares of the Common Stock received in the Community Offering or in the
Syndicated Community Offering. See "-Community Offering" and "- Syndicated
Community Offering."
The aggregate price of the shares of Common Stock to be issued in the
Conversion within the Estimated Valuation Range, currently estimated to be
between $111,407,770 and $150,728,150 is based upon an independent appraisal
prepared by RP Financial, a consulting firm experienced in the valuation and
appraisal of savings institutions, of the estimated pro forma market value of
the Common Stock of the Holding Company. All shares of Common Stock to be issued
and sold in the Conversion will be sold at the same price. The independent
appraisal will be affirmed or, if necessary, updated at the completion of the
Offerings. See "- Stock Pricing" for additional information as to the
determination of the estimated pro forma market value of the Common Stock.
The following is a brief summary of pertinent aspects of the Plan. The
summary is qualified in its entirety by reference to the provisions of the Plan.
A copy of the Plan is available from the Bank upon written request and is
available for inspection at the offices of the Bank and at the office of the
Superintendent. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
Purposes of Conversion
The Bank, as a New York mutual savings bank, does not have shareholders
and has no authority to issue capital stock. By converting to the capital stock
form of organization, the Bank will be structured in the form used by commercial
banks, other business entities and a growing number of savings institutions. The
Conversion will be important to the future growth and performance of the Bank by
providing a larger capital base on which the Bank may operate, enhanced future
access to capital markets, enhanced ability to diversify into other financial
services related activities and enhanced ability to render services to the
public.
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The holding company form of organization, if used, would provide
additional flexibility to diversify the Bank's business activities through
newly-formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements, written or oral, regarding
any such opportunities, the Company will be in a position after the Conversion,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. While there are benefits
associated with the holding company form of organization, such form of
organization may involve additional costs associated with its maintenance and
regulation as a savings and loan company, such as additional administrative
expenses, taxes and regulatory filings or examination fees.
The potential impact of the Conversion upon the Bank's capital base is
significant. The Bank had Tier I Leverage Capital of $66.8 million, or 10.1% of
assets, at December 31, 1997. Assuming that $148.0 million of net proceeds are
realized from the sale of Common Stock (being the maximum of the Estimated
Valuation Range established by the Board of Directors based on the Valuation
Range which has been estimated by RP Financial to be from a minimum of
$111,407,770 to a maximum of $150,728,150 (see "Pro Forma Data" for the basis of
this assumption)) and assuming that $74.0 million of the net proceeds are used
by the Holding Company to purchase the capital stock of the Bank, the Bank's
Tier I Leverage capital ratio, on a pro forma basis, will increase to 17.0%
after the Conversion. The investment of the net proceeds from the sale of the
Common Stock will provide the Bank with additional income to further enhance its
capital position. The additional capital may also assist the Bank in offering
new programs and expanded services to its customers.
After completion of the Conversion, the unissued common and preferred
stock authorized by the Holding Company's Certificate of Incorporation will
permit the Company, subject to market conditions and regulatory approval, to
raise additional equity capital through further sales of securities and to issue
securities in connection with possible acquisitions. At the present time, the
Holding Company has no plans with respect to additional offerings of securities,
other than the issuance of additional shares to the Foundation or upon exercise
of stock options granted pursuant to the Stock Option Plan or the possible
issuance of authorized but unissued shares to the RRP. Following the Conversion,
the Company will also be able to use stock-related incentive programs to attract
and retain executive and other personnel for itself and its subsidiaries. See
"Management of the Bank - Executive Compensation."
Effects of Conversion
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the equity of
the institution based upon the balance in such depositor's account, which
interest may only be realized in the event of a liquidation of the institution.
However, this ownership interest is tied to the depositor's account and has no
tangible market value separate from such deposit account. Any depositor who
opens a deposit account obtains a pro rata ownership interest in the equity of
the institution without any additional payment beyond the amount of the deposit.
A depositor who reduces or closes such depositor's account receives the balance
in the account but receives nothing for such depositor's ownership interest in
the equity of the institution, which is lost to the extent that the balance in
the account is reduced.
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Consequently, depositors of a mutual savings bank have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings bank is liquidated. In such event,
the depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves after other claims, including claims of depositors
to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, permanent
non-withdrawable capital stock is created to represent the ownership of the
institution's equity and the former pro rata ownership of, depositors is
thereafter represented exclusively by their liquidation rights. See "Liquidation
Rights." Such common stock is separate and apart from deposit accounts and
cannot be and is not insured by the FDIC or any other governmental agency.
Certificates are issued to evidence ownership of the capital stock. The stock
certificates are transferable, and, therefore, the stock may be sold or traded
if a purchaser is available with no effect on any account the seller may hold in
the institution.
Continuity. While the Conversion is being accomplished, and after the
consummation of the Conversion, the normal business of the Bank of accepting
deposits and making loans will continue without interruption. The Bank will
continue to be subject to regulation by the Superintendent and the FDIC. After
Conversion, the Bank will continue to provide services for depositors and
borrowers under current policies by its present management and staff.
The trustees serving the Bank immediately before the Conversion will
serve as directors of the Bank after the Conversion. The directors of the
Holding Company will consist of all of the individuals currently serving on the
Board of Trustees of the Bank. It is anticipated that all officers of the Bank
serving immediately before the Conversion will retain their positions after the
Conversion. See "Management of the Company" and "Management of the Bank."
Deposit Accounts and Loans. Under the Plan, each depositor in the Bank
at the time of Conversion will automatically continue as a depositor after the
Conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms, except to the extent affected by
withdrawals made to purchase Common Stock in the Conversion. See "Procedure for
Purchasing Shares in Subscription and Community Offerings." Each such account
will be insured by the FDIC to the same extent as before the Conversion (i.e.,
up to $100,000 per depositor). Depositors will continue to hold their existing
certificates of deposit, passbooks and other evidences of their accounts.
Furthermore, no loan outstanding from the Bank will be affected by the
Conversion, and the amount, interest rate, maturity and security for each loan
will remain as they were contractually fixed prior to the Conversion.
Voting Rights. In its current mutual form, voting rights and control of
the Bank are vested exclusively in the Board of Trustees. After the Conversion,
direction of the Bank will be under the control of the Board of Directors of the
Bank. The Holding Company, as the holder of all of the outstanding common stock
of the Bank, will have exclusive voting rights with respect to any matters
concerning the Bank requiring shareholder approval, including the election of
directors of the Bank.
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After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Common Stock will
have exclusive voting rights with respect to any matters concerning the Holding
Company. Each holder of Common Stock will, subject to the restrictions and
limitations set forth in the Holding Company's Certificate of Incorporation
discussed below, be entitled to vote on any matters to be considered by the
Holding Company's shareholders, including the election of directors of the
Holding Company.
Liquidation Rights. In the unlikely event of a complete liquidation of
the Bank in its present mutual form, each depositor would receive such
depositor's pro rata share of any assets of the Bank remaining after payment of
claims of all creditors (including the claims of all depositors to the
withdrawal value of their accounts). Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of such
depositor's deposit account was to the total value of all deposit accounts in
the Bank at the time of liquidation. After the Conversion, each depositor, in
the event of a complete liquidation, would have a claim as a creditor of the
same general priority as the claims of all other general creditors of the Bank.
However, except as described below, such depositor's claim would be solely in
the amount of the balance in such depositor's deposit account plus accrued
interest. Such depositor would not have an interest in the value or assets of
the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" (which is a memorandum account
only) for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in an amount equal to the surplus and reserves of the Bank as of
the date of its latest balance sheet contained in the final Prospectus used in
connection with the Conversion. Each Eligible Account Holder and Supplemental
Eligible Account Holder, if such account holder were to continue to maintain
such account holder's deposit account at the Bank, would be entitled, on a
complete liquidation of the Bank after the Conversion, to an interest in the
liquidation account prior to any payment to the shareholders of the Bank,
whether or not such Eligible Account Holder or Supplemental Eligible Account
Holder purchased 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, including passbook accounts,
demand accounts, money market deposit accounts and time deposits, with an
aggregate balance of $100 or more held in the Bank on September 30, 1996 (with
respect to an Eligible Account Holder) and ________, 1998 (with respect to a
Supplemental Eligible Account Holder) (each a "Qualifying Deposit"). Each
Eligible Account Holder and Supplemental Eligible Account Holder will have a pro
rata interest in the total liquidation account for such account holder's deposit
accounts based on the proportion that the aggregate balance of such person's
Qualifying Deposits on the Eligibility Record Date or Supplemental Eligibility
Record Date, as applicable, bore to the total amount of all Qualifying Deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders.
If, however, on any annual closing date (i.e., the anniversary of the
Eligibility Record Date or the Supplemental Eligibility Record Date, as
applicable) of the Bank, commencing on or after the effective date of the
Conversion, the amount in any deposit account is less than the amount in such
deposit account on September 30, 1996 (with respect to an Eligible Account
Holder), or _____________, 1998 (with respect to a Supplemental Eligible Account
Holder), or any other
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annual closing date, then the interest in the liquidation account relating to
such deposit account would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such deposit account is
closed. For purposes of the liquidation account, time deposit accounts shall be
deemed to be closed upon maturity regardless of renewal. In addition, no
interest in the liquidation account would ever be increased despite any
subsequent increase in the related deposit account. Any assets remaining after
the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to the Holding
Company as the sole shareholder of the Bank.
Tax Aspects. Consummation of the Conversion is expressly conditioned
upon the receipt by the Bank of either a favorable ruling from the IRS and New
York taxing authorities or opinions of counsel with respect to federal and New
York income taxation, to the effect that the Conversion will not be a taxable
transaction to the Company, the Bank, Eligible Account Holders or Supplemental
Eligible Account Holders, except as noted below.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Silver, Freedman & Taff, L.L.P., based on customary certificates delivered by
management of the Company and the Bank, that for federal income tax purposes,
among other matters: (i) the Bank's change in form from mutual to stock
ownership will constitute a reorganization under section 368(a)(I)(F) of the
Code, (ii) neither the Bank nor the Holding Company will recognize any gain or
loss as a result of the Conversion; (iii) no gain or loss will be recognized by
the Bank or the Holding Company upon the purchase of the Bank's capital stock by
the Holding Company or by the Holding Company upon the purchase of its Common
Stock in the Conversion; (iv) no gain or loss will be recognized by Eligible
Account Holders or Supplemental Eligible Accounts Holders upon the issuance to
them of deposit accounts in the Bank in its stock form plus their interests in
the liquidation account in exchange for their deposit accounts in the Bank; (v)
the tax basis of the depositors' deposit accounts in the Bank immediately after
the Conversion will be the same as the basis of their deposit accounts
immediately prior to the Conversion; (vi) the tax basis of each Eligible Account
Holder's and each Supplemental Eligible Account Holders interest in the
liquidation account will be zero; (vii) no gain or loss will be recognized by
Eligible Account Holders or Supplemental Eligible Account Holders upon the
distribution to them of non-transferable subscription rights to purchase shares
of the Common Stock, provided, that the amount to be paid for the Common Stock
is equal to the fair market value of such stock; and (viii) the tax basis to the
shareholders of the Common Stock of the Holding Company purchased in the
Conversion pursuant to the subscription rights will be the amount paid therefor
and the holding period for the shares of Common Stock purchased by such persons
will begin on the date on which their subscription rights are exercised.
KPMG Peat Marwick LLP has also opined, subject to the limitations and
qualifications in its opinion, that the Conversion will not be a taxable
transaction to the Holding Company or to the Bank for New York income and
franchise tax purposes or to Eligible Account Holders or to Supplemental
Eligible Account Holders for New York income tax purposes. The opinions of
Silver, Freedman & Taff, L.L.P. and KPMG Peat Marwick LLP have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
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Unlike private rulings, opinions of counsel are not binding on the IRS
or the New York taxing authorities and the IRS or the New York taxing
authorities could disagree with conclusions reached therein. In the event of
such disagreement, there can be no assurance that the IRS or the New York taxing
authorities would not prevail in a judicial or administrative proceeding.
Certain portions of both the federal and the state tax opinions are
based upon the opinion of RP Financial that subscription rights issued in
connection with the Conversion will have no value. In the opinion of RP
Financial, which opinion is not binding on the IRS or the New York taxing
authorities, the subscription rights do not have any value based on the fact
that such rights are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients the right only
to purchase the Common Stock at a price equal to its estimated fair market
value, which will be the same price as the Purchase Price for the unsubscribed
shares of Common Stock. If the subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders and Other Depositors are deemed
to have an ascertainable value, such Eligible Account Holders, Supplemental
Eligible Account Holders and Other Depositors could be taxed upon the receipt or
exercise of the subscription rights in an amount equal to such value, and the
Bank could recognize gain on such distribution. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Depositors are encouraged to
consult with their own tax advisors as to the tax consequences in the event that
such subscription rights are deemed to have an ascertainable value.
Establishment of The Hudson River Bank and Trust Company Foundation
General. In furtherance of the Bank's commitment to its local
community, the Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Holding Company will incorporate the Foundation under Delaware law as a
non-stock corporation. and will fund the Foundation with Common Stock of the
Holding Company, as further described below. The Holding Company and the Bank
believe that the funding of the Foundation with Common Stock of the Company is a
means to establish a common bond between the Bank and its community, enabling
the Bank's community to share in the potential growth and success of the Holding
Company over the long term. By further enhancing the Bank's visibility and
reputation in its local community, the Bank believes that the Foundation will
enhance the long-term value of the Bank's community banking franchise. The
Foundation will be dedicated to charitable purposes within the Bank's local
community, including community development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community
development activities within the Bank's local community. The Bank received a
"satisfactory" CRA rating in its last CRA examination. The Foundation is being
formed to complement the Bank's existing community activities, not as a
replacement for such activities. The Bank intends to continue to emphasize
community lending and community development activities following the Conversion.
However, such activities are not the Bank's sole corporate purpose. The
Foundation will be completely dedicated to community activities and the
promotion of charitable causes, and may be able to support such activities in
ways that are not presently available to the Bank. In this regard, the Board of
Trustees believes the establishment of
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a charitable foundation is consistent with the Bank's commitment to community
service. The Board further believes that the funding of the Foundation with
Common Stock of the Holding Company is a means of enabling the Bank's community
to share in the potential growth and success of the Holding Company long after
completion of the Conversion. The Foundation will accomplish that goal by
providing for continued ties between the Foundation and the Bank, thereby
forming a partnership with the Bank's community. The establishment of the
Foundation will also enable the Holding Company and the Bank to develop a
unified charitable donation strategy and will centralize the responsibility for
administration and allocation of corporate charitable funds. Charitable
foundations have been formed by other financial institutions for this purpose,
among others. The Bank, however, does not expect the contribution to the
Foundation to take the place of the Bank's traditional community lending and
charitable activities.
Although the Board of Trustees of the Bank and the Board of Directors
of the Holding Company have carefully considered each of the above factors, the
establishment of a charitable foundation in connection with a conversion is a
relatively new concept that has been implemented by only a few other converting
banks. Accordingly, certain persons may raise challenges as to the validity of
the establishment of the Foundation that, if not resolved promptly, could delay
the consummation of the Conversion or result in the elimination of the
Foundation.
Structure of the Foundation. The Foundation was incorporated under
Delaware law as a non-stock corporation. The Foundation's Certificate of
Incorporation provides that it is organized exclusively for charitable purposes,
including community development, as set forth in Section 501 (c) (3) of the
Code. The Foundation's Certificate of Incorporation further provides that no
part of the net earnings of the Foundation will inure to the benefit of, or be
distributable to its directors, officers or members. A majority of the Board of
Directors of the Foundation will consist of individuals who are officers or
trustees of the Bank, and the remaining members of the Board will consist of
civic and community leaders within the Bank's local community. A Nominating
Committee of such Board, which is to be comprised of a minimum of three members
of the Board, will nominate individuals eligible for election to the Board of
Directors. The members of the Foundation, who are comprised of its Board
members, will elect the directors at the annual meeting of the Foundation from
those nominated by the Nominating Committee. Only persons serving as directors
of the Foundation qualify as members of the Foundation, with voting authority.
Directors will be divided into three classes with each class appointed for
three-year terms.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. As directors of a non-profit
corporation, directors of the Foundation will at all times be bound by their
fiduciary duty to advance the Foundation's charitable goals, to protect the
assets of the Foundation and to act in a manner consistent with the charitable
purpose for which the Foundation is established. The directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Holding Company held by the
Foundation. However, as a condition to receiving the non-objection of the
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FDIC to the Bank's Conversion and the approval of the Conversion by the
Superintendent, the Foundation will commit in writing to the FDIC and the
Superintendent that all shares of Common Stock held by the Foundation will be
voted in the same ratio as all other shares of the Holding Company's Common
Stock on all proposals considered by shareholders of the Holding Company;
provided, however, that, consistent with the condition, the FDIC and the
Superintendent shall waive this voting restriction under certain circumstances
if compliance with the voting restriction would: (i) cause a violation of the
law of the State of Delaware; (ii) cause the Foundation to lose its tax-exempt
status, or cause the IRS to deny the Foundation's request for a determination
that it is an exempt organization or otherwise have a material and adverse tax
consequence on the Foundation; or (iii) cause the Foundation to be subject to an
excise tax under Section 4941 of the Code. In order for the FDIC and the
Superintendent to waive such voting restriction, the Holding Company's or the
Foundation's legal counsel must render an opinion satisfactory to the FDIC and
the Superintendent that compliance with the voting restriction would have an
effect described in clauses (i), (ii) or (iii) above. Under those circumstances,
the FDIC and the Superintendent shall grant a waiver of the voting requirement
upon submission of such legal opinion(s) by the Holding Company or the
Foundation that are satisfactory to the FDIC and the Superintendent. In the
event that the FDIC and the Superintendent were to waive such voting
requirement, the directors would direct the voting of the Common Stock held by
the Foundation.
The Foundation's place of business will be located at the Bank's
administrative offices and initially the Foundation is expected to have no
employees but will utilize the staff of the Holding Company and the Bank. The
Board of Directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation. In this regard, the Bank
has provided the FDIC with a commitment that, to the extent applicable, the Bank
will comply with the affiliate restrictions set forth in Sections 23A and 23B of
the Federal Reserve Act with respect to any transactions between the Bank and
the Foundation.
The Holding Company intends to capitalize the Foundation with Common
Stock of the Holding Company in an amount equal to 3% of the total amount of
Common Stock to be sold in connection with the Conversion. At the minimum,
midpoint and maximum of the Estimated Valuation Range, the contribution to the
Foundation would equal 334,223, 393,204 and 452,184 shares, which would have a
market value of $3.3 million, $3.9 million and $4.5 million, respectively,
assuming the Purchase Price of $10.00 per share. The Holding Company and the
Bank determined to fund the Foundation with Common Stock rather than cash
because it desired to form a bond with its community in a manner that would
allow the community to share in the potential growth and success of the Holding
Company and the Bank over the long term. The funding of the Foundation with
stock also provides the Foundation with a potentially larger endowment than if
the Holding Company contributed cash to the Foundation since, as a shareholder,
the Foundation will share in the potential growth and success of the Holding
Company. As such, the contribution of stock to the Foundation has the potential
to provide a self-sustaining funding mechanism which reduces the amount of cash
that the Holding Company, if it were not making the stock donation, would have
to contribute to the Foundation in future years in order to maintain a level
amount of charitable grants and donations.
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The Foundation will receive working capital from any dividends that may
be paid on the Holding Company's Common Stock in the future, and subject to
applicable federal and state laws, loans collateralized by the Common Stock or
from the proceeds of the sale of any of the Common Stock in the open market from
time to time as may be permitted to provide the Foundation with additional
liquidity. As a private foundation under Section 501 (c) (3) of the Code, the
Foundation will be required to distribute annually in grants or donations, a
minimum of 5% of the average fair market value of its net investment assets. One
of the conditions imposed on the gift of Common Stock by the Holding Company is
that the amount of Common Stock that may be sold by the Foundation in any one
year shall not exceed 5% of the average market value of the assets held by the
Foundation, except where the Board of Directors of the Foundation determines
that the failure to sell an amount of common stock greater than such amount
would result in a long-term reduction of the value of the Foundation's assets
and as such would jeopardize the Foundation's capacity to carry out its
charitable purposes. Upon completion of the Conversion and the contribution of
shares to the Foundation immediately following the Conversion, the Holding
Company would have 11,475,000, 13,500,000 and 15,525,000 shares issued and
outstanding at the minimum, midpoint and maximum of the Estimated Valuation
Range. Because the Holding Company will have an increased number of shares
outstanding, the voting and ownership interests of shareholders in the Holding
Company's common stock would be diluted by 2.9%, as compared to their interests
in the Holding Company if the Foundation were not established. For additional
discussion of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The Holding Company and the Bank have received an
opinion of Silver, Freedman & Taff, L.L.P. that an organization created for the
above purposes would qualify as an organization exempt from taxation under
Section 501(c)(3) of the Code, and would likely be classified as a private
foundation. The Foundation will submit an application to the IRS to be
recognized as an exempt organization. If the Foundation files such an
application within 15 months from the date of its organization, and if the IRS
approves the application, the effective date of the Foundation's status as a
Section 501(c)(3) organization will be retroactive to the date of its
organization. Silver, Freedman & Taff, L.L.P., however, has not rendered any
advice on the condition to the contribution to be agreed to by the Foundation
which requires that all shares of Common Stock of the Holding Company held by
the Foundation must be voted in the same ratio as all other outstanding shares
of Common Stock of the Holding Company on all proposals considered by
shareholders of the Holding Company. Consistent with this condition, in the
event that the Holding Company or the Foundation receives an opinion of its
legal counsel that compliance with this voting restriction would have the effect
of causing the Foundation to lose its tax-exempt status or otherwise have a
material and adverse tax consequence on the Foundation, or subject the
Foundation to an excise tax for "self-dealing" under Section 4941 of the Code,
the FDIC and the Superintendent will waive such voting restriction upon
submission by the Holding Company or the Foundation of a legal opinion(s) to
that effect satisfactory to the FDIC and the Superintendent. See "- Regulatory
Conditions Imposed on the Foundation."
Under the Code, the Holding Company is entitled to a deduction for
charitable contributions in an amount not exceeding 10% of its taxable income
(computed without regard to the contributions) for the year of the contribution,
and any contributions in excess of the deductible amount may be carried forward
and deducted in the Holding Company's five succeeding taxable
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years, subject, in each such year, to the 10% of taxable income limitation. The
Holding Company and the Bank believe that the Conversion presents a unique
opportunity to establish and fund a charitable foundation given the substantial
amount of additional capital being raised in the Conversion. In making such a
determination, the Holding Company and the Bank considered the dilutive impact
of the contribution of Common Stock to the Foundation on the amount of Common
Stock available to be offered for sale in the Conversion. Based on such
consideration, the Holding Company and Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and the potential benefits of the Foundation to the
Bank's community. In this regard assuming the sale of the Common Stock at the
maximum of the Estimated Valuation Range, the Holding Company would have pro
forma consolidated capital of $198.5 million or 24.94% of pro forma consolidated
assets and the Bank's pro forma leverage and risk-based capital ratios would be
17.01% and 25.59%, respectively. See "Regulatory Capital Compliance,"
"Capitalization," and "Comparison of Valuation and Pro Forma Information with No
Foundation." Thus, the amount of the contribution will not adversely impact the
financial condition of the Holding Company and the Bank, and the Holding Company
and the Bank therefore believe that the amount of the charitable contribution is
reasonable and will not raise safety and soundness concerns.
The Holding Company and the Bank have received the opinion of Silver,
Freedman & Taff, L.L.P. that the Holding Company's contribution of its own stock
to the Foundation would not constitute an act of self-dealing, and that the
Holding Company will be entitled to a deduction in the amount of the fair market
value of the stock at the time of the contribution, subject to the 10% of
taxable income limitation. As discussed above, the Holding Company will be able
to carry forward and deduct any portion of the contribution in excess of such
10% limitation for five years following the year of the contribution. If the
Holding Company and the Foundation had been established in the fiscal year ended
March 31, 1997, the Holding Company would have been entitled to a charitable
contribution deduction in its taxable year ended December 31, 1997 of
approximately $_____ and would have been able to carry forward and deduct
approximately $___ million over its next succeeding five taxable years (based on
the Bank's estimated pre-tax income for 1997 and a contribution in 1997 of
Common Stock equal to $___ million). Assuming the close of the Offerings at the
midpoint of the Estimated Valuation Range, the Holding Company estimates that
the entire amount of the contribution should be deductible over a six-year
period. Neither the Holding Company nor the Bank expect to make any further
contributions to the Foundation within the first five years following the
initial contribution. After that time, the Holding Company and the Bank may
consider future contributions to the Foundation. Any such decisions would be
based on an assessment of, among other factors, the financial condition of the
Holding Company and the Bank at that time, the interests of shareholders and
depositors of the Holding Company and the Bank, and the financial condition and
operations of the Foundation.
Although the Holding Company and the Bank have received the opinion of
Silver, Freedman & Taff, L.L.P. that the Holding Company is entitled to a
deduction for the charitable contribution, there can be no assurances that the
IRS will recognize the Foundation as an organization exempt from taxation under
section 501(c)(3) of the Code or that the deduction will be permitted. If the
IRS successfully maintains that the Foundation is not so exempt or that the
deduction is not permitted,
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the Holding Company's tax benefit related to the contribution to the Foundation
would be expensed without tax benefit, resulting in a reduction in earnings in
the year in which the IRS makes such a determination. See "Risk Factors -
Establishment of Charitable Foundation."
In general, the income of a private foundation is exempt from federal
and state taxation. However, investment income, such as interest, dividends and
capital gains, will be subject to a federal excise tax of 2.0%. The Foundation
will be required to make an annual filing with the IRS within four and one-half
months after the close of the Foundation's taxable year to maintain its
tax-exempt status. The Foundation will also be required to publish a notice that
the annual information return will be available for public inspection for a
period of 180 days after the date of such public notice. The information return
for a private foundation must include, among other things, an itemized list of
all grants made or approved, showing the amount of each grant, the recipient,
any relationship between a grant recipient and the Foundation's managers, and a
concise statement of the purpose of each grant. The Foundation will also be
required to file an annual report with the Charities Bureau of the Office of the
Attorney General of the State of New York.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following conditions to be agreed to by the
Foundation in writing as a condition to receiving the FDIC's nonobjection of the
Bank's Conversion and the approval of the Conversion by the Superintendent: (i)
the Foundation will be subject to examination by the FDIC and the
Superintendent; (ii) the Foundation must comply with supervisory directives
imposed by the FDIC and the Superintendent; (iii) the Foundation will operate in
accordance with written policies adopted by its Board of Directors, including a
conflict of interest policy; and (iv) any shares of Common Stock of the Holding
Company held by the Foundation must be voted in the same ratio as all other
outstanding shares of Common Stock of the Holding Company on all proposals
considered by shareholders of the Holding Company; provided, however that,
consistent with this condition, the FDIC and the Superintendent shall waive this
voting restriction under certain circumstances if compliance with the voting
restriction would: (a) cause a violation of the law of the State of Delaware;
(b) would cause the Foundation to lose its tax-exempt status or otherwise have a
material and adverse tax consequence on the Foundation; or (c) would cause the
Foundation to be subject to an excise tax under Section 4941 of the Code. In
order for the FDIC and the Superintendent to waive such voting restriction, the
Holding Company's or the Foundation's legal counsel must render an opinion
satisfactory to FDIC and the Superintendent that compliance with the voting
restriction would have the effect described in clauses (a), (b) or (c) above.
Under those circumstances, the FDIC and the Superintendent shall grant a waiver
of the voting restriction upon submission of such opinion(s) by the Holding
Company or the Foundation which are satisfactory to the FDIC and the
Superintendent. There can be no assurances that a legal opinion addressing these
issues will be rendered, or if rendered, that the FDIC and the Superintendent
will grant an unconditional waiver of the voting restriction. If the
Superintendent waives the voting restriction, the NYSBD may (1) impose a
condition that a certain portion of the members of the Foundation's Board of
Directors shall be persons who are not directors, officers or employees of the
Bank or the Holding Company or any affiliate thereof or (2) impose such other
condition relating to control of the Common Stock held by the Foundation as
determined by the NYBB to be appropriate. In no event will the voting
restriction survive the sale of shares of the Common Stock held by the
Foundation.
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Stock Pricing
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common Stock,
as determined on the basis of an independent valuation. The Bank and the Holding
Company have retained RP Financial to make such valuation. For its services in
making such appraisal, RP Financial will receive a fee of $_____, plus
out-of-pocket expenses. The Bank and the Holding Company have agreed to
indemnify RP Financial and its employees and affiliates against certain losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services as appraiser, except where RP's liability
results from its negligence or bad faith.
An appraisal has been made by RP Financial in reliance upon the
information contained in this Prospectus, including the financial statements. RP
Financial also considered the following factors, among others: the present and
projected operating results and financial condition of the Holding Company and
the Bank, and the economic and demographic conditions in the Bank's existing
market area; certain historical, financial and other information relating to the
Bank; a comparative evaluation of the operating and financial statistics of the
Bank with those of other similarly situated publicly-traded savings associations
and savings institutions located in the Bank's market area and the State of New
York; the aggregate size of the offering of the Common Stock; the impact of the
Conversion on the Bank's equity and earnings potential; the proposed dividend
policy of the Holding Company and the Bank; and the trading market for
securities of comparable institutions and general conditions in the market for
such securities.
On the basis of the foregoing, RP Financial has advised the Holding
Company and the Bank that, in its opinion, dated as of February 27, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$111,407,770 to a maximum of $150,728,150 with a midpoint of $131,067,960. The
Board of Trustees of the Bank held a meeting to review and discuss the appraisal
report prepared by RP Financial. A representative of RP Financial participated
in the meeting to explain the contents of the appraisal report. In connection
with its review of the reasonableness and adequacy of such appraisal consistent
with NYBB and FDIC regulations and policies, the Board of Trustees reviewed the
methodology that RP Financial employed to determine the pro forma market value
of the Common Stock and the appropriateness of the assumptions that RP Financial
used in determining this value.
Based upon the Valuation Range and the Purchase Price of $10.00 per
share for the Common Stock established by the Board of Trustees, the Board of
Trustees has established the Estimated Valuation Range of $111,407,770 to
$150,728,150, with a midpoint of $131,067,960, and the Holding Company expects
to issue between 11,140,777 and 15,072,815 shares of Common Stock. The Estimated
Valuation Range may be amended with the approval of the Superintendent and FDIC
(if required), if necessitated by subsequent developments in the financial
condition of the Holding Company or the Bank or market conditions generally.
The valuation prepared by RP Financial is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
such shares. RP Financial did not independently verify the financial statements
and other information
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provided by the Bank, nor did RP Financial value independently the assets or
liabilities of the Bank. The valuation considers the Bank as a going concern and
should not be considered as an indication of the liquidation value of the Bank.
Moreover, because such valuation is necessarily based upon estimates and
projections of a number of matters, all of which are subject to change from time
to time, no assurance can be given that persons purchasing such shares in the
Conversion will thereafter be able to sell such shares at prices at or above the
Purchase Price or in the range of the foregoing valuation of the pro forma
market value thereof.
Following commencement of the Subscription Offering or Community
Offering, if any, the maximum of the Estimated Valuation Range may be increased
up to 15% and the number of shares of Common Stock to be issued in the
Conversion may be increased to 17,333,738 shares due to regulatory
considerations, changes in the market and general financial and economic
conditions, without the resolicitation of subscribers. See Limitations on Common
Stock Purchases" as to the method of distribution and allocation of additional
shares that may be issued in the event of an increase in the Estimated Valuation
Range to fill unfilled orders in the Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, RP Financial confirms to the Bank, Holding Company,
Superintendent and FDIC that, to the best of its knowledge, nothing of a
material nature has occurred which, taking into account all relevant factors,
would cause RP Financial to conclude that the value of the Common Stock at the
price so determined is incompatible with its estimate of the pro forma market
value of the Common Stock at the conclusion of the Subscription Offering and
Community Offering, if any.
If, based on RP Financial's estimate, the pro forma market value of the
Common Stock, as of the date that RP Financial so confirms, is not more than 15%
above the maximum and not less than the minimum of the Estimated Valuation Range
then, (1) with the approval of the Superintendent, if required, and the FDIC,
the number of shares of Common Stock to be issued in the Conversion may be
increased or decreased, pro rata to the increase or decrease in value, without
resolicitation of subscriptions, to no more than 17,333,738 shares or no less
than 11,140,777 shares, and (2) all shares purchased in the Subscription and
Community Offerings will be purchased for the Purchase Price of $10.00 per
share. If the number of shares issued in the Conversion is increased due to an
increase of up to 15% in the Estimated Valuation Range to reflect changes in
market or financial conditions, persons who subscribed for the maximum number of
shares will not be given the opportunity to subscribe for an adjusted maximum
number of shares, except for the Employee Plans which will be able to subscribe
for such adjusted amount up to their 10% subscription. See "- Limitations on
Common Stock Purchases."
If the pro forma market value of the Common Stock is either more than
15% above the maximum of the Estimated Valuation Range or less than the minimum
of the Estimated Valuation Range, the Bank and the Holding Company, after
consulting with the Superintendent and the FDIC, may terminate the Plan and
return all funds promptly with interest at the Bank's passbook rate of interest
on payments made by check, draft or money order, extend or hold new Subscription
and Community Offerings, establish a new Estimated Valuation Range, commence a
resolicitation of
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subscribers or take such other actions as permitted by the Superintendent and
the FDIC in order to complete the Conversion. In the event that a resolicitation
is commenced, unless an affirmative response is received within a reasonable
period of time, all funds will be promptly returned to investors as described
above. A resolicitation, if any, following the conclusion of the Subscription
and Community Offerings would not exceed 45 days unless such resolicitation is
further extended by the Superintendent and the FDIC for periods of up to 60 days
not to extend beyond ___________, 2000.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Holding Company expect to offer the
remaining shares in a Syndicated Community Offering, which would occur as soon
as practicable following the close of the Subscription Offering or Community
Offering, if any, but may commence during the Subscription Offering and
Community Offering, if any, subject to the prior rights of subscribers. All
shares of Common Stock will be sold at the same price per share in the
Syndicated Community Offering as in the Subscription and Community Offerings.
See "--Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, RP Financial confirms to the Bank, the Holding Company,
Superintendent and the FDIC that, to the best of its knowledge, nothing of a
material nature has occurred which, taking into account all relevant factors,
including those which would be involved in a cancellation of the Syndicated
Community Offering, would cause RP Financial to conclude that the aggregate
value of the Common Stock at the Purchase Price is incompatible with its
estimate of the pro forma market value of the Common Stock of the Holding
Company at the time of the Syndicated Community Offering. Any change which would
result in an aggregate purchase price which is below, or more than 15% above,
the Estimated Valuation Range would be subject to Superintendent and FDIC
approval. If such confirmation is not received, the Bank may extend the
Conversion, extend, reopen or commence new Subscription and Community Offerings
or a Syndicated Community Offering, establish a new Estimated Valuation Range
and commence a resolicitation of all subscribers with the approval of the
Superintendent and FDIC or take such other actions as permitted by the
Superintendent and FDIC in order to complete the Conversion, or terminate the
Plan and cancel the Subscription and Community Offerings and/or the Syndicated
Community Offering. In the event market or financial conditions change so as to
cause the aggregate purchase price of the shares to be below the minimum of the
Estimated Valuation Range or more than 15% above the maximum of such range, and
the Holding Company and the Bank determine to continue the Conversion,
subscribers will be resolicited (i.e., be permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest at the Bank's passbook rate of interest,
or be permitted to decrease or cancel their subscriptions). Any change in the
Estimated Valuation Range must be approved by the Superintendent and FDIC. A
resolicitation, if any, following the conclusion of the Subscription Offering or
the Community Offering would not exceed 45 days, or if following the Syndicated
Community Offering, 60 days, unless further extended by the Superintendent for
periods up to 60 days not to extend beyond _______, 2000. If such resolicitation
is not effected, the Bank will return with interest all funds promptly at the
Bank's passbook rate of interest on payments made by check, savings bank draft
or money order.
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Copies of the appraisal report of RP Financial, including any
amendments thereto, and the detailed memorandum of the appraiser setting forth
the method and assumptions for such appraisal are available for inspection at
the offices of the Bank and the other locations specified under "Additional
Information."
Number of Shares to be Issued
Depending upon market or financial conditions following the
commencement of the Subscription Offering and Community Offering, if any, the
total number of shares to be issued in the Conversion may be increased or
decreased without a resolicitation of subscribers; provided, that the product of
the total number of shares times the price per share is not below the minimum or
more than 15% above the maximum of the Estimated Valuation Range, and the total
number of shares to be issued in the Conversion is not less than 11,140,777 or
greater than 15,072,815 (or 17,333,738 if the Estimated Valuation Range is
increased by 15%).
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Valuation Range or more than 15% above the maximum of such range, if the Plan is
not terminated by the Holding Company and the Bank after consultation with the
Superintendent and FDIC, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Valuation Range must
be approved by the Superintendent and FDIC. If the number of shares issued in
the Conversion is increased due to an increase of up to 15% in the Estimated
Valuation Range to reflect changes in market or financial condition, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares, except for the Employee
Plans, which will be able to subscribe for such adjusted amount up to their 10%
subscription. See Limitations on Common Stock Purchases."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Holding Company's pro forma net
earnings and shareholders' equity on a per share basis while increasing pro
forma net earnings and shareholders' equity on an aggregate basis. A decrease in
the number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Holding Company's pro forma net earnings
and shareholders' equity on a per share basis while decreasing pro forma net
earnings and shareholder's equity on an aggregate basis. For a presentation of
the effects of such changes see "Pro Forma Data."
To fund the Foundation, the number of shares to be issued and
outstanding as a result of the sale of Common Stock in the Conversion will be
increased by a number of shares equal to 3% of the Common Stock sold in the
Conversion. Assuming the sale of shares in the Offerings at the maximum of the
Estimated Valuation Range, the Holding Company will contribute 452,184 shares of
its Common Stock from authorized but unissued shares to the Foundation
immediately following the completion of the Conversion. In that event, the
Holding Company will have total shares of Common Stock outstanding of 15,525,000
shares. Funding the Foundation with authorized but
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unissued shares will have the effect of diluting the ownership and voting
interests of persons purchasing shares in the Conversion by 2.9% since a greater
number of shares will be outstanding upon completion of the Conversion than
would be if the Foundation were not established. See "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) depositors
whose deposits in qualifying accounts in the Bank totaled $100 or more on
September 30, 1996 ("Eligible Account Holders"); (2) the Employee Plans,
including the ESOP; (3) depositors whose deposits in qualifying accounts in the
Bank totaled $100 or more on __________, 1998, other than (i) those depositors
who would otherwise qualify as Eligible Account Holders or (ii) trustees or
executive officers of the Bank or their Associates, (as defined herein)
("Supplemental Eligible Account Holders"); and (4) depositors whose deposits in
qualifying accounts in the Bank totaled $100 or more on ______, 1998, the Voting
Record Date, other than those depositors who would otherwise qualify as Eligible
Account Holders or Supplemental Eligible Account Holders ("Other Depositors").
All subscriptions received will be subject to the availability of Common Stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion and as described below under "- Limitations
on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, non-transferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greatest of (i) the amount permitted to be purchased in the Community Offering,
which amount is currently $250,000 of the Common Stock offered, (ii) one- tenth
of one percent (0.10%) of the total offering of shares of Common Stock or (iii)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction the numerator of which is the amount of the Eligible Account Holder's
qualifying deposit and the denominator of which is the total amount of
qualifying deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date, subject to the overall maximum and minimum purchase
limitations and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Valuation Range of up to 15%. See "- Limitations on
Common Stock Purchases."
In the event that Eligible Account Holders exercise subscription rights
for a number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Eligible Account Holder to purchase a number of shares sufficient to make such
Eligible Account Holder's total allocation equal to the lesser of 100 shares or
the number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total amount of qualifying deposits
of all remaining Eligible Account Holders whose subscriptions remain unfilled.
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To ensure a proper allocation of stock, each Eligible Account Holder
must list on his or her stock order form all accounts in which such Eligible
Account Holder has an ownership interest. Failure to list an account could
result in fewer shares being allocated than if all accounts had been disclosed.
The subscription rights of Eligible Account Holders who are also trustees or
executive officers of the Bank or their Associates will be subordinated to the
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the one-year period preceding the Eligibility Record
Date.
Priority 2: The Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders, the Employee Plans, including the ESOP, will receive, without payment
therefor, second priority, non-transferable subscription rights to purchase up
to 10% of the Common Stock to be issued in the Conversion, including shares to
be issued to the Foundation, subject to the purchase limitations set forth in
the Plan of Conversion and as described below under "- Limitations on Common
Stock Purchases." As an Employee Plan, the ESOP intends to purchase 8% of the
shares to be issued in the Conversion, or 918,000 shares and 1,242,000 shares,
based on the issuance of 11,475,000 shares and 15,525,000 shares, respectively,
at the minimum and the maximum of the Estimated Valuation Range, including the
shares of Common Stock to be issued to the Foundation. Subscriptions by the ESOP
will not be aggregated with shares of Common Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's trustees,
officers, employees or associates thereof. See "Management of the
Bank--Benefits-- Employee Stock Ownership Plan and Trust."
Priority 3.- Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of the subscriptions by
the Eligible Account Holders and Employee Plans, Supplemental Eligible Account
Holders will receive, without payment therefor, third priority, non-transferable
subscription rights to subscribe for Common Stock in the Subscription Offering
up to the greatest of (i) the amount permitted to be subscribed for in the
Community Offering, which amount is currently $250,000 of the Common Stock
offered, (ii) one- tenth of one, percent (0.10%) of the total offering of shares
of Common Stock or (iii) fifteen times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
to be issued by a fraction of which the numerator is the amount of the
Supplemental Eligible Account Holder's qualifying deposit and the denominator is
the total amount of qualifying deposits of all Supplemental Eligible Account
Holders, in each case on the Supplemental Eligibility Record Date, subject to
the overall maximum and minimum purchase limitations and exclusive of an
increase in the shares issued pursuant to an increase in the Estimated Valuation
Range of up to 15%. See "--Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares in excess of the total number of
shares eligible for subscription, the shares will be allocated so as to permit
each subscribing Supplemental Eligible Account Holder, to the extent possible,
to purchase a number of shares sufficient to make such Supplemental Eligible
Account Holder's total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled in the proportion that the amounts of
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their respective qualifying deposits bear to the total amount of qualifying
deposits of all remaining Supplemental Eligible Account Holders whose
subscriptions remain unfilled.
To ensure a proper allocation of stock, each Supplemental Eligible
Account Holder must list on his or her stock order form all accounts in which
such Supplemental Eligible Account Holder has an ownership interest. Failure to
list an account could result in fewer shares being allocated than if all
accounts had been disclosed.
Priority 4: Other Depositors. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by the Eligible Account
Holders, the Employee Plans and the Supplemental Eligible Account Holders, each
Other Depositor will receive, without payment therefor, fourth priority,
nontransferable subscription rights to subscribe for Common Stock in the
Subscription Offering up to the greater of (i) the amount permitted to be
subscribed for in the Community Offering, which amount is currently $250,000 of
the Common Stock offered, or (ii) one- tenth of one percent (0.10%) of the total
offering of shares of Common Stock, subject to the overall maximum and minimum
purchase limitations and exclusive of an increase in the shares issued pursuant
to an increase in the Estimated Valuation Range of up to 15%. See Limitations on
Common Stock Purchases."
In the event that Other Depositors exercise subscription rights for a
number of shares in excess of the total number of shares eligible for
subscription, the shares will be allocated so as to permit each subscribing
Other Depositor, to the extent possible, to purchase a number of shares
sufficient to make such Other Depositor's total allocation equal to the lesser
of 100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated among the remaining Other Depositors whose
subscriptions remain unfilled on a 100 share per order basis until all such
orders have been filled or the remaining shares have been allocated.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00 noon, Eastern time, on ________________, 1998,
unless extended for an initial period of up to 45 days by the Bank or additional
60 day periods with the approval of the Superintendent and if necessary, the
FDIC. Subscription rights which have not been exercised prior to the Expiration
Date will become void.
The Bank will not execute orders until all shares of Common Stock have
been subscribed for or otherwise sold. If all shares have not been subscribed
for or sold within 45 days after the Subscription Expiration Date, unless such
period is extended with the consent of the Superintendent, all funds delivered
to the Bank pursuant to the Subscription Offering will be returned with interest
promptly to the subscribers and all withdrawal authorizations will be canceled.
If an extension beyond the 45-day period following the Subscription Expiration
Date is granted, the Bank will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions. Each such
extension may not exceed 60 days, and such extensions, in the aggregate, may not
last beyond ___________, 2000.
Persons in Non-qualified States or 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
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which persons entitled to subscribe for stock pursuant to the Plan reside.
However, the Bank and the Holding Company are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country.
Community Offering
Upon completion of the Subscription Offering, to the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, the Employee Plans, the Supplemental Eligible Account
Holders and Other Depositors, the Bank will offer shares pursuant to the Plan in
the Community Offering to certain members of the general public to whom a copy
of this prospectus has been delivered, subject to the right of the Holding
Company and the Bank to accept or reject any such orders, in whole or in part,
in its sole discretion. The Community Offering, if any, shall commence upon the
completion of the Subscription Offering and shall terminate seven days after the
close of the Subscription Offering unless extended by the Bank and the Holding
Company, with the approval of the Superintendent and the FDIC, if necessary.
Such persons, together with associates of and persons acting in concert with
such persons, may purchase up to $250,000 of Common Stock subject to the maximum
purchase limitation. See "- Limitations on Common Stock Purchases." This amount
may be increased to up to a maximum of 5% or decreased to less than $250,000 of
Common Stock at the discretion of the Holding Company and the Bank. The
opportunity to subscribe for shares of Common Stock in the Community Offering
category is subject to the right of the Bank and the Holding Company, in their
sole discretion, to accept or reject any such orders in whole or in part either
at the time of receipt of an order or as soon as practicable following the
Expiration Date. However, no such rejection will be in contravention of any
applicable law or regulation. If the Holding Company or the Bank rejects a
subscription in part, the subscriber will not have the right to cancel the
remainder of his or her subscription.
Subject to the foregoing, if the amount of stock remaining is
insufficient to fill the orders of subscribers in the Community Offering after
completion of the Subscription and Community Offerings, such stock will be
allocated first to each subscriber whose order is accepted by the Bank, in an
amount equal to the lesser of 100 shares or the number of shares subscribed for
by each such subscriber, if possible. Thereafter, unallocated shares will be
allocated among such subscribers whose order remains unsatisfied on a 100 shares
per order basis until all such orders have been filled or the remaining shares
have been allocated.
Marketing and Underwriting Arrangements
The Bank and the Holding Company have engaged Sandler O'Neill as a
financial and marketing advisor in connection with the offering of the Common
Stock and Sandler O'Neill has agreed to use its best efforts to assist the
Holding Company with the solicitation of subscriptions and purchase orders for
shares of Common Stock in the Offerings. Based upon negotiations between the
Bank and the Holding Company, Sandler O'Neill will receive a fee for services
provided in connection with the Offerings equal to 1.10% of the aggregate
Purchase Price of Common Stock sold in the Offerings. No fees will be paid to
Sandler O'Neill with respect to any shares of Common Stock purchased by any
trustee, director, executive officer or employee of the Bank or the Holding
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Company or members of their immediate families or any employee benefit
plan of the Holding Company or the Bank. In the event of a Syndicated Community
Offering, Sandler O'Neill will negotiate with the Holding Company for the
receipt of an additional fee to be remitted to selected dealers under one or
more selected dealer agreements to be entered into by Sandler O'Neill with
certain dealers; provided, however, that the aggregate fees payable to Sandler
O'Neill and any selected dealers in connection with any Syndicated Community
Offering will not exceed 7% of the aggregate Purchase Price of the Common Stock
sold in the Syndicated Community Offering. Fees to Sandler O'Neill and to any
other broker-dealer may be deemed to be underwriting fees and Sandler O'Neill
and such broker-dealer may be deemed to be underwriters. Sandler O'Neill will
also be reimbursed for its reasonable out-of pocket expenses, including legal
fees and expenses up to a maximum of $125,000. Notwithstanding the foregoing, in
the event the Offerings are not consummated or Sandler O'Neill ceases, under
certain circumstances after the subscription solicitation activities are
commenced, to provide assistance to the Holding Company, Sandler O'Neill will be
entitled to reimbursement for its reasonable out-of-pocket expenses as described
above. The Holding Company and the Bank have agreed to indemnify Sandler O'Neill
for costs and expenses in connection with certain claims or liabilities related
to or arising out of the services to be provided by Sandler O'Neill pursuant to
its engagement by the Bank and the Holding Company as financial advisor in
connection with the Conversion, including certain liabilities under the
Securities Act. Total marketing fees to Sandler O'Neill are estimated to be $1.2
million and $1.6 million at the minimum and the maximum of the Estimated
Valuation Range, respectively. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.
Sandler O'Neill will also perform proxy solicitation services,
conversion agent services and records management services for the Bank in the
Conversion and will receive a fee for these services of $65,000, plus
reimbursement of reasonable out-of-pocket expenses.
Directors, trustees and executive officers of the Holding Company and
the Bank may participate in the solicitation of offers to purchase Common Stock.
Questions of prospective purchasers will be directed to executive officers or
registered representatives. Other employees of the Bank may participate in the
Offerings in ministerial capacities or provide clerical work in effecting a
sales transaction. Such other employees have been instructed not to solicit
offers to purchase Common Stock or provide advice regarding the purchase of
Common Stock. The 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, trustees, directors and employees to
participate in the sale of Common Stock. No officer, director or employee of the
Holding Company or the Bank will be compensated in connection with his or her
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the Common Stock.
Procedure for Purchasing Shares in Subscription and Community Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the respective expiration dates for the Offerings, in accordance with
Rule 15c2-8 of the Exchange Act, no Prospectus will be mailed later than five
days prior to such date or hand delivered any later than two days prior to such
date. Execution of the stock order form will confirm receipt or delivery in
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accordance with Rule 15c2-8. Stock order forms will only be distributed with a
Prospectus and a certification form requiring each prospective investor to
acknowledge, among other things, that the shares of Common Stock are not insured
by the Bank, the FDIC or any other governmental agency and that such prospective
investor has received a copy of this Prospectus, which, among other things,
describes the risks involved in the investment in the Common Stock.
To purchase shares in the Subscription Offering and, if a Community
Offering is held, the Community Offering, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from the Bank's deposit account (which may be given
by completing the appropriate blanks in the stock order form), must be received
by the Bank at its office by 12:00 noon, Eastern time, on the Expiration Date,
in the case of the Subscription Offering, or 7 days after the close of the
Subscription Offering, in the case of the Community Offering. Stock order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Holding Company and Bank are not obligated to
accept orders submitted on photocopied or facsimile order forms and will not
accept order forms unaccompanied by an executed certification form. The Holding
Company and the Bank have the power to waive or permit the correction of
incomplete or improperly executed forms, but do not represent that they will do
so. Once received, an executed order form may not be modified, amended or
rescinded without the consent of the Bank unless the Conversion has not been
completed within 45 days after the end of the Subscription and Community
Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Depositors are properly identified as to their stock
purchase priorities, depositors must list all accounts on the stock order form
giving all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in
person to the office of the Bank, (ii) by check, bank draft or money order, or
(iii) by authorization of withdrawal from deposit accounts maintained with the
Bank. No wire transfers will be accepted. Interest will be paid on payments made
by cash, check, cashier's check or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Conversion. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion. Notwithstanding the foregoing, the Holding Company shall have the
right, in its sole discretion, to permit institutional investors to submit
irrevocable orders together with a legally binding commitment for payment and to
thereafter pay for the shares of Common Stock for which they subscribe in the
Community Offering at any time prior to 48 hours before the completion of the
Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from such subscriber's deposit account, the Bank will do so as of
the effective date of the Conversion. The Bank will waive any applicable
penalties for early withdrawal from certificate accounts. If the
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remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will be converted into a
passbook account and will earn interest at the passbook rate. Upon completion of
the Conversion, funds withdrawn from depositors' accounts for stock purchases
will no longer be insured by the FDIC.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes but, rather, may pay for such shares of Common Stock
subscribed for at the Purchase Price upon consummation of the Offerings;
provided, that there is in force from the time of its subscription until such
time, a loan commitment acceptable to the Holding Company from an unrelated
financial institution or the Holding Company to lend to the ESOP, at such time,
the aggregate Purchase Price of the shares for which it subscribed. The Holding
Company intends to provide such a loan to the ESOP.
Owners of self-directed Individual Retirement Accounts ("IRAs") may use
the assets of such IRAs to purchase shares of Common Stock in the Subscription
and Community Offerings, provided that such IRAs are not maintained at the Bank.
Persons with IRAs maintained at the Bank must have their accounts transferred to
an unaffiliated institution or broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, trustees and ten percent shareholders who
use self-directed IRA funds to purchase shares of Common Stock in the
Subscription and Community Offerings make such purchases for the exclusive
benefit of the IRAs.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address specified in properly completed
order forms, as soon as practicable following consummation of the sale of all
shares of Common Stock. Any certificates returned as undeliverable will be
disposed of in accordance with applicable law.
Restrictions on Transfer of Subscription Rights and Shares of Common Stock
Prior to the completion of the Conversion, the NYBB conversion
regulations prohibit any person with subscription rights (i.e., the Eligible
Account Holders, the Employee Plans, the Supplemental Eligible Account Holders
and the Other Depositors) 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. Certificates representing shares of Common Stock purchased in
the Subscription Offering must be registered in the name of the Eligible Account
Holder, Supplemental Eligible Account Holder or Other Depositor, as the case may
be. Joint registrations will be allowed only if the qualifying deposit account
is so registered. Such rights may be exercised only by the person to whom they
are granted and only for such person's account. Each person exercising such
subscription rights will be required to certify that such person is purchasing
shares solely for such person's own account and that such person has no
agreement or understanding regarding the sale or transfer of such shares. The
regulations also prohibit any person from offering or making an announcement of
an offer or
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an intent to make an offer to purchase such subscription rights or shares of
Common Stock prior to the completion of the Conversion.
The Bank and the Holding Company will pursue any and all legal and
equitable remedies (including forfeiture) in the event they become aware of the
transfer of subscription rights and will not honor orders known by them to
involve the transfer of such rights.
Syndicated Community Offering
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription Offering or the
Community Offering, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Holding
Company. There are no known agreements between Sandler O'Neill and any
broker-dealer in connection with a possible Syndicated Community Offering. The
Holding Company and the Bank have reserved the right to reject orders in whole
or in part in their sole discretion in the Syndicated Community Offering.
However, no such rejection will be in contravention of any applicable law or
regulation. If the Holding Company or the Bank rejects an order in part, the
subscriber will not have the right to cancel the remainder of his or her
subscription. Neither Sandler O'Neill nor any registered broker-dealer shall
have any obligation to take or purchase any shares of the Common Stock in the
Syndicated Community Offering; however, Sandler O'Neill has agreed to use its
best efforts in the sale of shares in the Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to overall purchase limitations, no person, together with any associate or group
of persons acting in concert, will be permitted to subscribe in the Syndicated
Community Offering for more than 1% of the Common Stock offered in the
Conversion; provided, however, that shares of Common Stock purchased in the
Community Offering by any persons, together with associates of or persons acting
in concert with such persons, will be aggregated with purchases in the
Syndicated Community Offering and be subject to a maximum purchase limitation of
1% of the Common Stock offered.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his or her shares with funds held by or deposited with a
selected dealer. If an order form is executed and forwarded to the selected
dealer or if the selected dealer is authorized to execute the order form on
behalf of a purchaser, the selected dealer is required to forward the order form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the order form or execution of the order
form by the selected dealer. Alternatively, selected dealers may solicit
indications of interest from their customers to place orders for shares. Such
selected dealers shall subsequently contact their customers who indicated an
interest and seek their confirmation as to their
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intent to purchase. Those indicating an intent to purchase shall execute order
forms and forward them to their selected dealer or authorize the selected dealer
to execute such forms. The selected dealer will acknowledge receipt of the order
to its customer in writing on the following business day and will debit such
customer's account on the third business day after the customer has confirmed
his or her intent to purchase ("debit date") and on or before noon of the next
business day following the debit date, will send order forms and funds to the
Bank for deposit in a segregated account. Although purchasers' funds are not
required to be in their accounts with selected dealers until the debit date, in
the event that such alternative procedure is employed once a confirmation of an
intent to purchase has been received by the selected dealer, the purchaser has
no right to rescind his or her order.
Certificates representing shares of Common Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Holding
Company with the approval of the Superintendent and FDIC. Such extensions may
not be beyond ____________, 2000. See "- Stock Pricing" above for a discussion
of rights of subscribers, if any, in the event an extension is granted.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No subscription for fewer than 25 shares will be accepted;
(2) Each Eligible Account Holder may subscribe for and purchase Common
Stock in the Subscription Offering in an amount up to the greatest of (a) the
amount permitted to be purchased in the Community Offering, currently $250,000
of the Common Stock offered, (b) one-tenth of one percent (0.10%) of the total
offering of shares of Common Stock or (c) fifteen times the product (rounded
down to the net whole number) obtained by multiplying the total number of shares
of Common Stock to be issued in the Conversion by a fraction the numerator of
which is the amount of the qualifying deposit of the Eligible Account Holder and
the denominator of which is the total amount of qualifying deposits of all
Eligible Account Holders in each case on the Eligibility Record Date, subject to
the overall limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Valuation Range of
up to 15%;
(3) The Employee Plans are permitted to purchase up to 10% of the
shares of Common Stock issued in the Conversion and as an Employee Plan, the
ESOP intends to purchase 8% of the shares of Common Stock issued in the
Conversion, in each case, including shares to be issued to the Foundation;
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(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase Common Stock in the Subscription Offering in an amount up to the
greatest of (a) the amount permitted to be purchased in the Community Offering,
currently $250,000 of the Common Stock offered, (b) one-tenth of one percent
(0.10%) of the total offering of shares of Common Stock or (c) fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock to be issued in the Conversion by a
fraction the numerator of which is the amount of the qualifying deposit of the
Supplemental Eligible Account Holder and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders in
each case on the Supplemental Eligibility Record Date, subject to the overall
limitation in (8) below and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Valuation Range of up to 15%;
(5) Each Other Depositor may subscribe for and purchase Common Stock in
the Subscription Offering in an amount up to the greater of (a) the amount
permitted to be purchased in the Community Offering, currently $250,000 of the
Common Stock offered, or (b) one-tenth of one percent (0. 10%) of the total
offering of shares of Common Stock, subject to the overall limitation in (8)
below and exclusive of an increase in the total number of shares issued due to
an increase in the Estimated Valuation Range of up to 15%;
(6) Persons purchasing shares of Common Stock in the Community
Offering, together with associates of and groups of persons acting in concert
with such persons, may purchase Common Stock in the Community Offering in an
amount up to $250,000 of the Common Stock offered in the Conversion subject to
the overall limitation in (8) below;
(7) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons acting in concert
with such persons, may purchase Common Stock in the Syndicated Offering in an
amount up to $250,000 of the shares of Common Stock offered in the Conversion
subject to the overall limitation in (8) below; provided, that shares of Common
Stock purchased in the Community Offering by any persons, together with
associates of and persons acting in concert with such persons, will be
aggregated with purchases by such persons in the Syndicated Community Offering
in applying the $250,000 purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account Holders,
Other Depositors and certain members of the general public may purchase stock in
the Community Offering and Syndicated Community Offering subject to the purchase
limitations described in (6) and (7) above; provided, that, except for the
Employee Plans, the maximum number of shares of Common Stock subscribed for or
purchased in all categories of the Conversion by any person, together with
associates of and groups of persons acting in concert with such persons, shall
not exceed 1.0% of the shares of Common Stock offered for sale in the
Conversion; and
(9) The directors and officers of the Bank and their associates in the
aggregate, excluding purchases by the Employee Plans, may purchase up to 25% of
shares offered for sale in the Conversion.
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Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the depositors
of the Bank, both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation may be increased to up to a maximum of 5% of
the shares offered for sale in the Offering at the sole discretion of the
Holding Company and the Bank. It is currently anticipated that the overall
maximum purchase limitation may be increased if, after a Community Offering, the
Holding Company has not received subscriptions for an aggregate amount equal to
at least the minimum of the Estimated Valuation Range. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Holding Company and the Bank may be,
given the opportunity to increase their subscriptions up to the then applicable
limit. Requests to purchase additional shares of Common Stock under this
provision will be determined by the Board of Directors of the Holding Company
and the Board of Trustees of the Bank and, if approved, allocated on a pro rata
basis giving priority in accordance with the priority rights set forth in the
Plan and described herein.
The overall maximum purchase limitation may not be reduced to less than
1.0%; the individual amount permitted to be subscribed for in the Offerings,
however, may be reduced by the Bank to less than $250,000 of the Common Stock
offered. An individual Eligible Account Holder, Supplemental Eligible Account
Holder or Other Depositor may not purchase individually in the Subscription
Offering the overall maximum purchase limitation of 1.0% of the shares offered
for sale, but may make such purchase, together with associates of and persons
acting in concert with such person, by also purchasing in other available
categories of the Conversion, subject to availability of shares and the maximum
overall purchase limitation for purchases in the Conversion.
In the event of an increase in the total number of shares offered in
the Conversion due to an increase in the Estimated Valuation Range of up to 15%
("Adjusted Maximum"), the additional shares will be allocated in the following
order of priority in accordance with the Plan: (i) in the event that there is an
oversubscription by Eligible Account Holders, to fill unfilled subscriptions of
Eligible Account Holders, exclusive of the Adjusted Maximum; (ii) to fill the
Employee Plans' subscription of up to 10% of the Adjusted Maximum number of
shares; (iii) in the event that there is an oversubscription by Supplemental
Eligible Account Holders, to fill unfilled subscriptions of Supplemental
Eligible Account Holders. exclusive of the Adjusted Maximum; (iv) in the event
that there is an oversubscription by Other Depositors, to fill unfulfilled
subscriptions of Other Depositors, exclusive of the Adjusted Maximum; and (v) to
fill unfilled subscriptions in the Community Offering, exclusive of the Adjusted
Maximum, each to the extent possible.
The term "Associate" of a person is defined to mean: (i) any
corporation or organization (other than the Holding Company, the Bank or a
majority-owned subsidiary of the Bank) of which such person is an officer,
partner or is directly or indirectly, either alone or with one or more members
of his or her immediate family, the beneficial owner of 10% or more of any class
of equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, except that the term "Associate" does not
include any employee stock benefit plan maintained by the Holding Company or the
Bank in which a person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity, and except that, for purposes of
aggregating total shares that may be acquired or
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held by officers and directors and their Associates, the term "Associate" does
not include any tax-qualified employee stock benefit plan; and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a director or officer of the Holding Company
or the Bank. Trustees, directors and officers are not treated as associates of
each other solely by virtue of holding such positions. For a further discussion
of limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Certain Restrictions on Purchase
or Transfer of Shares After Conversion," "Management of the Bank - Subscriptions
by Executive Officers and Directors" and "Restrictions on Acquisition of the
Holding Company and the Bank."
Certain Restrictions on Purchase or Transfer of Shares After Conversion
All shares of Common Stock purchased in connection with the Conversion
by a director or an executive officer of the Bank will be subject to a
restriction that the shares not be sold for a period of one year following the
Conversion, except in the event of the death or judicial declaration of
incompetence of such director or executive officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and executive officers of the Holding Company and the Bank will
also be subject to the insider trading rules promulgated pursuant to the
Exchange Act and any other applicable requirements of the federal securities
laws.
Purchases of outstanding shares of Common Stock of the Holding Company
by directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion) and their
associates during the three-year period following Conversion may be made only
through a broker or dealer registered with the SEC, except with the prior
written approval of the Superintendent. This restriction does not apply,
however, to the purchase of stock pursuant to the Stock Option Plan or the RP
Financial to be established after the Conversion.
Interpretation, Amendment and Termination
All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides that,
if deemed necessary or desirable by the Board of Trustees of the Bank, the Plan
may be substantively amended prior to the solicitation of proxies from
depositors by a vote of the Board of Trustees; amendment of the Plan thereafter
requires the approval of the Superintendent and FDIC. The Plan will terminate if
the sale of all shares of stock being offered pursuant to the Plan is not
completed prior to 24 months after the date of the approval of the Plan by the
Superintendent unless a longer time period is permitted by governing laws and
regulations. The Plan may be terminated by a vote of the Board of Trustees of
the Bank at any time prior to the Special Meeting, and thereafter by such a vote
with the approval of the Superintendent and FDIC.
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RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY AND THE BANK
General
The Bank's Plan of Conversion provides for the Conversion of the Bank
from the mutual to the stock form of organization and, in connection therewith,
a Restated Organization Certificate and Bylaws to be adopted by depositors of
the Bank. The Plan also provides for the concurrent formation of a holding
company, which form of organization may or may not be utilized at the option of
the Board of Trustees of the Bank. See "The Conversion - General." In the event
that the holding company form of organization is utilized, as described below,
certain provisions in the Holding Company's Certificate of Incorporation and
Bylaws and in its management remuneration plans and agreements entered into in
connection with the Conversion, together with provisions of the Delaware General
Corporation Law ("DGCL"), may have anti-takeover effects. In the event that the
holding company form of organization is not utilized, the Bank's Restated
Organization Certificate and Bylaws and management remuneration plans and
agreements entered into in connection with the Conversion may have anti-takeover
effects as described below. In addition, regulatory restrictions may make it
difficult for persons or companies to acquire control of either the Holding
Company or the Bank.
Restrictions in the Holding Company's Certificate of Incorporation and Bylaws
The following discussion is a general summary of certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws and certain other
statutory and regulatory provisions relating to stock ownership and transfers,
the Board of Directors and business combinations, that might have a potential
"anti-takeover" effect. The Certificate of Incorporation and Bylaws of the
Holding Company are filed as exhibits to the Registration Statement, of which
this Prospectus is a part, and the descriptions herein of such documents are
qualified in their entirety by reference to such documents. A number of
provisions of the Holding Company's Certificate of Incorporation and Bylaws deal
with matters of corporate governance and certain rights of shareholders. These
provisions might have the effect of discouraging future takeover attempts which
are not approved by the Board of Directors but which individual Holding Company
shareholders may deem to be in their best interests or in which shareholders may
receive substantial premiums for their shares over then current market prices.
As a result, shareholders who might desire to participate in such transactions
may not have an opportunity to do so. Such provisions will also render the
removal of the current Board of Directors or management of the Holding Company
more difficult. The following description of certain of the provisions of the
Certificate of Incorporation and Bylaws of the Holding Company is necessarily
general and reference should be made in each case to such Certificate of
Incorporation and Bylaws, which are incorporated herein by reference. See
"Additional Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Holding Company provides that any record owner of any outstanding Common Stock
which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of the then outstanding shares of Common
Stock ("Limit") shall be entitled or permitted to only one one-hundredth (1
/100) of a vote with respect of each share held in excess of the Limit.
Beneficial ownership of shares includes shares beneficially owned by such person
or any of his affiliates, shares which such person
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or his affiliates have the right to acquire upon the exercise of conversion
rights or options and shares as to which such person and his affiliates have or
share investment or voting power, but shall not include shares beneficially
owned by the ESOP or shares that are subject to a revocable proxy and that are
not otherwise beneficially owned or deemed by the Holding Company to be
beneficially owned by such person and his affiliates. The Certificate of
Incorporation further provides that this provision limiting voting rights may
only be amended upon (i) the approval of the Board of Directors, and (ii) the
affirmative vote of the holders of a majority of the total votes eligible to be
cast by the holders of all outstanding shares of capital stock entitled to vote
thereon and (iii) by the affirmative vote of either (1) not less than a majority
of the authorized number of directors and, if one or more Interested
Shareholders exist, by not less than a majority of the Disinterested Directors
(as defined in the Certificate of Incorporation) or (2) the holders of not less
than two-thirds of the total votes eligible to be cast by the holders of all
outstanding shares of the capital stock of the Company entitled to vote thereon
and, if the amendment is proposed by or on behalf of an Interested Shareholder
or a director who is an Affiliate or Associate of an Interested Shareholder, by
the affirmative vote of the holders of not less than a majority of the total
votes eligible to be cast by holders of all outstanding shares entitled to vote
thereon not beneficially owned by an Interested Shareholder or an Affiliate or
Associate thereof.
Board of Directors. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the total number of members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of directors being
elected each year. The Holding Company's Certificate of Incorporation and Bylaws
provide that the size of the Board shall be determined by a majority of the
directors but shall not be less than seven nor more than 20. The Certificate of
Incorporation and the Bylaws provide that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors or
resulting from death, resignation, retirement, disqualification, removal from
office or other cause, shall be filled for the remainder of the unexpired term
exclusively by a majority vote of the directors then in office. The classified
Board is intended to provide for continuity of the Board of Directors and to
make it more difficult and time consuming for a shareholder group to fully use
its voting power to gain control of the Board of Directors without the consent
of the incumbent Board of Directors of the Holding Company. The Certificate of
Incorporation of the Holding Company provides that a director may be removed
from the Board of Directors prior to the expiration of his term only for cause,
upon the affirmative vote of at least 80% of the outstanding shares of voting
stock. In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of shareholders of the Company may be called
only by resolution of at least three-fourths of the Board of Directors then in
office or by the Chairman, if one has been elected by the Board, or the Chief
Executive Officer of the Company. The Certificate of Incorporation also provides
that any action required or permitted to be taken by the shareholders of the
Company may be taken only at an annual or special meeting and prohibits
shareholder action by written consent in lieu of a meeting.
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Authorized Shares. The Certificate of Incorporation authorizes the
issuance of forty five million (45,000,000) shares of capital stock, consisting
of forty million (40,000,000) shares of Common Stock and five million
(5,000,000) shares of preferred stock ("Preferred Stock"). The shares of Common
Stock and Preferred Stock were authorized in an amount greater than that to be
issued in the Conversion to provide the Company's Board of Directors with as
much flexibility as possible to effect, among other transactions, financings,
acquisitions, stock dividends, stock splits and employee stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with its fiduciary duty, to deter future attempts to gain control of
the Company. The Board of Directors also has sole authority to determine the
terms of any one or more series of Preferred Stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of Preferred Stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of Preferred Stock
to persons friendly to management in order to attempt to block a post-tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. The Company's Board of
Directors currently has no plans for the issuance of additional shares, other
than the issuance of additional shares pursuant to the terms of the RRP and upon
exercise of stock options to be issued pursuant to the terms of the Stock Option
Plan, all of which, if implemented prior to the first anniversary of the
Conversion, will be presented to shareholders for approval at a meeting of
shareholders to be held no earlier than six months after completion of the
Conversion.
Shareholder Vote Required to Approve Business Combinations with
Principal Shareholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Holding Company's outstanding shares of
voting stock, together with the affirmative vote of at least 50% of the Holding
Company's outstanding shares of voting stock not beneficially owned by an
Interested Shareholder (as defined below) to approve certain "Business
Combinations," as defined therein, and related transactions. Under Delaware law,
absent this provision, Business Combinations, including mergers, consolidations
and sales of all or substantially all of the assets of a corporation must,
subject to certain exceptions, be approved by the vote of the holders of only a
majority of the outstanding shares of Common Stock of the Holding Company and
any other affected class of stock. Under the Certificate of Incorporation, at
least 80% approval of shareholders is required in connection with any
transaction involving an Interested Shareholder except (i) in cases where the
proposed transaction has been approved in advance by a majority of those members
of the Holding Company's Board of Directors who are unaffiliated with the
Interested Shareholder and were directors prior to the time when the Interested
Shareholder became an Interested Shareholder or (ii) if the proposed transaction
meets certain conditions set forth therein which are designed to afford the
shareholders a fair price in consideration for their shares in which case, if a
shareholder vote is required, approval of only a majority of the outstanding
shares of voting stock would be sufficient. The term "Interested Shareholder" is
defined to include any individual, corporation, partnership or other entity
(other than the Holding Company or its subsidiary or any employee benefit plan
maintained by the Holding Company or its subsidiary) which owns beneficially or
controls, directly or indirectly, 10% or more of the outstanding shares of
voting stock of the Holding Company. This provision of the Certificate of
Incorporation applies to any "Business Combination," which is defined to include
(i) any merger or consolidation of the Holding Company or any of its
subsidiaries with or into any Interested Shareholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Shareholder-, (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other
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disposition to or with any Interested Shareholder or Affiliate of 5% or more of
the assets of the Holding Company or combined assets of the Holding Company and
its subsidiary; (iii) the issuance or transfer to any Interested Shareholder or
its Affiliate by the Holding Company (or any subsidiary) of any securities of
the Holding Company other than on a pro rata basis to all shareholders; (iv) the
adoption of any plan for the liquidation or dissolution of the Holding Company
proposed by or on behalf of any Interested Shareholder or Affiliate thereof, (v)
any reclassification of securities, recapitalization, merger or consolidation of
the Holding Company which has the effect of increasing the proportionate share
of Common Stock or any class of equity or convertible securities of the Holding
Company owned directly or indirectly by an Interested Shareholder or Affiliate
thereof-, and (vi) the acquisition by the Holding Company or its subsidiary of
any securities of an Interested Shareholder or its Affiliates or Associates.
The trustees and executive officers of the Bank are purchasing in the
aggregate approximately 1.80% of the shares of the Common Stock at the maximum
of the Estimated Valuation Range. In addition, the ESOP intends to purchase 8%
of the Common Stock to be issued in the Conversion, including shares to be
issued to the Foundation. Additionally, if, the proposed RRP and Stock Options
Plan are implemented, the Company expects to acquire 4% of the Common Stock
issued in the Conversion, including shares to be issued to the Foundation, on
behalf of the RRP and expects to issue an amount equal to 10% of the Common
Stock issued in the Conversion, including shares to be issued to the Foundation,
under the Stock Option Plan to directors, executive officers and employees. As a
result, assuming the RRP and Stock Option Plan are implemented, the directors,
executive officers and employees have the potential to control the voting of
approximately 25% of the Holding Company's Common Stock, on a fully diluted
basis at the maximum of the Estimated Valuation Range, thereby enabling them to
prevent the approval of the transactions requiring the approval of at least 80%
of the Holding Company's outstanding shares of voting stock described
hereinabove.
Amendment of Certificate of Incorporation and Bylaws. The Certificate
of Incorporation provides that certain provisions of the Certificate of
Incorporation may not be altered, amended, repealed or rescinded without the
affirmative vote of either (1) not less than a majority of the authorized number
of directors and, if one or more Interested Shareholders exist, by not less than
a majority of the Disinterested Directors (as defined in the Certificate of
Incorporation) or (2) the holders of not less than two-thirds of the total votes
eligible to be cast by the holders of all outstanding shares of the capital
stock of the Holding Company entitled to vote thereon and, if the alteration,
amendment, repeal, or rescission is proposed by or on behalf of an Interested
Shareholder or a director who is an Affiliate or Associate of an Interested
Shareholder, by the affirmative vote of the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares
entitled to vote thereon not beneficially owned by an Interested Shareholder or
an Affiliate or Associate thereof. Amendment of the provision relating to
business combinations must also be approved by either (i) a majority of the
Disinterested Directors, or (ii) the affirmative vote of not less than eighty
percent (80%) of the total number of votes eligible to be cast by the holders of
all outstanding shares of the Voting Stock, voting together as a single class,
together with the affirmative vote of not less than fifty percent (50%) of the
total number of votes eligible to be cast by the holders of all outstanding
shares of the Voting Stock not beneficially owned by any Interested Shareholder
or Affiliate or Associate thereof, voting together as a single class.
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Furthermore, the Holding Company's Certificate of Incorporation provides that
provisions of the Bylaws that contain supermajority voting requirements may not
be altered, amended, repealed or rescinded without a vote of the Board or
holders of capital stock entitled to vote thereon that is not less than the
supermajority specified in such provision. Absent these provisions, the DGCL
provides that a corporation's certificate of incorporation and bylaws may be
amended by the holders of a majority of the corporation's outstanding capital
stock. The Certificate of Incorporation also provides that the Board of
Directors is authorized to make, alter, amend, rescind or repeal any of the
Holding Company's bylaws in accordance with the terms thereof, regardless of
whether the Bylaw was initially adopted by the shareholders. However, this
authorization neither divests the shareholders of their right, nor limits their
power to adopt, amend, rescind or repeal any Bylaw under the DGCL. These
provisions could have the effect of discouraging a tender offer or other
takeover attempt where the ability to make fundamental changes through Bylaw
amendments is an important element of the takeover strategy of the acquiror.
Certain By-Law Provisions. The Bylaws of the Company also require a
shareholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual shareholder meeting to give
approximately 60 days notice in advance of the anniversary of the prior year's
annual shareholders' meeting to the Secretary of the Company. The notice
provision requires a shareholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the shareholder and the shareholder's interest in the business matter.
Similarly, a shareholder wishing to nominate any person for election as a
director must provide the Company with certain information concerning the
nominee and the proposing shareholder.
Anti-Takeover Effects of the Holding Company's Certificate of Incorporation and
Bylaws and Certain Benefit Plans Adopted in the Conversion
The provisions described above are intended to reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions
which have not been negotiated with and approved by members of its Board of
Directors. The provisions of the Employment Agreements, the ESOP, the RRP and
the Stock Option Plan to be established may also discourage takeover attempts by
increasing the costs to be incurred by the Bank and the Company in the event of
a takeover. See "Management of the Bank--Employment Agreements," and "- Benefits
- - Employee Stock Ownership," "Benefits - Stock Option Plan" and "- Benefits -
Recognition and Retention Plan."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and management remuneration plans to be
established are in the best interests of the Company and its shareholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Holding Company and its
shareholders to encourage potential acquirers to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts, It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or
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other transaction at a price that reflects the true value of the Holding Company
and that otherwise is in the best interests of all shareholders.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the DGCL ("Section 203"), is
intended to discourage certain takeover practices by impeding the ability of a
hostile acquiror to engage in certain transactions with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(a "DGCL Interested Shareholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became a DGCL Interested Shareholder.
The term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
a DGCL Interested Shareholder, the Board of Directors approved either the
business combination or the transaction which resulted in the shareholder
becoming a DGCL Interested Shareholder; (ii) any business combination involving
a person who acquired at least 85% of the outstanding voting stock in the
transaction in which he became a DGCL Interested Shareholder, with the number of
shares outstanding calculated without regard to those shares owned by the
corporation's directors who are also officers and by certain employee stock
plans; (iii) any business combination with an Interested Shareholder that is
approved by the Board of Directors and by a two-thirds vote of the outstanding
voting stock not owned by the DGCL Interested Shareholder; and (iv) certain
business combinations that are proposed after the corporation had received other
acquisition proposals and which are approved or not opposed by a majority of
certain continuing members of the Board of Directors. A corporation may exempt
itself from the requirement of the statute by adopting an amendment to its
Certificate of Incorporation or Bylaws electing not to be governed by Section
203 of the DGCL. At the present time, the Board of Directors does not intend to
propose any such amendment.
Restrictions in the Bank's Restated Organization Certificate and Bylaws
Although the Board of Trustees of the Bank is not aware of any effort
that might be made to obtain control of the Bank after the Conversion, the Board
of Directors believes that it is appropriate to adopt certain provisions
permitted by the Banking Law and the conversion regulations of the NYBB to
protect the interests of the converted Bank and its shareholders from any
hostile takeover. Such provisions may, indirectly, inhibit a change in control
of the Company, as the Bank's sole stockholder. See "Risk Factors - Certain
AntiTakeover Provisions."
In the event that the Company is not formed and the subscription rights
are deemed to be subscriptions to purchase the common stock of the Bank, the
provisions contained in the Restated
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Organization Certificate and Bylaws of the Bank, to be effective on the
effective date of the Conversion, will govern corporate procedure and certain
rights of shareholders. The anti-takeover effects of such provisions are
generally similar to those described above for the Company, except that the
issuance of any additional capital stock of the Bank would require the prior
approval of the NYBB, and the consent of the holders of two-thirds of the
outstanding shares of capital stock of the Bank would be required prior to
effecting a merger of, or certain acquisitions of assets by, the Bank.
Limitation on Voting Rights. The Bank's Restated Organization
Certificate will contain a provision whereby the acquisition of or offer to
acquire beneficial ownership of more than 10% of the issued and outstanding
shares of any class of equity securities of the Bank by any person (i.e., any
individual, corporation, group acting in concert, trust, partnership, joint
stock company or similar organization), either directly or indirectly, will be
prohibited for a period of three years following the date of completion of the
Conversion. Any stock in excess of 10% acquired in violation of this provision
will not be counted as outstanding for voting purposes. This limitation shall
not apply to (a) any offer or sale with a view towards public resale made
exclusively by the Bank to any underwriter acting on behalf of the Bank in
connection with a public offering of the common stock of the Bank; (b) any
corporation formed by the Bank in connection with its conversion from mutual to
stock form to acquire all of the shares of stock of the Bank to be issued in
connection with such conversion; or (c) any reclassification of securities
(including any reverse stock split), or recapitalization of the Bank, or any
merger or consolidation of the Bank with any of its subsidiaries or any other
transaction or reorganization (including a transaction in which the Bank shall
form a holding company) that does not have the effect, directly or indirectly,
of changing the beneficial ownership interests of the Bank's shareholders, other
than pursuant to the exercise of any appraisal rights.
In the event that holders of revocable proxies for more than 10% of the
shares of the Common Stock of the Holding Company seek, among other things, to
elect one-third or more of the Holding Company's Board of Directors, to cause
the Holding Company's shareholders to approve the acquisition or corporate
reorganization of the Holding Company or to exert a continuing influence on a
material aspect of the business operations of the Holding Company, which actions
could indirectly result in a change in control of the Bank, the Board of
Directors of the Bank will be able to assert this provision of the Bank's
Restated Organization Certificate against such holders. Although the Board of
Directors of the Bank is not currently able to determine when and if it would
assert this provision of the Bank's Restated Organization Certificate, the
Bank's Board of Directors, in exercising its fiduciary duty, may assert this
provision if it were deemed to be in the best interests of the Bank, the Holding
Company and its shareholders. It is unclear, however, whether this provision, if
asserted, would be successful against such persons in a proxy contest which
could result in a change in control of the Bank indirectly through a change in
control of the Holding Company.
Board of Directors. The Board of Directors of the Bank is divided into
three classes, each of which shall contain approximately one-third of the total
number of members of the Board of Directors. Each class shall serve a staggered
term, with approximately one-third of the total number of directors being
elected each year. The staggered terms of the Bank's Board of Directors could
have an anti-takeover effect by making it more difficult for a majority of
shares to force an immediate change in the Board since only one-third of the
Board is elected each year. The purpose
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of these provisions is to assure stability and continuity of management of the
Bank in the years immediately following the Conversion. In addition,
shareholders will not be permitted to cumulate their votes in the election of
directors. The Restated Organization Certificate and Bylaws of the Bank provide
that any director, or the entire Board of Directors, may be removed at any time,
but only for cause and only by the affirmative vote of at least 80% of the
outstanding shares of voting stock. The Restated Organization Certificate and
Bylaws of the Bank also provide that any vacancy occurring in the Board of
Directors, including any vacancy created by an increase in the number of
directors, shall be filled by the shareholders of the Bank, except that
vacancies not exceeding one-third of the entire Board of Directors may be filled
by the affirmative vote of a majority of the directors then holding office.
Preferred Stock. Although the Bank has no arrangements, understandings
or plans at the present time, the Board of Directors believes that the
availability of unissued shares of Preferred Stock will provide the Bank with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which may arise. In the event of a proposed
merger, tender offer or other attempt to gain control of the Bank of which
management does not approve, it might be possible for the Bank's Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Bank's Board of
Directors does not intend to issue any Preferred Stock except on terms which the
Board deems to be in the best interests of the Bank and its then existing
shareholders.
Shareholder Vote Required for Certain Business Combinations. The Bank's
Restated Organization Certificate contains provisions requiring a higher
shareholder vote for certain business combinations, which provisions are
substantially identical to those contained in the Holding Company's Certificate
of Incorporation. See "- Restrictions in the Holding Company's Certificate of
Incorporation and Bylaws - Shareholder Vote Required to Approve Business
Combinations with Principal Shareholders."
Evaluation of Offers. The Restated Organization Certificate of the Bank
also provides that the Board of Directors of the Bank, when evaluating any offer
to the Bank or to the shareholders of the Bank from another party relating to a
change or potential change in control of the Bank, including, without
limitation, any offer to (a) purchase for cash or exchange any securities or
property for any outstanding equity securities of the Bank, (b) merge or
consolidate the Bank with another corporation or (c) purchase or otherwise
acquire all or substantially all of the properties and assets of the Bank,
shall, in connection with the exercise of its judgment in determining what is in
the best interest of the Bank and its shareholders, give due consideration not
only to the price or other consideration being offered, but also to all other
relevant factors including, without limitation, (1) both the long-term and the
short-term interests of the Bank and its shareholders and (2) the effects that
the Bank's actions may have in the short-term or in the long-term upon any of
the following: (i) the prospects for potential growth, development, productivity
and profitability of the Bank; (ii) the Bank's current employees; (iii) the
Bank's retired employees and other beneficiaries receiving or entitled to
receive retirement, welfare or similar benefits from or pursuant to any plan
sponsored, or agreement entered into, by the Bank; (iv) the Bank's customers and
creditors; and (v)
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the ability of the Bank to provide, as a going concern, goods, services,
employment opportunities and employment benefits and otherwise to contribute to
the communities in which is does business. By having these standards in the
Restated Organization Certificate, the Board of Directors of the Bank may be in
a stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interests of the Bank, even if the price
offered is significantly greater than the then market price of any equity
security of the Bank.
Amendment of Restated Organization Certificate and Bylaws. The Bank's
Restated Organization Certificate provides that certain provisions of the
Restated Organization Certificate may not be altered, amended, repealed or
rescinded without the affirmative vote of either (i) not less than a majority of
the authorized number of directors and, if one or more Interested Shareholders
exist, by not less than a majority of the Disinterested Directors, or (ii) the
holders of not less than two-thirds of the total votes eligible to be cast by
the holders of all outstanding shares of capital stock entitled to vote thereon
and, if the alteration, amendment, repeal or rescission is proposed by or on
behalf of an Interested Shareholder or a director who is an Affiliate or
Associate of an Interested Shareholder, the holders of not less than a majority
of the total votes eligible to be cast by holders of all outstanding shares of
capital stock entitled to vote thereon not beneficially owned by an Interested
Shareholder or an Affiliate or Associate thereof.
In addition, provisions of the Bylaws of the Bank that contain
supermajority voting requirements may not be altered, amended, repealed or
rescinded without a vote of the Board or holders of capital stock entitled to
vote thereon that is not less than the supermajority specified in such
provision.
Regulatory Restrictions
New York State Banking Board Conversion Regulations. NYBB regulations
prohibit any person, prior to the completion of the Conversion, from
transferring, or from entering into any agreement or understanding to transfer,
to the account of another, legal or beneficial ownership of the subscription
rights issued under the Plan of Conversion or the Common Stock to be issued upon
their exercise. The NYBB regulations also prohibit any person, prior to the
completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock. See "The Conversion - Restrictions on Transfer of Subscription Rights and
Shares." For one year following the Conversion, NYBB regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except with the prior approval of the
Superintendent.
OTS Regulations. In addition, any proposal to acquire 10% of any class
of equity security of the Holding Company generally would be subject to approval
by the OTS under the Change in Bank Control Act (the "CBCA") and the HOLA. The
OTS requires all persons seeking control of a savings institution, either
directly or indirectly through its holding company, to obtain regulatory
approval prior to offering to obtain control. Federal law generally provides
that no "person," acting directly or indirectly or through or in concert with
one or more other persons, may acquire directly or indirectly "control," as that
term is defined in OTS regulations, of an OTS-regulated savings and loan holding
company without giving at least 60 days' written notice to the OTS and providing
the
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OTS an opportunity to disapprove the proposed acquisition. Such acquisitions of
control may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially lessen competition; (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it wold not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
Such change in control restrictions on the acquisition of the holding company
stock are not limited to a set time period but will apply for as long as the
CBCA is in effect. Persons holding revocable or irrevocable proxies may be
deemed to be beneficial owners of such securities under OTS regulations and
therefore prohibited from voting all or the portion of such proxies in excess of
10% aggregate beneficial ownership limit. Such regulatory restrictions may
prevent or inhibit proxy contests for control of the Company or the Bank which
have not received prior regulatory approval. Acquisitions of control of a
savings bank are subject to the approval of the FDIC under the CBCA. However,
transactions involving the Company for which OTS approval must be sought under
HOLA are exempted from this requirement.
New York State Bank Holding Company Regulation. Under New York Banking
Law, the prior approval of the NYBB is required before: (1) any action is taken
that causes any company to become a bank holding company; (2) any action is
taken that causes any banking institution to become or be merged or consolidated
with a subsidiary of a bank holding company; (3) any bank holding company
acquires direct or indirect ownership or control of more than 5% of the voting
stock of a banking institution; (4) any bank holding company or subsidiary
thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. See "Regulation --
Holding Company Regulation -- New York State Holding Company Regulation."
Accordingly, the prior approval of the NYBB would be required before any bank
holding company, as defined in the banking law, could acquire 5% of more of the
common stock of the Company
New York State Change in Control Regulation. Prior approval of the NYBB
is also required before any action is taken that causes any company to acquire
direct or indirect control of a banking institution. Control is presumed to
exist if any company directly or indirectly owns, controls or holds with power
to vote 10% or more of the voting stock of a banking institution or of any
company that owns, controls or holds with power to vote 10% or more of the
voting stocking stock of a banking institution. Accordingly, prior approval of
the NYBB would be required before any company cold acquire 10% or more of the
Common Stock of the Company.
Federal Reserve Board Regulations. In the event the Bank does not
qualify to be QTL and does not elect to be treated as a "savings association"
under Section 10 of HOLA, attempts to acquire control of the Bank become subject
to regulations of the Federal Reserve Board under the CBCA.
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DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue forty million (40,000,000)
shares of Common Stock having a par value of $.0l per share and five million
(5,000,000) shares of Preferred Stock having a par value of $.0l per share. In
connection with the Conversion, the Holding Company currently expects to issue
15,072,815 shares of Common Stock (or 17,333,738 in the event of an increase of
15% in the Estimated Valuation Range) and does not expect to issue any shares of
Preferred Stock. Except as discussed above in "Restrictions on Acquisition of
the Holding Company and the Bank," each share of the Company's Common Stock will
have the same relative rights as, and will be identical in all respects with,
each other share of Common Stock. Upon payment of the Purchase Price for the
Common Stock, in accordance with the Plan, all such stock will be duly
authorized, fully paid and non-assessable. The Common Stock of the Holding
Company will represent non-withdrawable capital, will not be an account of an
insurable type, and will not be insured by the FDIC.
Common Stock
Dividends. The Holding Company can pay dividends out of statutory
surplus or from certain net profits if, as and when declared by its Board of
Directors. The payment of dividends by the Company is subject to limitations
which are imposed by law and applicable regulation. See "Dividend Policy" and
"Regulation and Supervision." The holders of Common Stock of the Holding Company
will be entitled to receive and share equally in such dividends as may be
declared by the Board of Directors of the Holding Company out of funds legally
available therefor. If the Holding Company issues Preferred Stock, the holders
thereof may have a priority over the holders of the Common Stock with respect to
dividends.
Voting Rights. Upon Conversion, the holders of Common Stock of the
Holding Company will possess exclusive voting rights in the Holding Company.
They will elect the Holding Company's Board of Directors and act on such other
matters as are required to be presented to them under Delaware law or the
Holding Company's Certificate of Incorporation or as are otherwise presented to
them by the Board of Directors. Except as discussed in "Restrictions on
Acquisition of the Holding Company and the Bank," each holder of Common Stock
will be entitled to one vote per share and will not have any right to cumulate
votes in the election of directors. If the Holding Company issues Preferred
Stock, holders of the Preferred Stock may also possess voting rights. Certain
matters require an 80% or two-thirds shareholder vote. See "Restrictions on
Acquisition of the Holding Company and the Bank."
As a New York mutual savings bank, corporate powers and control of the
Bank are vested in its Board of Trustees, who elect the officers of the Bank and
who fill any vacancies on the Board of Trustees as it exists upon Conversion.
Subsequent to Conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, which owner will be the Holding
Company, and voted at the direction of the Holding Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.
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Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Holding Company, as holder of the Bank's capital stock, would
be entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account, which is a memorandum account only, to Eligible Account Holders and
Supplemental Eligible Account Holders (see "The Conversion - Effects of
Conversion - Liquidation Rights"), all assets of the Bank available for
distribution in cash or in kind. 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. If Preferred Stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of the liquidation or
dissolution of the Holding Company.
Preemptive Rights. Holders of the Common Stock of the Holding Company
will not be entitled to preemptive rights with respect to any shares which may
be issued. The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Holding Company's authorized Preferred Stock
will be issued in the Conversion. Such stock may be issued with such preferences
and designations as the Board of Directors may from time to time determine. The
Board of Directors can, without shareholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unsolicited takeover or attempted change in control.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
The Restated Organization Certificate of the Bank, to be effective upon
the Conversion, authorizes the issuance of capital stock consisting of forty
million (40,000,000) shares of common stock, par value $.0l per share, and five
million (5,000,000) shares of preferred stock, par value $.01 per share, which
preferred stock may be issued in series and classes having such rights,
preferences, privileges and restrictions as the Board of Directors may
determine. Except as discussed above in "Restrictions on Acquisition of the
Company and the Bank," each share of common stock of the Bank will have the same
relative rights as, and will be identical in all respects with, each other share
of common stock. After the Conversion, the Board of Directors will be authorized
to approve the issuance of Common Stock up to the amount authorized by the
Restated Organization Certificate without the approval of the Bank's
shareholders, except to the extent that such approval is required by governing
law. All of the issued and outstanding common stock of the Bank will be held by
the Company as the Bank's sole shareholder. The capital stock of the Bank will
represent non-withdrawable capital, will not be an account of an insurable type,
and will not be insured by the FDIC.
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Common Stock
Dividends. The holders of the Bank's common stock (the Company upon
consummation of the Conversion) will be entitled to receive and to share equally
in such dividends as may be declared by the Board of Directors of the Bank out
of funds legally available therefor. See "Dividend Policy" for certain
restrictions on the payment of dividends and "Federal and State Taxation -
Federal Taxation" for a discussion of the consequences of the payment of cash
dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the
Bank's common stock (the Company upon consummation of the Conversion) will
possess exclusive voting rights in the Bank. Each holder of shares of common
stock will be entitled to one vote for each share held. Cumulation of votes will
not be permitted. See "Restrictions on Acquisition of the Company and the Bank -
Anti-Takeover Effects of the Company's Articles of Incorporation and Bylaws and
Management Remuneration Plans Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding
up of the Bank, the holders of its common stock (the Holding Company upon
consummation of the Conversion) will be entitled to receive, after payment of
all debts and liabilities of the Bank (including all deposit accounts and
accrued interest thereon), and distribution of the balance in the special
liquidation account, which is a memorandum account only, to Eligible Account
Holders and Supplemental Eligible Account Holders (see "The Conversion - Effects
of Conversion - Liquidation Rights"), all assets of the Bank available for
distribution in cash or in kind. If preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
Preemptive Rights and Redemption. Holders of the common stock of the
Bank (the Holding Company upon consummation of the Conversion) will not be
entitled to preemptive rights with respect to any shares of the Bank which may
be issued. The common stock will not be subject to redemption. Upon receipt by
the Bank of the full specified purchase price therefor, the common stock will be
fully paid and non-assessable.
Preferred Stock
None of the shares of the Bank's authorized preferred stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without shareholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights.
EXPERTS
The consolidated financial statements of the Bank as of March 31, 1997
and 1996 and for each of the years in the three-year period ended March 31,
1997, included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated
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in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
report.
RP Financial has consented to the publication herein of the summary of
its report to the Bank and Company setting forth its opinion as to the estimated
pro forma market value of the Common Stock upon Conversion and its opinion with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for the Bank and the Holding
Company by Silver, Freedman & Taff, L.L.P., Washington, D.C., special counsel to
the Bank and the Company. The New York State income tax consequences of the
Conversion will be passed upon for the Bank and the Holding Company by KPMG Peat
Marwick LLP, Albany, New York. Certain legal matters will be passed upon for
Sandler O'Neill by Peabody & Brown, Boston, Massachusetts.
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THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1997 (unaudited) and
March 31, 1997 and 1996................................................ F-3
Consolidated Income Statements for the Nine Months Ended
December 31, 1997 and 1996 (unaudited) and the Years Ended
March 31, 1997, 1996 and 1995.......................................... F-4
Consolidated Statements of Changes in Equity for the Nine Months Ended
December 31, 1997 (unaudited) and the Years Ended March 31, 1997,
1996 and 1995.......................................................... F-5
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 1997 and 1996 (unaudited) and the Years Ended
March 31, 1997, 1996 and 1995.......................................... F-6
Notes to Consolidated Financial Statements (data as of
December 31, 1997 and for the nine months ended December 31, 1997
and 1996 is unaudited)................................................. F-8
All schedules are omitted because the required information is not applicable or
is included in the Consolidated Financial Statements and related Notes.
The financial statements of the Holding Company have been omitted because the
Holding Company has not yet issued any stock, has no assets, no liabilities and
has not conducted any business other than that of an organizational nature.
F-1
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Independent Auditors' Report
The Board of Trustees
The Hudson City Savings Institution:
We have audited the accompanying consolidated balance sheets of The Hudson City
Savings Institution and subsidiaries (the Bank) as of March 31, 1997 and 1996,
and the related consolidated income statements, changes in equity and cash flows
for each of the years in the three-year period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on the consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Hudson City
Savings Institution and subsidiaries as of March 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1997, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
Albany, New York
June 20, 1997, except for note 17,
which is as of November 20, 1997
F-2
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited) March 31,
December 31, -----------------
Assets 1997 1997 1996
- ------ ------------ ---- ----
(In thousands)
Cash and due from banks $ 12,284 10,457 9,243
Federal funds sold 3,336 -- 4,990
-------- ------- -------
Cash and cash equivalents 15,620 10,457 14,233
-------- ------- -------
Loans held for sale -- 84 201
Securities available for sale 43,282 45,623 51,429
Investment securities 71,244 79,068 83,003
Federal Home Loan Bank of New York stock 2,812 2,812 2,596
Loans receivable 511,898 493,019 450,671
Less: Allowance for loan losses (6,756) (5,872) (3,546)
-------- ------- -------
Net loans receivable 505,142 487,147 447,125
-------- ------- -------
Accrued interest receivable 4,946 4,880 5,254
Premises and equipment, net 15,840 14,965 14,349
Other real estate owned and repossessed property 1,059 3,447 1,716
Other assets 5,106 2,551 3,314
-------- ------- -------
Total assets $665,051 651,034 623,220
======== ======= =======
Liabilities and Equity
- ----------------------
Liabilities:
Deposits 586,231 564,599 555,188
Short-term borrowings 2,000 12,585 --
Urban Development Action Grant payable -- 835 835
Mortgagors' escrow deposits 4,935 3,746 4,027
Other liabilities 4,490 4,140 3,564
-------- ------- -------
Total liabilities 597,656 585,905 563,614
-------- ------- -------
Commitments and contingent liabilities (note 14)
Equity:
Surplus 13,839 13,839 13,689
Undivided profits 53,524 51,638 46,128
Net unrealized gain (loss) on securities
available for sale, net of tax 32 (348) (211)
-------- ------- -------
Total equity 67,395 65,129 59,606
-------- ------- -------
Total liabilities and equity $665,051 651,034 623,220
======== ======= =======
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Income Statements
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Years Ended
December 31, March 31,
----------------- ------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 35,575 32,220 43,585 40,780 35,135
Securities available for sale 1,960 2,879 3,658 1,782 917
Investment securities 3,565 4,063 5,385 6,062 6,503
Federal funds sold 202 87 89 271 344
Federal Home Loan Bank of New York stock 151 124 164 187 160
-------- ------ ------ ------ ------
Total interest and dividend income 41,453 39,373 52,881 49,082 43,059
-------- ------ ------ ------ ------
Interest expense:
Deposits 19,364 18,961 25,187 24,044 19,208
Short-term borrowings 176 130 239 42 101
-------- ------ ------ ------ ------
Total interest expense 19,540 19,091 25,426 24,086 19,309
-------- ------ ------ ------ ------
Net interest income 21,913 20,282 27,455 24,996 23,750
Provision for loan losses 6,408 1,858 3,826 1,090 1,169
-------- ------ ------ ------ ------
Net interest income after provision
for loan losses 15,505 18,424 23,629 23,906 22,581
-------- ------ ------ ------ ------
Other operating income:
Service charges on deposit accounts 840 815 1,063 1,026 1,033
Loan servicing income 353 402 480 272 265
Net securities transactions 12 28 28 28 (16)
Net gain (loss) on sale of loans 39 (5) 17 92 14
Other income 646 121 237 217 236
-------- ------ ------ ------ ------
Total other operating income 1,890 1,361 1,825 1,635 1,532
-------- ------ ------ ------ ------
Other operating expenses:
Compensation and benefits 6,985 6,436 8,592 7,471 6,840
Occupancy 993 916 1,285 1,184 1,162
Equipment 1,232 860 1,230 1,057 1,194
FDIC assessment 55 8 27 299 1,170
Other real estate owned and repossessed
property expenses 274 190 292 348 851
Legal and other professional fees 843 314 397 330 371
Postage and item transportation 557 470 655 510 447
Other expenses 3,249 2,564 3,709 3,000 3,188
-------- ------ ------ ------ ------
Total other operating expenses 14,188 11,758 16,187 14,199 15,223
-------- ------ ------ ------ ------
Income before income tax expense 3,207 8,027 9,267 11,342 8,890
Income tax expense 1,321 3,142 3,607 4,298 2,917
-------- ------ ------ ------ ------
Net income $ 1,886 4,885 5,660 7,044 5,973
======== ====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities
Available
Undivided for Sale, Net Total
Surplus Profits of Tax Equity
------- --------- -------------- ------
(In thousands)
<S> <C> <C> <C> <C>
Balance as of April 1, 1994 $12,470 33,769 111 46,350
Net income -- 5,973 -- 5,973
Transfers to surplus 549 (549) -- --
Adjustment of securities available for sale
to fair value, net of tax -- -- (185) (185)
------- ------ ---- ------
Balance as of March 31, 1995 13,019 39,193 (74) 52,138
Net income -- 7,044 -- 7,044
Transfers to surplus 670 (670) -- --
Net increase in equity from acquisition -- 561 -- 561
Adjustment of securities available for sale
to fair value, net of tax -- -- (137) (137)
------- ------ ---- ------
Balance as of March 31, 1996 13,689 46,128 (211) 59,606
Net income -- 5,660 -- 5,660
Transfers to surplus 150 (150) -- --
Adjustment of securities available for sale
to fair value, net of tax -- -- (137) (137)
------- ------ ---- ------
Balance as of March 31, 1997 13,839 51,638 (348) 65,129
Net income (unaudited) -- 1,886 -- 1,886
Adjustment of securities available for sale
to fair value, net of tax (unaudited) -- -- 380 380
------- ------ ---- ------
Balance as of December 31, 1997 (unaudited) $13,839 53,524 32 67,395
======= ====== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Years Ended
December 31, March 31,
------------------ ----------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,886 4,885 5,660 7,044 5,973
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,021 832 1,183 1,000 1,090
Provision for loan losses 6,408 1,858 3,826 1,090 1,169
Deferred tax benefit (682) (63) (791) (394) (105)
Net securities transactions (12) (28) (28) (28) 16
Net (gain) loss on sales of loans held for sale (39) 5 (17) (92) (14)
Net loans originated for sale (2,342) (1,911) (2,539) (4,632) (2,101)
Proceeds from sales of loans held for sale 2,465 2,037 2,673 6,697 5,958
Adjustments of other real estate owned and
repossessed property to fair value 217 103 169 336 207
Net gain on sales of other real estate owned and
repossessed property (441) (444) (556) (454) (67)
(Increase) decrease in accrued interest receivable (66) (13) 374 (863) (624)
(Increase) decrease in other assets (2,125) 133 763 (559) (483)
Increase in other liabilities 350 1,541 1,323 1,031 892
------- ------- ------- ------- -------
Total adjustments 4,754 4,050 6,380 3,132 5,938
------- ------- ------- ------- -------
Net cash provided by operating activities 6,640 8,935 12,040 10,176 11,911
------- ------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sales of securities available for sale -- 7,025 7,025 3,982 7,067
Proceeds from maturities and calls of securities
available for sale 17,995 19,564 21,564 5,024 --
Purchases of securities available for sale (15,010) (21,976) (22,975) (38,998) (2,939)
Proceeds from sales of investment securities -- 2,979 2,979 -- 1,020
Proceeds from maturities, calls and paydowns of
investment securities 13,805 6,237 8,860 10,057 18,817
Purchases of investment securities (5,981) (7,911) (7,911) (13,165) (30,725)
Purchase of FHLB of New York stock -- -- (309) -- (2,569)
Redemption of FHLB of New York stock -- 93 93 -- --
Net loans made to customers (27,506) (35,958) (49,875) (13,952) (33,860)
Proceeds from sales of and payments received on
other real estate owned and repossessed property 5,715 3,443 4,817 3,281 4,213
Capital expenditures (1,896) (1,547) (1,799) (1,713) (1,041)
Net cash provided by acquisition activity -- -- -- 195 --
------- ------- ------- ------- -------
Net cash used in investing activities (12,878) (28,051) (37,531) (45,289) (40,017)
------- ------- ------- ------- -------
Cash flows from financing activities:
Net increase in deposits 21,632 14,143 9,411 37,181 15,774
Net (decrease) increase in short-term borrowings (10,585) 1,715 12,585 -- --
Repayment of UDAG payable (835) -- -- -- --
Increase (decrease) in mortgagors' escrow deposits 1,189 943 (281) (1,767) 68
------- ------- ------- ------- -------
Net cash provided by financing activities 11,401 16,801 21,715 35,414 15,842
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents 5,163 (2,315) (3,776) 301 (12,264)
Cash and cash equivalents at beginning of period 10,457 14,233 14,233 13,932 26,196
------- ------- ------- ------- -------
Cash and cash equivalents at end of period $15,620 11,918 10,457 14,233 13,932
======= ======= ======= ======= =======
</TABLE>
(Continued)
F-6
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended Years Ended
December 31, March 31,
------------------ ----------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Supplemental information:
Interest paid $19,538 19,336 25,305 24,086 19,561
======= ======= ======= ======= =======
Taxes paid $ 4,012 3,812 4,593 3,981 2,976
======= ======= ======= ======= =======
Non-cash investing and financing activities:
Loans transferred to other real estate owned
and repossessed property $ 3,103 4,944 6,027 3,557 3,075
======= ======= ======= ======= =======
Loans transferred from loans held for sale to
the loan portfolio $ -- -- -- 239 --
======= ======= ======= ======= =======
Investment securities transferred to securities
available for sale $ -- -- -- 13,775 --
======= ======= ======= ======= =======
Securities available for sale transferred to
investment securities $ -- -- -- 2,000 --
======= ======= ======= ======= =======
Adjustment of securities available for sale to
fair value, net of tax $ 380 136 (137) (137) (185)
======= ======= ======= ======= =======
Acquisition activity (see note 2):
Non-cash assets acquired $ -- -- -- 4,004 --
Non-cash liabilities assumed -- -- -- 3,638 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
accounts of The Hudson City Savings Institution and its subsidiaries
(the "Bank"). All material intercompany accounts and transactions have
been eliminated.
The consolidated balance sheet as of December 31, 1997 and the related
consolidated income statements and consolidated statements of cash
flows for the nine month periods ended December 31, 1997 and 1996 and
consolidated statement of changes in equity for the nine month period
ended December 31, 1997 are unaudited and, in the opinion of
management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been made as of December 31,
1997 and for the results for the unaudited periods.
(b) Basis of Presentation
---------------------
The accompanying consolidated financial statements conform, in all
material respects, to generally accepted accounting principles and to
general practice within the banking industry. The Bank utilizes the
accrual method of accounting for financial reporting purposes.
(c) Use of Estimates
----------------
Management of the Bank has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance
for loan losses and the valuation of other real estate owned and
repossessed property acquired in connection with foreclosures or
in-substance foreclosures. In connection with the determination of the
allowance for loan losses and the valuation of other real estate owned
and repossessed property, management obtains appraisals for
significant properties.
Management believes that the allowance for loan losses is adequate and
that other real estate owned and repossessed property is recorded at
its fair value less an estimate of the costs to sell the properties.
While management uses available information to recognize losses on
loans, other real estate owned and repossessed property, future
additions to the allowance or write downs of other real estate owned
and repossessed property may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowance for loan losses and other real estate owned and repossessed
property. Such agencies may require the Bank to recognize additions to
the allowance or write downs of other real estate owned and
repossessed property based on their judgments about information
available to them at the time of their examination which may not be
currently available to management.
(Continued)
F-8
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
A substantial portion of the Bank's loans are secured by real estate
located in the New York State counties of Columbia, Albany,
Rensselaer, Dutchess, and Schenectady. In addition, a substantial
portion of the other real estate owned and repossessed property is
located in those same markets, as well as in the states contiguous to
New York. Accordingly, the ultimate collectibility of a substantial
portion of the Bank's loan portfolio and the recovery of a substantial
portion of the carrying amount of other real estate owned and
repossessed property is dependent upon market conditions in these
market areas.
(d) Cash and Cash Equivalents
-------------------------
For purposes of the consolidated statements of cash flows, cash and
cash equivalents consists of cash on hand, due from banks, and federal
funds sold.
(e) Securities Available for Sale, Investment Securities and Federal Home
----------------------------------------------------------------------
Loan Bank of New York Stock
---------------------------
Management determines the appropriate classification of securities at
the time of purchase. If management has the positive intent and
ability to hold debt securities to maturity, they are stated at
amortized cost. If securities are purchased for the purpose of selling
them in the near term, they are classified as trading securities and
are reported at fair value with unrealized holding gains and losses
reflected in current earnings. All other debt and marketable equity
securities are classified as securities available for sale and are
reported at fair value, with net unrealized gains or losses reported,
net of income taxes, as a separate component of equity. As a member of
the Federal Home Loan Bank of New York (FHLB), the Bank is required to
hold FHLB stock which is carried at cost since there is no readily
available market value. At December 31, 1997, March 31, 1997 and 1996,
the Bank did not hold any securities considered to be trading
securities.
Gains or losses on disposition of securities are based on the net
proceeds and the adjusted carrying amount of the securities sold,
using the specific identification method. Unrealized losses on
securities which reflect a decline in value which is other than
temporary are charged to income and reported as a component of "net
securities transactions" in the consolidated income statements. The
carrying amount of securities is adjusted for amortization of premium
and accretion of discount, which is calculated on an effective
interest method.
In November 1995, the staff of the Financial Accounting Standards
Board released its Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities." The Special Report contained, among other things, a
unique provision that allowed entities to, concurrent with the initial
adoption of the Special Report (November 15, 1995) but not later than
December 31, 1995, reassess the appropriateness of the classifications
of all securities held at that time. In conjunction with the
provisions of this Special Report, as of December 31, 1995, the Bank
transferred securities with an amortized cost of $13,775,000 and an
estimated fair value of $14,017,000 from investment securities to
securities available for sale.
(Continued)
F-9
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(f) Net Loans Receivable
--------------------
Loans are carried at the principal amount outstanding net of unearned
discount, net deferred loan origination fees and costs and the
allowance for loan losses.
Non-performing loans include non-accrual loans, loans which are
contractually past due 90 days or more and still accruing interest and
troubled debt restructurings. Generally, loans are placed on
non-accrual status, either due to the delinquency status of principal
and/or interest payments, or a judgment by management that, although
payments of principal and/or interest are current, such action is
prudent. Loans are generally placed on non-accrual status when
principal and/or interest payments are contractually past due 90 days
or more. When a loan is placed on non-accrual status, all interest
previously accrued but not collected is reversed against current year
interest income. Interest income on non-accrual loans is recognized
only if received, if considered appropriate by management. Loans are
removed from non-accrual status when they become current as to
principal and interest or when, in the opinion of management, the
loans are expected to be fully collectible as to principal and
interest.
The Bank accounts for fees and costs associated with loan originations
in accordance with Statement of Financial Accounting Standards (SFAS)
No. 91, "Accounting for Nonrefundable Fees and Costs Associated with
Originating and Acquiring Loans and Initial Direct Costs of Leases."
As of April 1, 1995, the Bank adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures." Under these Statements, a loan (generally
commercial-type loans) is considered impaired when it is probable that
the borrower will not make principal and interest payments according
to the original contractual terms of the loan agreement, or when a
loan (of any loan type) is restructured in a troubled debt
restructuring subsequent to the adoption of these Statements. These
Statements prescribe recognition criteria for loan impairment,
generally related to commercial type loans, and measurement methods
for impaired loans. Impaired loans are included in non-performing
loans, generally as non-accrual commercial type loans.
The allowance for loan losses related to impaired loans is based on
the discounted cash flows using the loan's initial effective rate or
the fair value of the collateral for certain loans where repayment of
the loan is expected to be provided solely by the underlying
collateral (collateral dependent loans). The Bank's impaired loans are
generally collateral dependent. The Bank considers estimated costs to
sell, on a discounted basis, when determining the fair value of
collateral in the measurement of impairment if those costs are
expected to reduce the cash flows available to repay or otherwise
satisfy the loans. The adoption of SFAS Nos. 114 and 118 did not have
a significant effect on the Bank's consolidated financial statements.
(Continued)
F-10
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(g) Allowance for Loan Losses
-------------------------
The allowance for loan losses is replenished through a provision for
loan losses charged to operations. Loans are charged against the
allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Recoveries on loans
previously charged-off are credited to the allowance for loan losses.
The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible.
Management's evaluation of the adequacy of the allowance for loan
losses is performed on a periodic basis and takes into consideration
such factors as the historical loan loss experience, changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans and current economic conditions that
may affect borrowers' ability to pay.
(h) Loans Held for Sale
-------------------
Loans are classified as held for investment purposes or held for sale
when the Bank enters into interest rate lock agreements with the
potential borrowers. Loans held for sale are recorded at the lower of
aggregate cost or fair value. Gains and losses on the disposition of
loans held for sale are determined on the specific identification
method. Loans held for sale at March 31, 1997 and 1996 was comprised
of residental mortgage loans. There were no loans held for sale at
December 31, 1997.
(i) Premises and Equipment
----------------------
Premises and equipment are carried at cost, less accumulated
depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of the assets (up to fifty years for
buildings and generally five years for furniture and equipment).
Leasehold improvements are depreciated over the shorter of the term of
the related leases or the estimated useful lives of the assets.
(j) Other Real Estate Owned and Repossessed Property
------------------------------------------------
Other real estate owned, comprised of real estate acquired through
foreclosure and in-substance foreclosures, and repossessed property
are recorded at the lower of "cost" (defined as the fair value at
initial foreclosure) or fair value of the asset acquired, less
estimated costs to dispose of the property. A loan is categorized as
an in-substance foreclosure when the Bank has taken possession of the
collateral, regardless of whether formal foreclosure proceedings have
taken place. At the time of foreclosure, or when foreclosure occurs
in-substance, the excess, if any, of the loan value over the fair
value of the property received is charged to the allowance for loan
losses. Subsequent declines in the value of such property and net
operating expenses of such properties are charged directly to other
operating expenses. Properties are reappraised, as considered
necessary by management, and written down to the fair value less the
estimated cost to sell the property, if necessary. Repossessed
property consists primarily of manufactured homes abandoned by their
owners or repossessed by the Bank.
(Continued)
F-11
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(k) Income Taxes
------------
The Bank accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under the asset and liability method of
SFAS No. 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 the 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.
(l) Statutory Transfer of Surplus
-----------------------------
A required quarterly transfer of 10% of net income is made to surplus
in accordance with New York State Banking Regulations. No transfer is
required if total equity as a percent of deposits exceeds 10% at the
end of each quarter. In accordance with State of New York Banking Law,
surplus is subject to certain restrictions, including a prohibition of
its use for payment of dividends, except with the approval of the
Superintendent of Banks.
(m) Financial Instruments
---------------------
In the normal course of business, the Bank 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 Bank's policy is to record such instruments when funded.
(n) Mortgage Servicing Rights
-------------------------
SFAS No. 122, "Accounting for Mortgage Servicing Rights," as
superceded by SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," requires that
entities recognize, as separate assets, the rights to service mortgage
loans for others, regardless of how those servicing rights are
acquired. Additionally, SFAS No. 125 requires that the capitalized
mortgage servicing rights be assessed for impairment based on the fair
value of those rights, and that impairment, if any, be recognized
through a valuation allowance. The Bank's adoption of SFAS No. 122, as
superceded by SFAS No. 125, as of April 1, 1996, did not have a
material effect on the consolidated financial statements.
(o) Trust Department Assets and Service Fees
----------------------------------------
Assets held by the Bank in a fiduciary or agency capacity for its
customers are not included in the consolidated balance sheets since
these items are not assets of the Bank. Trust service fees are
reported on the accrual basis.
(Continued)
F-12
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(p) Transfers of Financial Assets and Extinguishment of Liabilities
---------------------------------------------------------------
SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," provides accounting and
reporting standards for determining whether a variety of transactions
should be accounted for as sales or financings, based on consistent
application of a financial-components approach that focuses on control
and superceded SFAS No. 122, as discussed above. SFAS No. 125 is
generally effective for transfers and servicing of financial assets
and extinguishment 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 Bank's consolidated financial
statements.
(q) Reclassifications
-----------------
Amounts in the prior years' consolidated financial statements are
reclassified whenever necessary to conform with the current year's
presentation.
(2) Acquisition Activity
--------------------
On December 20, 1995, The Hudson City Savings Institution acquired all of
the assets and assumed all of the liabilities of Valatie Savings and Loan
Association. This transaction was accounted for as a pooling-of-interests
and resulted in an increase in equity of $561,000. Amounts related to this
transaction are not material.
(3) Securities Available for Sale
-----------------------------
The amortized cost and approximate fair value of securities available for
sale at December 31, 1997, March 31, 1997 and 1996, are as follows:
December 31, 1997
----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
(In thousands)
U.S. Government and Agency
securities $36,955 55 (67) 36,943
Corporate debt securities 6,274 68 (3) 6,339
------- --- ---- ------
Total securities available
for sale $43,229 123 (70) 43,282
======= === ==== ======
March 31, 1997
----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
(In thousands)
U.S. Government and Agency
securities $37,933 7 (611) 37,329
Corporate debt securities 8,269 47 (22) 8,294
------- --- ---- ------
Total securities available
for sale $46,202 54 (633) 45,623
======= === ==== ======
(Continued)
F-13
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
March 31, 1996
----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
(In thousands)
U.S. Government and Agency
securities $33,990 16 (554) 33,452
Corporate debt securities 17,791 216 (30) 17,977
------- --- ---- ------
Total securities available
for sale $51,781 232 (584) 51,429
======= === ==== ======
The following sets forth information with regard to contractual maturities
of securities available for sale as of December 31 and March 31, 1997
(actual maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties):
December 31, 1997
-----------------------------------------------------------------
U.S. Government and Corporate Debt Total Securities
Agency Securities Securities Available for Sale
--------------------- --------------------- ---------------------
Amortized Approximate Amortized Approximate Amortized Approximate
cost fair value cost fair value cost fair value
--------- ----------- --------- ----------- --------- -----------
(In thousands)
Within one year $ -- -- 1,000 1,006 1,000 1,006
One through
five years 33,955 33,941 5,274 5,333 39,229 39,274
Five through
ten years 3,000 3,002 -- -- 3,000 3,002
------- ------ ----- ----- ------ ------
$36,955 36,943 6,274 6,339 43,229 43,282
======= ====== ===== ===== ====== ======
March 31, 1997
-----------------------------------------------------------------
U.S. Government and Corporate Debt Total Securities
Agency Securities Securities Available for Sale
--------------------- --------------------- ---------------------
Amortized Approximate Amortized Approximate Amortized Approximate
cost fair value cost fair value cost fair value
--------- ----------- --------- ----------- --------- -----------
(In thousands)
Within one year $ -- -- 4,003 4,014 4,003 4,014
One through
five years 37,933 37,329 4,266 4,280 42,199 41,609
------- ------ ----- ----- ------ ------
$37,933 37,329 8,269 8,294 46,202 45,623
======= ====== ===== ===== ====== ======
(Continued)
F-14
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
During the years ended March 31, 1997, 1996 and 1995, and the nine months
ended December 31, 1996, the Bank received $7,025,000, $3,982,000,
$7,067,000, and $7,025,000, respectively, in proceeds from the sale of
securities available for sale, realizing gross gains of $36,000, $28,000,
$46,000, and $36,000, respectively, and gross losses of $0, $0, $7,000, and
$0, respectively. The Bank realized gross gains of $12,000 and no gross
losses during the nine months ended December 31, 1997, related to calls of
securities available for sale. Write-downs of securities available for sale
due to credit deterioration amounted to $76,000 during the year ended March
31, 1995.
(4) Investment Securities
---------------------
The amortized cost and approximate fair value of investment securities as
of December 31, 1997, March 31, 1997 and 1996, are as follows:
December 31, 1997
----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
(In thousands)
U.S. Government and Agency
securities $19,974 90 (30) 20,034
Corporate debt securities 46,743 318 (12) 47,049
Mortgage backed securities 4,517 26 (28) 4,515
State, county and municipal 10 -- -- 10
------- --- ---- ------
Total investment securities $71,244 434 (70) 71,608
======= === ==== ======
March 31, 1997
----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
(In thousands)
U.S. Government and Agency
securities $17,960 14 (135) 17,839
Corporate debt securities 57,648 110 (219) 57,539
Mortgage backed securities 3,050 37 (123) 2,964
State, county and municipal 410 1 -- 411
------- --- ---- ------
Total investment securities $79,068 162 (477) 78,753
======= === ==== ======
March 31, 1996
----------------------------------------------
Gross Gross Approximate
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- -----------
(In thousands)
U.S. Government and Agency
securities $13,957 43 (170) 13,830
Corporate debt securities 63,557 439 (152) 63,844
Mortgage backed securities 4,221 58 (113) 4,166
State, county and municipal 1,268 14 -- 1,282
------- --- ---- ------
Total investment securities $83,003 554 (435) 83,122
======= === ==== ======
(Continued)
F-15
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
At December 31, 1997, March 31, 1997 and 1996, mortgage backed securities
consisted entirely of Government National Mortgage Association (GNMA),
Fannie Mae, and Freddie Mac securities.
The amortized cost and approximate fair value of investment securities at
December 31 and March 31, 1997, by contractual maturity (mortgage backed
securities are included by final contractual maturity), are as follows
(actual maturities may differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without prepayment
penalties):
December 31, 1997
----------------------------------------------
U.S. Government
and Agency Corporate Debt
Securities Securities
---------------------- ----------------------
Approximate Approximate
Amortized fair Amortized fair
cost value cost value
--------- ----------- --------- -----------
(In thousands)
Within one year $ 4,998 4,989 20,894 20,935
One through five years 14,976 15,045 24,863 25,116
Five through ten years -- -- 986 998
After ten years -- -- -- --
------- ------ ------ ------
$19,974 20,034 46,743 47,049
======= ====== ====== ======
<TABLE>
<CAPTION>
Mortgage Backed State, County Total
Securities and Municipal Investment Securities
--------------------- --------------------- ---------------------
Approximate Approximate Approximate
Amortized fair Amortized fair Amortized fair
cost value cost value cost value
--------- ----------- --------- ----------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Within one year $ -- -- -- -- 25,892 25,924
One through five years 280 272 -- -- 40,119 40,433
Five through ten years 2,586 2,643 10 10 3,582 3,651
After ten years 1,651 1,600 -- -- 1,651 1,600
------ ----- --- --- ------ ------
$4,517 4,515 10 10 71,244 71,608
====== ===== === === ====== ======
</TABLE>
(Continued)
F-16
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------------------
U.S. Government
and Agency Corporate Debt Mortgage Backed
Securities Securities Securities
---------------------- ---------------------- ---------------------
Approximate Approximate Approximate
Amortized fair Amortized fair Amortized fair
cost value cost value cost value
--------- ----------- --------- ----------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Within one year $ 999 1,000 12,953 12,970 373 374
One through five years 16,961 16,839 44,695 44,569 308 293
Five through ten years -- -- -- -- 656 674
After ten years -- -- -- -- 1,713 1,623
------- ------ ------ ------ ----- -----
$17,960 17,839 57,648 57,539 3,050 2,964
======= ====== ====== ====== ===== =====
</TABLE>
State, County Total
and Municipal Investment Securities
--------------------- ---------------------
Approximate Approximate
Amortized fair Amortized fair
cost value cost value
--------- ----------- --------- -----------
(In thousands)
Within one year $400 401 14,726 14,745
One through five years -- -- 61,963 61,701
Five through ten years 10 10 666 684
After ten years -- -- 1,713 1,623
---- --- ------ ------
$410 411 79,068 78,753
==== === ====== ======
Investment securities with a carrying value of $6.0 million, $5.0 million
and $5.0 million at December 31, 1997, March 31, 1997 and 1996,
respectively, were pledged to secure public deposits and for other purposes
as required by law.
During the year ended March 31, 1997, the nine months ended December 31,
1996, and the year ended March 31, 1995, the Bank received $2,979,000,
$2,979,000, and $1,020,000, respectively, in proceeds from the sale of
investment securities, realizing gross gains of $0, $0, and $21,000,
respectively, and gross losses of $8,000, $8,000, and $0, respectively.
These securities were sold due to significant deterioration in the issuers'
creditworthiness. No investment securities were sold during the nine months
ended December 31, 1997 or the year ended March 31, 1996.
(Continued)
F-17
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(5) Net Loans Receivable
--------------------
A summary of net loans receivable as of December 31, 1997, March 31, 1997
and 1996 is as follows:
March 31,
December 31, ------------------
1997 1997 1996
------------ ---- ----
(In thousands)
Loans secured by real estate:
Residential one-to-four-family $250,649 246,462 214,226
Home equity 27,441 27,630 26,936
Commercial 73,902 67,697 70,854
Construction 3,980 2,725 4,317
-------- ------- -------
Total loans secured by real estate 355,972 344,514 316,333
-------- ------- -------
Other loans:
Manufactured housing 98,307 92,651 80,399
Commercial 13,907 16,146 17,393
Mortgage warehouse lines of credit 7,062 3,567 11,797
Financed insurance premiums 23,395 23,535 13,503
Consumer and other 12,140 11,577 10,155
-------- ------- -------
Total other loans 154,811 147,476 133,247
-------- ------- -------
Net deferred loan origination costs and
unearned discount 1,115 1,029 1,091
Allowance for loan losses (6,756) (5,872) (3,546)
-------- ------- -------
Net loans receivable $505,142 487,147 447,125
======== ======= =======
Changes in the allowance for loan losses during the nine months ended
December 31, 1997 and 1996, and the years ended March 31, 1997, 1996 and
1995 were as follows:
Nine Months Ended Years Ended
December 31, March 31,
----------------- -------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
Allowance for loan losses
at beginning of period $ 5,872 3,546 3,546 3,187 2,917
Provision charged to operations 6,408 1,858 3,826 1,090 1,169
Loans charged-off (5,953) (1,676) (2,070) (1,197) (1,263)
Recoveries on loans charged-off 429 464 570 423 364
Allowance acquired through
merger -- -- -- 43 --
------- ------ ------ ------ ------
Allowance for loan losses
at end of period $ 6,756 4,192 5,872 3,546 3,187
======= ====== ====== ====== ======
(Continued)
F-18
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The following table sets forth information with regard to non-performing
loans:
March 31,
December 31, ------------------------
1997 1997 1996 1995
---- ---- ---- ----
(In thousands)
Loans in non-accrual status $15,081 15,282 8,286 6,221
Loans contractually past due 90 days or
more and still accruing interest 1,302 4,711 2,600 1,129
------- ------ ------ -----
$16,383 19,993 10,886 7,350
======= ====== ====== =====
At December 31, 1997, March 31, 1997, 1996 and 1995, respectively, there
were no troubled debt restructurings. There are no material commitments to
extend further credit to borrowers with non-performing loans.
Accumulated interest on non-accrual loans, as shown above, of approximately
$493,000 and $586,000, was not recognized in interest income during the
nine months ended December 31, 1997 and the year ended March 31, 1997,
respectively. Approximately $637,000 and $937,000 of interest on
non-accrual loans, as shown above, was collected and recognized in interest
income during the nine months ended December 31, 1997 and the year ended
March 31, 1997, respectively. Accumulated interest on non-accrual loans, as
shown above, not recognized in interest income and collected and recognized
in interest income for the years ended March 31, 1996 and 1995 was not
significant.
At December 31, 1997 and March 31, 1997 and 1996, the recorded investment
in loans that are considered to be impaired under SFAS No. 114 totaled
$4,279,000, $5,361,000, and $646,000, respectively, for which the related
allowance for loan losses was $682,000, $2,010,000, and $71,000,
respectively. As of December 31, 1997, March 31, 1997 and 1996, 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 nine months ended December 31, 1997 and 1996,
and the years ended March 31, 1997 and 1996, was $5,975,000, $1,304,000,
$1,621,000, and $569,000, respectively. The interest income recognized on
those impaired loans and the interest income recognized on those impaired
loans using the cash basis of income recognition was not significant for
the nine months ended Decmeber 31, 1997 and 1996, and the years ended March
31, 1997 and 1996.
Certain executive officers of the Bank were customers of and had other
transactions with the Bank in the ordinary course of business. Loans to
these parties were made in the ordinary course of business at the Bank's
normal credit terms, including interest rate and collateralization. The
aggregate of such loans totaled less than 5% of total equity at December
31, 1997, March 31, 1997 and 1996.
(Continued)
F-19
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(6) Accrued Interest Receivable
---------------------------
Accrued interest receivable consists of the following at December 31, 1997,
March 31, 1997 and 1996:
March 31,
December 31, -----------------
1997 1997 1996
---- ---- ----
(In thousands)
Loans and loans held for sale $3,090 3,115 3,097
Securities available for sale 739 664 851
Investment securities 1,117 1,101 1,306
------ ----- -----
$4,946 4,880 5,254
====== ===== =====
(7) Premises and Equipment
----------------------
A summary of premises and equipment at December 31, 1997, March 31, 1997
and 1996 is as follows:
March 31,
December 31, -----------------
1997 1997 1996
---- ---- ----
(In thousands)
Bank buildings and land $16,576 15,224 15,182
Furniture and equipment 4,923 4,505 2,997
Leasehold improvements 854 786 759
------- ------ ------
22,353 20,515 18,938
Less: Accumulated depreciation (6,513) (5,550) (4,589)
------- ------ ------
Premises and equipment, net $15,840 14,965 14,349
======= ====== ======
Depreciation was approximately $1.0 million and $832,000 for the nine
months ended December 31, 1997 and 1996, respectively. Depreciation was
approximately $1.2 million, $1.0 million, and $1.1 million for the years
ended March 31, 1997, 1996, and 1995, respectively.
At December 31 and March 31, 1997, the Bank held one of its branch
buildings for sale. The carrying value of the building was approximately
$750,000 at both December 31 and March 31, 1997, which represented the
lower of the cost basis of the building or fair value less estimated costs
to sell.
(8) Other Real Estate Owned and Repossessed Property
------------------------------------------------
Other real estate owned and repossessed property consists of the following
at December 31, 1997, March 31, 1997 and 1996:
March 31,
December 31, -----------------
1997 1997 1996
---- ---- ----
(In thousands)
Repossessed real estate:
Commercial $ 300 2,860 921
Residential 59 48 160
Repossessed property 700 539 635
------ ----- -----
$1,059 3,447 1,716
====== ===== =====
(Continued)
F-20
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(9) Deposits
--------
Deposit account balances at December 31, 1997 and March 31, 1997 and 1996
are summarized as follows:
March 31,
December 31, -----------------
1997 1997 1996
---- ---- ----
(In thousands)
Savings accounts (3.00% to 3.92%) $140,483 136,109 130,032
N.O.W. and money market accounts
(2.00% to 4.88%) 94,046 92,347 93,919
Time deposit accounts:
2.00 to 2.99% 470 -- --
3.00 to 3.99% 419 824 958
4.00 to 4.99% 3,497 15,319 32,165
5.00 to 5.99% 259,419 228,732 149,852
6.00 to 6.99% 15,659 27,070 84,703
7.00 to 7.99% 35,817 35,441 34,516
8.00 to 8.99% -- -- 560
-------- ------- -------
Total time deposit accounts 315,281 307,386 302,754
-------- ------- -------
Non-interest bearing accounts 36,421 28,757 28,483
-------- ------- -------
Total deposits $586,231 564,599 555,188
======== ======= =======
The aggregate amount of time deposit accounts with a balance of $100,000 or
greater was $42.4 million, $44.3 million, and $46.5 million at December 31,
1997, March 31, 1997 and 1996, respectively.
The approximate amounts of contractual maturities of time deposit accounts
at December 31, 1997 are as follows:
(In thousands)
Years ending December 31,
1998 $178,360
1999 101,019
2000 18,182
2001 14,676
2002 2,245
Thereafter 799
--------
$315,281
========
The approximate amounts of contractual maturities of time deposit accounts
at March 31, 1997 are as follows:
(In thousands)
Years ending March 31,
1998 $153,807
1999 110,830
2000 22,208
2001 15,380
2002 3,288
Thereafter 1,049
--------
$306,562
========
(Continued)
F-21
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
Interest expense on deposits for the nine months ended December 31, 1997
and 1996, and the years ended March 31, 1997, 1996 and 1995 is summarized
as follows:
Nine Months Ended Years Ended
December 31, March 31,
----------------- -------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
Time deposit accounts $13,513 13,342 17,727 16,713 10,796
Savings accounts 3,584 3,388 4,523 4,275 5,501
N.O.W. and money market accounts 2,178 2,144 2,831 2,932 2,769
Mortgagors' escrow deposits 89 87 106 124 142
------- ------ ------ ------ ------
$19,364 18,961 25,187 24,044 19,208
======= ====== ====== ====== ======
(10) Urban Development Action Grant Payable
--------------------------------------
Hudson City Center, Inc. (a subsidiary of the Bank) was awarded an $835,000
"Urban Development Action Grant (UDAG) Equity Participation in Cash Flow"
by the Hudson Development Corporation for the purpose of constructing an
office building in the City of Hudson, New York. This loan was to be repaid
in December 2000. Since January 1991, the Bank had expensed approximately
$25,000 per year under the terms of the agreement. During September 1997,
the loan was satisfied.
(11) Income Taxes
------------
The components of income tax expense for the nine months ended December 31,
1997 and 1996 and the years ended March 31, 1997, 1996, and 1995 are as
follows:
Nine Months Ended Years Ended
December 31, March 31,
----------------- -------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
Current tax expense:
Federal $1,724 2,710 3,702 3,951 2,697
State 279 495 696 741 325
Deferred tax benefit (682) (63) (791) (394) (105)
------ ----- ----- ----- -----
$1,321 3,142 3,607 4,298 2,917
====== ===== ===== ===== =====
(Continued)
F-22
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The following is a reconciliation of the expected income tax expense and
the actual income tax expense. The expected income tax expense has been
computed by applying the statutory federal tax rate to income before income
tax expense:
Nine Months Ended Years Ended
December 31, March 31,
----------------- -------------------------
1997 1996 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
Income tax at applicable
federal statutory rate $1,090 2,729 3,151 3,856 3,023
Increase (decrease) in income
tax expense resulting from:
Tax exempt securities income (8) (12) (14) (82) (85)
State income taxes, net of
federal tax benefit 184 327 459 489 214
Reduction in the valuation
allowance for deferred
tax assets -- -- -- -- (248)
Other 55 98 11 35 13
------ ----- ----- ----- -----
Income tax expense $1,321 3,142 3,607 4,298 2,917
====== ===== ===== ===== =====
Effective tax rate 41.2% 39.1% 38.9% 37.9% 32.8%
====== ===== ===== ===== =====
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997, March 31, 1997 and 1996 are presented below:
March 31,
December 31, -----------------
1997 1997 1996
---- ---- ----
(In thousands)
Deferred tax assets:
Differences in reporting the provision for
loan losses and tax bad debt deduction $2,547 1,880 1,344
Differences in reporting other real estate
owned and repossessed property 157 221 102
Accrued postretirement benefits 268 203 115
Deferred compensation 163 136 107
Other 69 49 47
------ ----- -----
Total gross deferred tax assets 3,204 2,489 1,715
Less valuation allowance (141) (141) (141)
------ ----- -----
Net deferred tax assets 3,063 2,348 1,574
------ ----- -----
Deferred tax liabilities:
Differences in reporting depreciation (73) (60) (35)
Differences in reporting bond discount
accretion (232) (184) (199)
Differences in reporting pension costs (465) (493) (520)
------ ----- -----
Total deferred tax liabilities (770) (737) (754)
------ ----- -----
Net deferred tax asset at end of period 2,293 1,611 820
Net deferred tax asset at beginning of period 1,611 820 426
------ ----- -----
Deferred tax benefit for the period $ (682) (791) (394)
====== ===== =====
(Continued)
F-23
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
In addition to the deferred tax assets and liabilities described above, the
Bank had a deferred tax liability of $21,000 at December 31, 1997, and a
deferred tax asset of $232,000 and $141,000 at March 31, 1997 and 1996,
respectively, related to the net unrealized gain or loss on securities
available for sale.
The valuation allowance, as established by the Bank at December 31, 1997,
March 31, 1997 and 1996, takes into consideration the nature and timing of
the deferred tax asset items, as well as the amount of available open tax
carrybacks. The Bank has fully reserved its New York State net deferred tax
asset, which is a component of deferred tax assets, due to the lack of
carryback and carryforward provisions available in New York State. The
decrease of $248,000 in the deferred tax asset valuation allowance during
the year ended March 31, 1995 was based upon the Bank's continuing
evaluation of the level of such allowance and the realizability of the
temporary differences creating the deferred tax assets, particularly
reserves for loan losses, and after considering the estimates of future
taxable income. Based on recent historical and anticipated future taxable
income, management believes it is more likely than not that the Company
will realize its net deferred tax assets.
As a thrift institution, the Bank is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. These deductions historically
have been determined using methods based on loss experience or a percentage
of taxable income. Tax bad debt reserves are maintained 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 Bank 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 Bank'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.
(Continued)
F-24
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the Federal base-year reserve of $2.7 million
and "supplemental" reserve (as defined) of $10.3 million at both December
31 and March 31 1997, and the state base-year reserve of $18.3 million at
both December 31 and March 31, 1997, since the Bank does not expect that
these amounts will become taxable in the foreseeable future. Under New York
State tax law, as amended, events that would result in taxation of these
reserves include the failure of the Bank to maintain a specified qualifying
assets ratio or meet other thrift definition tests for tax purposes. The
unrecognized deferred tax liability at both December 31 and March 31, 1997
with respect to the Federal base-year reserve and supplemental reserve was
$933,000 and $3.5 million, respectively. The unrecognized deferred tax
liability at December 31 and March 31, 1997 with respect to the state
base-year reserve was $1.1 million (net of Federal benefit).
(12) Employee Benefit Plans
----------------------
The Bank maintains a non-contributory pension plan with Retirement Systems
Incorporated (RSI) Retirement Trust, covering substantially all of its
employees meeting certain eligibility requirements. The benefits are
computed as a percentage of the highest three year average annual earnings,
as defined by the Plan, multiplied by years of credited service. Prior to
July 14, 1995, the percentages utilized were two percent for the first
thirty years of credited service and one-half percent thereafter.
Subsequent to July 14, 1995, the Plan was amended to limit credited service
for benefit calculations to a maximum of thirty years. The amounts
contributed to the plan are determined annually on the basis of (a) the
maximum amount that can be deducted for federal income tax purposes or (b)
the amount certified by a consulting actuary as necessary to avoid an
accumulated funding deficiency as defined by the Employee Retirement Income
Security Act of 1974. Contributions are intended to provide not only for
benefits attributed to service to date but also those expected to be earned
in the future. Plan assets consist primarily of investments in RSI
Retirement Trust administered fixed-income and equity funds.
The following table sets forth the Plan's funded status and amounts
recognized in the Bank's consolidated financial statements at March 31,
1997 and 1996:
1997 1996
---- ----
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $6,477,000 and $5,947,000 at
March 31, 1997 and 1996, respectively $(6,659) (6,387)
======= ======
Projected benefit obligation (8,183) (7,977)
Estimated fair value of Plan assets 9,272 8,647
------- ------
Plan assets in excess of projected benefit obligation 1,089 670
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 149 575
Unrecognized transition asset at January 1, 1988 being
recognized over approximately 12 years (71) (124)
Unrecognized past service liability 64 72
------- ------
Prepaid pension cost included in other assets $ 1,231 1,193
======= ======
(Continued)
F-25
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
Net periodic pension cost included in the Bank's consolidated income
statements for the years ended March 31, 1997, 1996, and 1995 included the
following components:
1997 1996 1995
---- ---- ----
(In thousands)
Service cost $353 327 321
Interest cost 573 536 471
Actual return on plan assets (753) (1,160) (544)
Net amortization and deferral 40 543 (44)
---- ------ ----
Net periodic pension cost $213 246 204
==== ====== ====
The actuarial assumptions used in determining the actuarial present value
of the projected benefit obligation as of March 31 were as follows:
1997 1996 1995
---- ---- ----
Weighted average discount rate 7.75% 7.50% 8.25%
Rate of increase in future compensation levels 5.50 5.50 6.00
Expected long term rate of return 8.00 8.00 8.00
In addition, the Bank provides a defined benefit postretirement plan which
provides medical and life insurance benefits to substantially all
employees, as well as dental benefits to a closed group of retirees. The
Bank adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions," as of April 1, 1995. Under SFAS No. 106, the
cost of postretirement benefits other than pensions must be recognized on
an accrual basis as employees perform services to earn the benefits.
Active employees are eligible for retiree medical and life insurance
coverage upon reaching age 55 with 10 years of service. The medical portion
of the plan is contributory, with retiree contributions based on years of
service and their retirement date. The Bank's contributions for employees
retiring on or after September 1, 1995 are limited to 150% of the premium
rates in effect at the time of retirement. The life insurance portion of
the plan is non-contributory, with the pre-retirement benefit equal to two
times annual earnings. The post-retirement life insurance benefit is
reduced based on the retiree's age and the length of time since retirement,
with a maximum retiree benefit of $50,000. Post-retirement dental coverage
is in effect for a closed group of retirees. The dental portion of the plan
is non-contributory. The funding policy of the plan is to pay claims and/or
insurance premiums as they come due.
(Continued)
F-26
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The following table presents the amounts recogized in the Bank's
consolidated financial statements at March 31, 1997 and 1996:
1997 1996
---- ----
(In thousands)
Accumulated post-retirement benefit obligation:
Retirees and eligible beneficiaries $(1,856) (1,815)
Active employees fully eligible for benefits (190) (214)
Other active plan participants (533) (545)
------- ------
(2,579) (2,574)
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 32 130
Unrecognized transition obligation at
April 1, 1995 being recognized over 20 years 2,126 2,244
------- ------
Accrued post-retirement benefit cost included
in other liabilities $ (421) (200)
======= ======
Net periodic post-retirement benefit cost included in the Bank's
consolidated income statements for the years ended March 31, 1997 and 1996,
included the following components:
1997 1996
---- ----
(In thousands)
Service cost $ 60 47
Interest cost 188 189
Net amortization and deferral 118 118
---- ----
Net periodic post-retirement benefit cost $366 354
==== ====
The discount rate used in determining the accumulated post-retirement
benefit obligation was 7.75% and 7.50% at March 31, 1997 and 1996,
respectively.
For measurement purposes, an 8.00% annual rate of increase in the per
capita cost of covered health benefits was assumed for medical coverage
starting in 1998; the rate was assumed to decrease uniformly to 5.00% by
2001 and to remain at that level thereafter. A 5.00% annual rate of
increase in the per capita cost of covered dental benefits was assumed for
dental coverage starting in 1998; the rate was assumed to decrease
uniformly to 4.00% by 2000 and to remain at that level thereafter The
medical and dental care cost trend rate assumptions have a significant
effect on the amounts reported. To illustrate, increasing the assumed
medical and dental care cost trend rates by one percentage point in each
year would increase the accumulated post-retirement benefit obligation as
of March 31, 1997 by $217,000 and the aggregate of the service and interest
cost for the year ended March 31, 1997 would increase by $20,000.
(Continued)
F-27
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The Bank also sponsors a defined contribution 401(k) plan covering
substantially all employees meeting certain eligibility requirements. The
Bank matches 50% of employee pre-tax contributions up to a maximum
contribution by the Bank of 4% of the employee's annual salary. The amount
of 401(k) contribution expense was $88,000, $88,000, $117,000, $100,000,
and $89,000 for the nine months ended December 31, 1997 and 1996 and the
years ended March 31, 1997, 1996, and 1995, respectively.
(13) Regulatory Capital
------------------
Federal Deposit Insurance Corporation (FDIC) regulations require banks to
maintain a minimum leverage ratio of Tier 1 capital to total adjusted
quarterly average assets of 4.0%, and minimum ratios of Tier 1 capital and
total capital to risk-weighted assets of 4.0% and 8.0%, respectively.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary
actions) with respect to an undercapitalized bank. Such actions could have
a direct material effect on a bank's financial statements. The regulations
establish a framework for the classification of banks into five categories:
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Generally, a bank is
considered well capitalized if it has a Tier 1 capital ratio of at least
5.0% (based on total adjusted quarterly average assets); a Tier 1
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 regulators
about capital components, risk weightings, and other factors.
Management believes that, as of December 31 and March 31, 1997, the Bank
met all capital adequacy requirements to which it was subject. Further, the
most recent FDIC notification categorized the Bank as a well capitalized
institution under the prompt corrective action regulations. There have been
no conditions or events since the notification that management believes
have changed the Bank's capital classification.
(Continued)
F-28
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The following is a summary of actual capital amounts and ratios as of
December 31 and March 31, 1997 for the Bank, compared to the requirements
for minimum capital adequacy and for classification as well capitalized:
December 31, 1997
---------------------------------------------------
Required Ratios
Actual Captial ----------------------------------
-------------- Minimum Capital Classification as
Amount Ratio Adequacy Well Capitalized
------ ----- --------------- -----------------
(Dollars in thousands)
Tier 1 (leverage) capital $66,753 10.1% 4.0% 5.0%
Risk-based capital:
Tier 1 66,753 14.1 4.0 6.0
Total 72,672 15.4 8.0 10.0
March 31, 1997
---------------------------------------------------
Required Ratios
Actual Captial ----------------------------------
-------------- Minimum Capital Classification as
Amount Ratio Adequacy Well Capitalized
------ ----- --------------- -----------------
(Dollars in thousands)
Tier 1 (leverage) capital $65,133 10.1% 4.0% 5.0%
Risk-based capital:
Tier 1 65,133 13.8 4.0 6.0
Total 71,005 15.1 8.0 10.0
(14) Commitments and Contingent Liabilities
--------------------------------------
(a) Off-Balance-Sheet Financing and Concentrations of Credit
--------------------------------------------------------
The Bank 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 Bank's commitments to extend credit. Those instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated financial statements. The contract
amounts of those instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
The Bank'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 Bank uses
the same credit policies in making commitments as it does for
on-balance-sheet instruments.
Unless otherwise noted, the Bank does not require collateral or other
security to support financial instruments with credit risk.
(Continued)
F-29
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
Contract amounts of financial instruments that represent credit risk
as of December 31, 1997, March 31, 1997 and 1996, at fixed and
variable interest rates, are as follows:
December 31, 1997
-----------------------------
Fixed Variable Total
----- -------- -----
(In thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments outstanding:
Residential mortgages $ 4,863 3,264 8,127
Residential construction loans 185 421 606
Commercial mortgage loans 736 522 1,258
Commercial loans -- 915 915
Home equity loans 306 197 503
Manufactured home loans 1,586 -- 1,586
------- ------ ------
7,676 5,319 12,995
------- ------ ------
Unused lines of credit on advanced funds:
Construction loans 361 1,297 1,658
Home equity loans 4,574 7,288 11,862
Commercial lines of credit 269 9,424 9,693
Personal lines of credit 1,972 -- 1,972
------- ------ ------
7,176 18,009 25,185
------- ------ ------
Standby letters of credit -- 3,422 3,422
------- ------ ------
$14,852 26,750 41,602
======= ====== ======
March 31, 1997
-----------------------------
Fixed Variable Total
----- -------- -----
(In thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments outstanding:
Residential mortgages $ 4,541 5,501 10,042
Residential construction loans 285 427 712
Commercial mortgage loans 1,400 1,099 2,499
Commercial loans 600 160 760
Home equity loans 808 130 938
Manufactured home loans 3,182 866 4,048
------- ------ ------
10,816 8,183 18,999
------- ------ ------
Unused lines of credit on advanced funds:
Construction loans 753 369 1,122
Home equity loans 3,844 6,036 9,880
Commercial lines of credit 226 15,356 15,582
Personal lines of credit 1,889 -- 1,889
------- ------ ------
6,712 21,761 28,473
------- ------ ------
Standby letters of credit -- 2,523 2,523
------- ------ ------
$17,528 32,467 49,995
======= ====== ======
(Continued)
F-30
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
March 31, 1996
-----------------------------
Fixed Variable Total
----- -------- -----
(In thousands)
Financial instruments whose contract
amounts represent credit risk:
Commitments outstanding:
Residential mortgages $ 2,603 1,739 4,342
Residential construction loans 118 299 417
Commercial mortgage loans 300 2,319 2,619
Commercial loans 55 171 226
Home equity loans 768 274 1,042
Manufactured home loans 2,118 706 2,824
------- ------ ------
5,962 5,508 11,470
------- ------ ------
Unused lines of credit on advanced funds:
Construction loans 126 1,117 1,243
Home equity loans 3,193 7,916 11,109
Commercial lines of credit 1,635 11,602 13,237
Personal lines of credit 1,830 -- 1,830
------- ------ ------
6,784 20,635 27,419
------- ------ ------
Standby letters of credit -- 2,538 2,538
------- ------ ------
$12,746 28,681 41,427
======= ====== ======
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 certain
commitments are expected to expire without being fully drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral, if any, required by the
Bank upon the extension of credit is based on management's credit
evaluation of the customer.
Commitments to extend credit may be written on a fixed rate basis
exposing the Bank to interest rate risk given the possibility that
market rates may change between commitment and actual extension of
credit.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee payment on behalf of a customer and guarantee the
performance of a customer to a third party. The credit risk involved
in issuing these instruments is essentially the same as that involved
in extending loans to customers. Since a portion of these instruments
will expire unused, the total amounts do not necessarily represent
future cash requirements. Each customer is evaluated individually for
creditworthiness under the same underwriting standards used for
commitments to extend credit and on-balance sheet instruments. Bank
policies governing loan collateral apply to standby letters of credit
at the time of credit extension.
(Continued)
F-31
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
Certain mortgage loans are written on an adjustable basis and include
interest rate caps which limit annual and lifetime increases in the
interest rates on such loans. Generally, adjustable rate mortgages
have an annual rate increase cap of 2% and lifetime rate increase cap
of 5% to 6%. These caps expose the Bank to interest rate risk should
market rates increase above these limits. As of December 31 and March
31, 1997, approximately $203.6 million and $202.2 million,
respectively, of mortgage loans had interest rate caps.
The Bank generally enters into rate lock agreements at the time that
residential mortgage loan applications are taken. These rate lock
agreements fix the interest rate at which the loan, if ultimately
made, will be originated. Such agreements may exist with borrowers
with whom commitments to extend loans have been made, as well as with
individuals who have not yet received a commitment. The Bank makes its
determination of whether or not to identify a loan as held for sale at
the time rate lock agreements are entered into. Accordingly, the Bank
is exposed to interest rate risk to the extent that a rate lock
agreement is associated with a loan application or a loan commitment
which is intended to be held for sale, as well as with respect to
loans held for sale.
At December 31, 1997, March 31, 1997 and 1996, the Bank had rate lock
agreements (certain of which relate to loan applications for which no
formal commitment has been made) and conventional mortgage loans held
for sale amounting to approximately $1,201,000, $300,000, and
$753,000, respectively.
In order to reduce the interest rate risk associated with the
portfolio of conventional mortgage loans held for sale, as well as
outstanding loan commitments and uncommitted loan applications with
rate lock agreements which are intended to be held for sale, the Bank
enters into agreements to sell loans in the secondary market to
unrelated investors on a loan by loan basis. At December 31, 1997,
March 31, 1997 and 1996, the Bank had commitments to sell conventional
fixed rate mortgage loans amounting to approximately $1,130,000,
$216,000, and $448,000, respectively. The remaining conventional
mortgage loans held for sale, as well as the outstanding loan
commitments and uncommitted loan applications with rate lock
agreements which are intended to be held for sale, exposed the Bank to
interest rate risk.
(b) Concentrations of Credit
------------------------
The Bank originates residential loans (including home equity and
construction loans) and commercial-related loans primarily to
customers located in the New York State counties of Columbia, Albany,
Rensselaer, Dutchess, and Schenectady. Manufactured home loans are
originated primarily in New York State and in states contiguous to New
York. Financed insurance premiums are originated primarily in New
York, New Jersey, and Pennsylvania. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent upon economic conditions
in these areas.
(Continued)
F-32
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(c) Leases
------
The Bank leases certain of its branches and equipment under various
noncancelable operating leases. The future minimum payments by year
and in the aggregate under all significant noncancelable operating
leases with initial or remaining terms of one year or more as of
December 31 and March 31, 1997 are as follows:
(In thousands)
Years ending December 31,
1998 $ 216
1999 200
2000 153
2001 114
2002 105
Thereafter 1,118
------
$1,906
======
(In thousands)
Years ending March 31,
1998 $ 193
1999 138
2000 91
2001 58
2002 30
Thereafter 1,003
------
$1,513
======
(d) Serviced Loans
--------------
The total amount of loans serviced by the Bank for unrelated third
parties was approximately $56.2 million, $67.7 million, and $68.1
million at December 31, 1997, March 31, 1997 and 1996, respectively.
(e) Reserve Requirement
-------------------
The Bank is required to maintain certain reserves of vault cash and/or
deposits with the Federal Reserve Bank. The amount of this reserve
requirement, included in cash and due from banks, was approximately
$4.5 million and $3.8 million at December 31 and March 31, 1997,
respectively.
(f) Contingent Liabilities
----------------------
In the ordinary course of business there are various legal proceedings
pending against the Bank. Based on consultation with outside counsel,
management considers that the aggregate exposure, if any, arising from
such litigation would not have a material adverse effect on the Bank's
consolidated financial statements.
(Continued)
F-33
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
(15) Borrowing Arrangements
----------------------
The Bank has two lines of credit, expiring in October 1998, which are
available with the FHLB of New York. The first is an overnight line of
credit for approximately $32.6 million with interest based on existing
market conditions. The second is a one-month overnight repricing line of
credit for approximately $32.6 million with interest based on existing
market conditions. There were no amounts outstanding on these lines at
December 31, 1997. There was approximately $12.6 million outstanding under
the overnight line of credit at March 31, 1997, which carried an interest
rate of 6.88%. There were no amounts outstanding under the one-month
overnight repricing line of credit at March 31, 1997. At December 31, 1997,
the Bank had $2.0 million in short-term borrowings from the FHLB of New
York in the form of an advance which comes due in August 1998 and carries
an interest rate of 5.88%. Borrowings from the FHLB of New York are secured
by a blanket lien on all assets of the Bank, including FHLB stock.
(16) Disclosures About the Fair Value of Financial Instruments
---------------------------------------------------------
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires that the Bank disclose estimated fair values for its financial
instruments. The definition of a financial instrument includes many of the
assets and liabilities recognized in the Bank's consolidated balance
sheets, as well as certain off-balance sheet items.
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 Bank's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Bank'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. 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 significant intangible assets that SFAS No. 107 does
not recognize, such as the value of "core deposits," the Bank's branch
network, and other items generally referred to as "goodwill."
Short-Term Financial Instruments
--------------------------------
The fair value of certain financial instruments is estimated to approximate
their carrying value because the remaining term to maturity or period to
repricing of the financial instrument is less than 90 days. Such financial
instruments include cash and cash equivalents, accrued interest receivable,
and short-term borrowings.
(Continued)
F-34
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
Securities Available for Sale and Investment Securities
-------------------------------------------------------
Securities available for sale and investment securities are financial
instruments which are usually traded in broad markets. Fair values are
generally based upon market prices. If a quoted market price is not
available for a particular security, the fair value is determined by
reference to quoted market prices for securities with similar
characteristics.
Federal Home Loan Bank of New York Stock
----------------------------------------
The estimated fair value of stock in the Federal Home Loan Bank of New York
equals the carrying value since the stock is non-marketable but redeemable
at its par value.
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type including residential real
estate, commercial real estate, other commercial loans and consumer loans.
The estimated 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 respective loan portfolio.
Estimated fair value for non-performing loans is based on estimated cash
flows 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.
Management has made estimates of fair value discount rates that it believes
to be reasonable. However, because there is no market for many of these
financial instruments, management has no basis to determine whether the
estimated fair value would be indicative of the value negotiated in an
actual sale.
Loans Held for Sale
-------------------
The estimated fair value of loans held for sale is based on quoted market
rates or, in the case where a firm commitment has been made to sell the
loan, the firm committed price.
Deposit Liabilities
-------------------
The estimated fair value of deposits with no stated maturity, such as
savings, N.O.W., money market, non-interest bearing accounts, and
mortgagors' escrow deposits, is regarded to be the amount payable on
demand. The estimated fair value of time deposit accounts 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. The fair value estimates for deposits do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities as compared to the cost of borrowing funds in the market.
Urban Development Action Grant Payable
--------------------------------------
Based on the terms of the grant agreement and rates currently available
under similar programs, the estimated fair value of the Urban Development
Action Grant payable approximates its carrying value at both March 31, 1997
and 1996.
(Continued)
F-35
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The carrying values and estimated fair values of financial assets and
liabilities as of December 31, 1997 and March 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
March 31,
December 31, ----------------------------------------
1997 1997 1996
------------------- ------------------- -------------------
Estimated Estimated Estimated
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
-------- --------- -------- --------- -------- ---------
(In thousands)
Financial assets:
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 15,620 15,620 10,457 10,457 14,233 14,233
Loans held for sale -- -- 84 84 70 72
Securities available
for sale 43,282 43,282 45,623 45,623 51,429 51,429
Investment securities 71,244 71,608 79,068 78,753 83,003 83,122
Federal Home Loan Bank
of New York stock 2,812 2,812 2,812 2,812 2,596 2,596
Loans receivable 511,898 511,241 493,019 492,236 450,671 451,306
Less: Allowance for
loan losses (6,756) -- (5,872) -- (3,546) --
-------- ------- ------- ------- ------- -------
Net loans receivable $505,142 511,241 487,147 492,236 447,125 451,306
======== ======= ======= ======= ======= =======
Accrued interest receivable 4,946 4,946 4,880 4,880 5,254 5,254
Financial liabilities:
Deposits:
Savings, N.O.W., money
market, and non-interest
bearing accounts 270,950 270,950 257,213 257,213 252,434 252,434
Time deposit accounts 315,281 317,192 307,386 309,550 302,754 306,685
Short-term borrowings 2,000 2,000 12,585 12,585 -- --
Urban Development
Action Grant payable -- -- 835 835 835 835
Mortgagors' escrow deposits 4,935 4,935 3,746 3,746 4,027 4,027
</TABLE>
Note: Loans held for sale represent the only trading financial instruments;
all other financial instruments are considered to be held for purposes
other than trading.
(Continued)
F-36
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The fair value of commitments to extend credit, unused lines of credit and
standby letters of 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 commitments to extend credit and unused lines of credit, fair
value also considers the difference between current levels of interest
rates and the committed rates. Based upon the estimated fair value of
commitments to extend credit, unused lines of credit, and standby letters
of credit, there are no significant unrealized gains or losses associated
with these financial instruments.
(17) Subsequent Event - Adoption of Plan of Conversion
-------------------------------------------------
On November 20, 1997, the Board of Trustees of the Bank, subject to
regulatory approval and approval by members of the Bank, unanimously
adopted a Plan of Conversion (the Plan) to convert from a New York State
chartered mutual savings bank to a New York State chartered stock savings
bank with the concurrent formation of a holding company. The conversion is
expected to be accomplished through amendment of the Bank charter and the
sale of the holding company's common stock in an amount equal to the
proforma market value of the Bank after giving effect to the conversion. A
subscription offering of the sale of the holding company's common stock
will be offered initially to the Bank's depositors, then to other members
and trustees, officers and employees of the Bank. Any shares of the holding
company's common stock not sold in the subscription offering will be
offered for sale to the general public in the Bank's market area.
At the time of conversion, the Bank will establish a liquidation account in
an amount equal to its total equity as of the date of the latest
consolidated 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 Bank 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 Bank may not pay dividends that would
reduce stockholders' equity below the required liquidation account balance.
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. As of December 31, 1997, approximately
$164,000 of conversion costs had been deferred.
Pursuant to the Plan, the holding company intends to establish a Charitable
Foundation in connection with the conversion. The Plan provides that the
Bank and the holding company will create the Foundation immediately
following the conversion by contributing holding company common stock in an
amount equal to 3.0% of the total amount of common stock to be sold in the
conversion. The Foundation is being formed as a complement to the Bank's
existing community activities and will be dedicated to community activities
and the promotion of charitable causes.
(Continued)
F-37
<PAGE>
THE HUDSON CITY SAVINGS INSTITUTION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(Data as of December 31, 1997 and for the nine months ended
December 31, 1997 and 1996 is unaudited)
The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and will likely be classified as a
private foundation. A contribution of common stock to the Foundation by the
holding company would be tax deductible, subject to an annual limitation
based on 10% of the holding company's annual taxable income. The holding
company, however, would be able to carry forward any unused portion of the
deduction for five years following the contribution. Upon funding the
Foundation, the holding company will recognize an expense in the full
amount of the contribution, offset in part by the corresponding tax
benefit, during the quarter in which the contribution is made.
F-38
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. 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 fees.................................. $ 52,669
NASD fee............................................... 18,354
Nasdaq registration fee................................ 50,000
New York State Banking Department filing fee........... 5,000
Counsel fees and expenses.............................. 250,000
Accounting fees and expenses........................... 190,000
Appraisal and business plan fees and expenses.......... 37,500
Conversion agent fees and expenses..................... 65,000
Marketing agent's expenses............................. 125,000
Marketing agent's fees (1)............................. 1,628,442
Printing, postage and mailing.......................... 300,000
Blue sky fees and expenses............................. 5,000
Other expenses......................................... 32,035
TOTAL............................................. 2,759,000
- ----------
(1) Based on maximum of Estimated Valuation Range and assumptions set forth
under "Pro Forma Data" in the Prospectus.
Item 14. 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
II-1
<PAGE>
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.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting as
the holding company of The Hudson City Savings Institution pursuant to the Plan
of Conversion (filed as Exhibit 2 herein), and no sales of its securities have
occurred to date.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
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 Restated Organization Certificate of Hudson River Bank & Trust
Company in stock form
3.4 Bylaws of Hudson River Bank & Trust Company 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 Opinion of RP Financial LC. with respect to Subscription Rights
10.1 Form of proposed Employment Agreement Hudson River Bank & Trust
Company and certain executive officers
10.2 Form of proposed Employment Agreement between Hudson River
Bancorp, Inc. and certain executive officers
10.3 Form of Change-In-Control Severance Agreement with certain
officers of Hudson River Bank & Trust Company
10.4 Hudson River Bank & Trust Company Employee Severance Compensation
Plan
10.5 Employee Stock Ownership Plan
22 Subsidiaries
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of KPMG Peat Marwick LLP
24.3 Consent of RP Financial
25 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Draft of Hudson River Bank & Trust Company Foundation Gift
Instrument*
- --------
* To be filed by amendment.
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; 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
II-4
<PAGE>
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Hudson, New York on
March 9, 1998.
HUDSON RIVER BANCORP, INC.
By: /s/ Carl A. Florio
-----------------------------------
Carl A. Florio, President and Chief
Executive Officer
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl A. Florio his true and lawful
attorney-in-fact and agent, with full power of substitution and re-substitution,
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 said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Carl A. Florio /s/ Earl Schram, Jr.
- ------------------------------- ------------------------------
Carl A. Florio, Director, Earl Schram, Jr.,
President and Chief Executive Chairman of the Board
Office (Principal Executive and
Operating Officer)
Date: March 9, 1998 Date: March 9, 1998
II-6
<PAGE>
/s/ Stanley Bardwell /s/ Joseph W. Phelan
- --------------------------- -----------------------------
Stanley Bardwell, M.D. Joseph W. Phelan, Director
Date: March 9, 1998 Date: March 9, 1998
/s/ Willam E. Collins /s/ William H. Jones
- --------------------------- -----------------------------
William E. Collins William H. Jones
Date: March 9, 1998 Date: March 9, 1998
/s/ John E. Kelly /s/ Marcia M. Race
- --------------------------- -----------------------------
John E. Kelly, Director Marcia M. Race, Director
Date: March 9, 1998 Date: March 9, 1998
/s/ Marilyn A. Herrington /s/ Timothy E. Blow
- --------------------------- -----------------------------
Marilyn A. Herrington, Timothy E. Blow, Chief
Director Financial Officer
(Principal Financial and
Accounting Officer)
Date: March 9, 1998 Date: March 9, 1998
II-7
<PAGE>
As filed with the Securities and Exchange Commission on March 9, 1998
Registration No.333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
EXHIBITS TO FORM S-1
UNDER
THE SECURITIES ACT OF 1933
--------------------
HUDSON RIVER BANCORP, INC
One Hudson City Centre
Hudson, New York 12534
================================================================================
<PAGE>
EXHIBIT INDEX
Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
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 Restated Organization Certificate of Hudson River Bank & Trust
Company in stock form
3.4 Bylaws of Hudson River Bank & Trust Company 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 Opinion of RP Financial LC. with respect to Subscription Rights
10.1 Form of proposed Employment Agreement Hudson River Bank & Trust
Company and certain executive officers
10.2 Form of proposed Employment Agreement between Hudson River
Bancorp, Inc. and certain executive officers
10.3 Form of Change-In-Control Severance Agreement with certain
officers of Hudson River Bank & Trust Company
10.4 Hudson River Bank & Trust Company Employee Severance Compensation
Plan
10.5 Employee Stock Ownership Plan
22 Subsidiaries
24.1 Consent of Silver, Freedman & Taff, L.L.P.
24.2 Consent of KPMG Peat Marwick LLP
24.3 Consent of RP Financial
25 Power of Attorney (set forth on signature page)
99.1 Appraisal*
99.2 Draft of Hudson River Bank & Trust Company Foundation Gift
Instrument*
- -------------
* To be filed by amendment.
Exhibit 1.1
[Sandler O'Neill Letterhead]
January 14, 1998
Mr. Carl A. Florio
President and Chief Executive Officer
The Hudson City Savings Institution
1 Hudson City Center
Hudson, New York 12534
Dear Mr. Florio:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as conversion agent to The Hudson City Savings Institution (the "Bank") in
connection with the Bank's proposed conversion from mutual to stock form (the
"Conversion"). This letter is to confirm the terms and conditions of our
engagement.
SERVICES AND FEES
In our role as Conversion Agent, we anticipate that our services will
include the services outlined below, each as may be necessary and as the Bank
may reasonably request:
I. Consolidation of Accounts and Development of a Central File
II. Preparation of Proxy, Order and/or Request Forms
III. Organization and Supervision of the Conversion Center
IV. Proxy Solicitation and Special Meeting Services
V. Subscription Services
Each of these services is further described in Appendix A to this agreement.
For its services hereunder, the Bank agrees to pay Sandler O'Neill a
fee of $25,000. This fee is based upon a total number of unconsolidated accounts
of approximately 65,000. No change in fees will occur as long as the variance in
the number of accounts does not exceed 5%. In the event the actual number of
accounts exceeds the number specified above by more than 5%, the fee will be
proportionately increased.
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 2
The fee set forth above is based upon the requirements of current
regulations and the Plan of Conversion as currently contemplated. Any unusual or
additional items or duplication of service required as a result of a material
change in the regulations or the Plan of Conversion or a material delay or other
similar events may result in extra charges which will be covered in a separate
agreement if and when they occur.
All fees under this agreement shall be payable in cash, as follows: (a)
$5,000 payable upon execution of this agreement by the Bank, which shall be
non-refundable; and (b) the balance upon the completion of the Conversion.
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill
hereunder, the Bank agrees to reimburse Sandler O'Neill, upon request made from
time to time, for its reasonable out-of-pocket expenses incurred in connection
with its engagement hereunder regardless of whether the Conversion is
consummated, including, without limitation, travel, lodging, food, telephone,
postage, listings, forms and other similar expenses; provided, however, that
Sandler O'Neill shall document such expenses to the reasonable satisfaction of
the Bank. The provisions of this paragraph are not intended to apply to or in
any way impair the indemnification provisions of this agreement.
In addition, all taxes however designated, arising from or based upon
this agreement or the payments made to Sandler O'Neill pursuant hereto,
including, but not limited to, any applicable sales, use, excise and similar
taxes, shall be paid by the Bank as the same become due, and the Bank shall,
upon request by Sandler O'Neill, pay the same either to Sandler O'Neill or to
the appropriate taxing authority at any time during, or after the termination
of, this Agreement; provided, however, that the Bank shall not be responsible
for the payment of any state, federal, or local franchise or income taxes based
upon the net income of Sandler O'Neill.
RELIANCE ON INFORMATION PROVIDED
The Bank will provide Sandler O'Neill with such information as Sandler
O'Neill may reasonably require to carry out its duties. The Bank recognizes and
confirms that Sandler O'Neill (a) will use and rely on such information in
performing the services contemplated by this agreement without having
independently verified the same, and (b) does not assume responsibility for the
accuracy or completeness of the information. The Bank will also inform Sandler
O'Neill within a reasonable period of time of any changes in the Plan which
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 3
require changes in Sandler O'Neill's services. If a substantial expense results
from any such change, the parties shall negotiate an equitable adjustment in the
fee.
LIMITATIONS
Sandler O'Neill, as Conversion Agent hereunder, (a) shall have no
duties or obligations other than those specifically set forth herein; (b) will
be regarded as making no representations and having no responsibilities as to
the validity, sufficiency, value or genuineness of any order form or any stock
certificates or the shares represented thereby, and will not be required to and
will make no representations as to the validity, value or genuineness of the
offer; (c) all not be liable to any person, firm or corporation including the
Bank by reason of any error of judgment or for any act done by it in good faith,
or for any mistake of law or fact in connection with this agreement and the
performance hereof unless caused by or arising out of its own willful
misconduct, bad faith or gross negligence; (d) will not be obliged to take any
legal action hereunder which might in its judgment involve any expense or
liability, unless it shall have been furnished with reasonable indemnity
satisfactory to it; and (e) may rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter, telex,
telegram, or other document or security delivered to it and in good faith
believed by it to be genuine and to have been signed by the proper party or
parties.
Anything in this agreement to the contrary notwithstanding, in no event
shall Sandler O'Neill be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if Sandler O'Neill has been advised of the likelihood of such loss or damage and
regardless of form of action.
INDEMNIFICATION
The Bank agrees to indemnify and hold Sandler O'Neill and its
affiliates and their respective partners, directors, officers, employees, agents
and controlling persons (Sandler O'Neill and each such person being an
"Indemnified Party") harmless from and against any and all losses, claims,
damages and liabilities, joint or several, to which such Indemnified Party may
become subject under applicable federal or state law, or otherwise, related to
or arising out of the engagement of Sandler O'Neill pursuant to, and the
performance by Sandler O'Neill of the services contemplated by this letter, and
will reimburse any Indemnified Party for all expenses (including reasonable
counsel fees and expenses) as they are incurred, including expenses incurred in
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 4
connection with the investigation of, preparation for or defense of any pending
or threatened claim or any action or proceeding arising therefrom, whether or
not such Indemnified Party is a party. The Bank will not be liable under the
foregoing indemnification provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court of competent
jurisdiction to have resulted primarily from Sandler O'Neill's willful
misconduct, bad faith or gross negligence.
MISCELLANEOUS
The following addresses shall be sufficient for written notices to each
other:
If to you: The Hudson City Savings Institution
1 Hudson City Center
Hudson, New York 12534
Attention: Mr. Carl A. Florio
If to us: Sandler O'Neill & Partners, L.P.
747 Middle Neck Road
Great Neck, New York 11024
Attention: Mr. Mark B. Cohen
The Agreement and appendix hereto constitute the entire Agreement
between the parties with respect to the subject matter hereof and can be altered
only by written consent signed by the parties. This Agreement is governed by the
laws of the State of New York.
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 5
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
-----------------------------------
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-----------------------------------
Mark B. Cohen
Principal
Accepted and agreed to as
of the date first above written:
The Hudson City Savings Institution
By: /s/ Carl A. Florio
------------------------------
Mr. Carl A. Florio
President and Chief Executive
Officer
<PAGE>
APPENDIX A
OUTLINE OF CONVERSION AGENT SERVICES
I. Consolidation of Accounts
1. Consolidate files in accordance with regulatory guidelines.
2. Accounts from various files are all linked together. The resulting
central file can then be maintained on a regular basis.
3. Our EDP format will be provided to your data processing people.
II. Proxy/Order Form/Request Card Preparation
1. Vote calculation.
2. Any combination of proxies, request cards and stock order forms for
voting and ordering stock.
3. Target group identification for subscription offering.
III. Organization and Supervision of Conversion Center
1. Advising on and supervising the physical organization of the
Conversion Center, including materials requirements.
2. Assist in the training of all Bank personnel who will be staffing the
conversion center.
3. Establish reporting procedures.
4. On-site supervision of the Conversion Center during the
solicitation/offering period.
IV. Special Meeting Services
1. Direct proxy solicitation.
2. Proxy and ballot tabulation.
3. Act as or support inspector of election.
4. Delete voting record date accounts closed prior to special meeting. 5.
Produce final report of vote.
V. Subscription Services
1. Produce list of depositors by state (Blue Sky report).
2. Production of subscription rights and research books.
3. Stock order form processing.
4. Acknowledgment letter to confirm receipt of stock order.
5. Daily reports and analysis.
6. Proration calculation and share allocation in the event of an
oversubscription.
7. Produce charter shareholder list.
8. Interface with Transfer Agent for Stock Certificate issuance.
9. Refund and interest calculations.
10. Confirmation letter to confirm purchase of stock.
11. Notification of full/partial rejection of orders.
12. Production of 1099/Debit tape.
A - 1
<PAGE>
[Sandler O'Neill Letterhead]
January 14, 1998
Mr. Carl A. Florio
President and Chief Executive Officer
The Hudson City Savings Institution
1 Hudson City Center
Hudson, New York 12534
Dear Mr. Florio:
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") is pleased to act
as an independent financial advisor to The Hudson City Savings Institution (the
"Bank") in connection with the Bank's proposed conversion from mutual to stock
form (the "Conversion"), including the offer and sale of certain shares of the
common stock of the proposed new holding company for the Bank (the "Holding
Company") to the Bank's eligible account holders in a Subscription Offering, to
members of the Bank's community in a Direct Community Offering and, under
certain circumstances, to the general public in a Syndicated Community Offering
(collectively, the "Offerings"). For purposes of this letter, the term "Actual
Purchase Price" shall mean the price at which the shares of the Holding
Company's common stock are sold in the Conversion. This letter is to confirm the
terms and conditions of our engagement.
ADVISORY SERVICES
Sandler O'Neill will act as a consultant and advisor to the Bank and
the Holding Company and will work with the Bank's management, counsel,
accountants and other advisors in connection with the Conversion and the
Offerings. We anticipate that our services will include the following, each as
may be necessary and as the Bank may reasonably request:
1. Consulting as to the securities marketing implications of any aspect
of the Plan of Conversion or related corporate documents;
2. Reviewing with the Board of Directors the independent appraiser's
appraisal of the common stock, particularly with regard to aspects of
the appraisal involving the methodology employed;
3. Reviewing all offering documents, including the Prospectus, stock
order forms and related offering materials (it being understood that
preparation and filing of such documents will be the responsibility of
the Bank and the Holding Company and their counsel);
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 2
4. Assisting in the design and implementation of a marketing strategy for
the Offerings;
5. Assisting in obtaining all requisite regulatory approvals;
6. Assisting Bank management in scheduling and preparing for meetings
with potential investors and broker-dealers; and
7. Providing such other general advice and assistance as may be requested
to promote the successful completion of the Conversion.
FEES
If the Conversion is consummated, the Bank agrees to pay Sandler
O'Neill for its services hereunder the fees set forth below:
1. a fee of one and one tenth percent (1.10%) of the aggregate Actual
Purchase Price of the shares of common stock sold to in the
Subscription Offering and in the Direct Community Offering minus
$100,000, excluding in each case shares purchased by (i) any employee
benefit plan of the Holding Company or the Bank established for the
benefit of their respective directors, officers and employees, and
(ii) any director, officer or employee of the Holding Company or the
Bank or members of their immediate families; and
2. with respect to any shares of the Holding Company's common stock sold
by an NASD member firm (other than Sandler O'Neill) under any selected
dealers agreement in the Syndicated Community Offering, (a) the sales
commission payable to the selected dealer under such agreement, (b)
any sponsoring dealer's fees, and (c) a management fee to Sandler
O'Neill of one and one tenth percent (1.10%). Any fees payable to
Sandler O'Neill for common stock sold by Sandler O'Neill under any
such agreement shall be limited to an aggregate of one and one tenth
percent (1.10%) of the Actual Purchase Price of such shares.
If (i) Sandler O'Neill's engagement hereunder is terminated for any of
the reasons provided for under the second paragraph of the section of this
letter captioned "Definitive Agreement," or (ii) the Conversion is terminated by
the Bank, no fees shall be payable by the Bank to Sandler O'Neill hereunder;
however, the Bank shall reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred in connection with its engagement hereunder.
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 3
All fees payable to Sandler O'Neill hereunder shall be payable in cash
at the time of the closing of the Conversion. In recognition of the long lead
times involved in the conversion process, the Bank agrees to make advance
payments to Sandler O'Neill in the aggregate amount of $50,000, $25,000 of which
shall be payable upon execution of this letter and the remaining $25,000 of
which shall be payable upon commencement of the Subscription Offering, which
shall be credited against any fees or reimbursement of expenses payable
hereunder.
SYNDICATED COMMUNITY OFFERING
If any shares of the Holding Company's common stock remain available
after the expiration of the Subscription Offering and the Direct Community
Offering, at the request of the Bank and subject to the continued satisfaction
of the conditions set forth in the second paragraph under the caption
"Definitive Agreement" below, Sandler O'Neill will seek to form a syndicate of
registered dealers to assist in the sale of such common stock in a Syndicated
Community Offering on a best efforts basis, subject to the terms and conditions
set forth in a selected dealers agreement. Sandler O'Neill will endeavor to
limit the aggregate fees to be paid by the Bank under any such selected dealers
agreement to an amount competitive with gross underwriting discounts charged at
such time for underwritings of comparable amounts of stock sold at a comparable
price per share in a similar market environment, which shall not exceed 7% of
the aggregate Actual Purchase Price of the shares sold under such agreements.
Sandler O'Neill will endeavor to distribute the common stock among dealers in a
fashion which best meets the distribution objectives of the Bank and the
requirements of the Plan of Conversion, which may result in limiting the
allocation of stock to certain selected dealers. It is understood that in no
event shall Sandler O'Neill be obligated to act as a selected dealer or to take
or purchase any shares of the Holding Company's common stock.
COSTS AND EXPENSES
In addition to any fees that may be payable to Sandler O'Neill
hereunder and the expenses to be borne by the Bank pursuant to the following
paragraph, the Bank agrees to reimburse Sandler O'Neill, upon request made from
time to time, for its reasonable out-of-pocket expenses (to a maximum of
$125,000) incurred in connection with its engagement hereunder, regardless of
whether the Conversion is consummated, including, without limitation, legal
fees, advertising, promotional, syndication, and travel expenses; provided,
however, that Sandler O'Neill shall document such expenses to the reasonable
satisfaction of the Bank. The provisions of this paragraph are not intended to
apply to or in any way impair the indemnification provisions of this letter.
As is customary, the Bank will bear all other expenses incurred in
connection with the Conversion and the Offerings, including, without limitation,
(i) the cost of obtaining all securities and bank regulatory approvals,
including any required NASD filing fees; (ii) the cost of printing and
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 4
distributing the offering materials; (iii) the costs of blue sky qualification
(including fees and expenses of blue sky counsel) of the shares in the various
states; (iv) listing fees; and (v) all fees and disbursements of the Bank's and
the Holding Company's counsel, accountants, conversion agent and other advisors.
In the event Sandler O'Neill incurs any such fees and expenses on behalf of the
Bank or the Holding Company, the Bank will reimburse Sandler O'Neill for such
fees and expenses whether or not the Conversion is consummated; provided,
however, that Sandler O'Neill shall not incur any substantial expenses on behalf
of the Bank or the Holding Company pursuant to this paragraph without the prior
approval of the Bank.
POST-CONVERSION GENERAL ADVISORY SERVICES
If the Conversion is consummated, Sandler O'Neill agrees to act as an
independent financial advisor to the Holding Company and its subsidiaries in
connection with the Holding Company's general strategic planning "General
Advisory Services". In connection with such General Advisory Services, we would
expect to work with the Holding Company's management, its counsel, accountants
and other advisors to assess the Holding Company's strategic alternatives and
help implement a tactical plan to enhance the value of the Holding Company. We
anticipate that our activities would include, as appropriate, those activities
outlined in Exhibit A hereto. Sandler O'Neill shall provide such services at the
Holding Company's request for a period of one year following the completion of
the Conversion. The Holding Company shall not be required to pay any additional
fees to Sandler O'Neill in connection with such services rendered during such
year; provided, however, that the Holding Company shall reimburse Sandler
O'Neill for its reasonable out-of-pocket expenses incurred in connection with
providing such services. Thereafter, if both parties wish to continue the
relationship, the parties will enter into a separate advisory services agreement
on terms and conditions to be negotiated at such time. Notwithstanding the above
the Bank and Holding Company are under no obligation to receive or request such
services.
DUE DILIGENCE REVIEW
Sandler O'Neill's obligation to perform the services contemplated by
this letter shall be subject to the satisfactory completion of such
investigation and inquiries relating to the Bank and the Holding Company, and
their respective directors, officers, agents and employees, as Sandler O'Neill
and its counsel in their sole discretion may deem appropriate under the
circumstances. In this regard, the Bank agrees that, at its expense, it will
make available to Sandler O'Neill all information which Sandler O'Neill
requests, and will allow Sandler O'Neill the opportunity to discuss with the
Bank's and the Holding Company's management the financial condition, business
and operations of the Bank and the Holding Company. The Bank and the Holding
Company acknowledge that Sandler O'Neill will rely upon the accuracy and
completeness of all information received from the Bank and the Holding Company
and their directors, trustees, officers, employees, agents, independent
accountants and counsel.
<PAGE>
The Hudson City Savings Institution
January 14, 1998
Page 5
BLUE SKY MATTERS
The Bank agrees that if Sandler O'Neill's counsel does not serve as
counsel with respect to blue sky matters in connection with the Offerings, the
Bank will cause the counsel performing such services to prepare a Blue Sky
Memorandum related to the Offerings including Sandler O'Neill's participation
therein and shall furnish Sandler O'Neill a copy thereof addressed to Sandler
O'Neill or upon which such counsel shall state Sandler O'Neill may rely.
CONFIDENTIALITY
Other than disclosure to other firms made part of any syndicate of
selected dealers or as required by law or regulation, Sandler O'Neill agrees
that it will not disclose any Confidential Information relating to the Bank
obtained in connection with its engagement hereunder (whether or not the
Conversion is consummated). As used in this paragraph, the term "Confidential
Information" shall not include information which (i) is or becomes generally
available to the public other than as a result of a disclosure by Sandler
O'Neill, (ii) was available to Sandler O'Neill on a non-confidential basis prior
to its disclosure to Sandler O'Neill by the Bank, or (iii) becomes available to
Sandler O'Neill on a non-confidential basis from a person other than the Bank
who is not otherwise known to Sandler O'Neill to be bound not to disclose such
information pursuant to a contractual, legal or fiduciary obligation.
INDEMNIFICATION
(A) Since Sandler O'Neill will be acting on behalf of the Bank and the Holding
Company in connection with the Conversion, the Holding Company and the Bank
agree to indemnify and hold Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents and controlling
persons within the meaning of Section 15 of the Securities Act of 1933 or
Section 20 of the Securities Exchange Act (Sandler O'Neill and each such person
being an "Indemnified Party") harmless from and against any and all losses,
claims, damages and liabilities, joint or several, to which such Indemnified
Party may become subject under applicable federal or state law, or otherwise,
related to or arising out of the Conversion or the engagement of Sandler O'Neill
pursuant to, or the performance by Sandler O'Neill of the services contemplated
by, this letter, and will reimburse any Indemnified Party for all expenses
(including reasonable legal fees and expenses) as they are incurred, including
expenses incurred in connection with the investigation of, preparation for or
defense of any pending or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party; provided, however,
that the Bank and the Holding Company will not be liable in any such case to the
extent that any such loss, claim, damage, liability or expense (i) arises out of
or is based upon any untrue statement of a material fact or the omission of a
material fact required to be stated therein or necessary to make not misleading
any statements contained in any proxy statement or prospectus (preliminary or
final), or any amendment or supplement thereto, or any of the applications,
notices, filings or documents related thereto made in reliance on and in
conformity with written information furnished to the Bank by Sandler O'Neill
expressly for use therein, or (ii) is primarily attributable to the gross
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The Hudson City Savings Institution
January 14, 1998
Page 6
negligence, willful misconduct or bad faith of Sandler O'Neill. If the foregoing
indemnification is unavailable for any reason, the Bank and the Holding Company
agree to contribute to such losses, claims, damages, liabilities and expenses in
the proportion that its financial interest in the Conversion bears to that of
Sandler O'Neill.
(B) Sandler O'Neill agrees to indemnify and hold harmless the Holding Company,
the Bank, their directors and each of their officers who signed the Registration
Statement, and each person, if any, who controls the Holding Company within the
meaning of Section 15 of the Securities Act of 1933 or Section 20 of the
Securities and Exchange Act of 1934 against any and all loss, liability, claim,
damage and expense described in the indemnity contained in paragraph (A) of this
Section, as incurred, but only to the extent that such loss, liability, claim,
damage or expense is found in a final judgement by a court of competent
jurisdiction to have resulted solely from (i) the bad faith, willful, misconduct
or gross negligence of Sandler O'Neill, or (ii) an untrue statement or alleged
untrue statement of a material fact or omission or alleged omission of a
material fact contained in any final prospectus, or any amendment or supplement
thereto, made in reliance upon and in conformity with information furnished to
the Bank by Sandler O'Neill expressly for use therein.
DEFINITIVE AGREEMENT
Sandler O'Neill and the Bank agree that (a) except as set forth in
clause (b), the foregoing represents the general intention of the Bank and
Sandler O'Neill with respect to the services to be provided by Sandler O'Neill
in connection with the Offerings, which will serve as a basis for Sandler
O'Neill commencing activities, and (b) the only legal and binding obligations of
the Bank, the Holding Company and Sandler O'Neill with respect to the subject
matter hereof shall be (1) the Bank's obligation to reimburse costs and expenses
pursuant to the section captioned "Costs and Expenses," (2) those set forth
under the captions "Confidentiality" and "Indemnification," and (3) as set forth
in a duly negotiated and executed definitive Agency Agreement to be entered into
prior to the commencement of the Subscription Offering relating to the services
of Sandler O'Neill in connection with the Offerings. Such Agency Agreement shall
be in form and content satisfactory to Sandler O'Neill, the Bank and the Holding
Company and their respective counsel and shall contain standard indemnification
provisions mutually acceptable to the Bank, the Holding Company and Sandler
O'Neill.
Sandler O'Neill's execution of such Agency Agreement shall also be
subject to (i) Sandler O'Neill's satisfaction with its investigation of the
Bank's business, financial condition and results of operations, (ii) preparation
of offering materials that are satisfactory to Sandler O'Neill and its counsel,
(iii) compliance with all relevant legal and regulatory requirements to the
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The Hudson City Savings Institution
January 14, 1998
Page 7
reasonable satisfaction of Sandler O'Neill's counsel, (iv) agreement that the
price established by the independent appraiser is reasonable and (v) market
conditions at the time of the proposed offering. Sandler O'Neill may terminate
this agreement if such Agency Agreement is not entered into prior to June 30,
1999.
ELIMINATION OF HOLDING COMPANY
If the Board of Directors of the Bank, for any reason, elects not to
proceed with the formation of the Holding Company but determines to proceed with
the Conversion and substitute the common stock of the Bank for the common stock
of the Holding Company, all of the provisions of this letter relating to the
common stock of the Holding Company will be deemed to pertain to the common
stock of the Bank on the same terms and conditions that such provisions pertain
to the common stock of the Holding Company and all of the references in this
letter to the Holding Company shall be deemed to refer to the Bank or shall have
no effect, as the context of the reference requires.
Please confirm that the foregoing correctly sets forth our agreement by
signing and returning to Sandler O'Neill the duplicate copy of this letter
enclosed herewith.
Very truly yours,
Sandler O'Neill & Partners, L.P.
-----------------------------------
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By: /s/ Mark B. Cohen
-----------------------------------
Mark B. Cohen
Principal
Accepted and agreed to as of
the date first above written:
The Hudson City Savings Institution
By: /s/ Carl A. Floria
-------------------------------------
Mr. Carl A. Florio
President and Chief Executive Officer
<PAGE>
EXHIBIT A
GENERAL ADVISORY SERVICES
- --------------------------------------------------------------------------------
1. A review and analysis of the Holding Company=s current business and
financial characteristic, including its operating strategies, balance sheet
composition, historical operating performance, branch structure and market
share, and the Holding Company=s competitive position relative to selected
peer groups;
2. Creation of a base case financial model to serve as a benchmark for
analyzing alternative strategies and market environments;
3. An analysis of the impact on the franchise value of altering the Holding
Company=s dividend policy, implementing a stock repurchase program, or
changing the asset mix or other operating activities;
4. An analysis of the Holding Company=s acquisition resources, objectives and
capacity to compete for acquisition opportunities;
5. A summary of recent merger and acquisition trends in the financial services
industry, including tactics employed by others and typical terms and values
involved;
6. A review of other strategic alternatives which could provide long-term
benefits and enhanced value to the Holding Company;
7. A review of the Holding Company=s advance defensive preparation plans,
including a comprehensive financial valuation and an analysis of stock
ownership and trading activities;
8. A review with the Board of Directors of the Holding Company of Sandler
O'Neill's findings, with periodic updates as may be requested;
9. Ongoing general advice and counsel to management and the Board of Directors
of the Holding Company with respect to strategic and tactical issues; and
10. Rendering such other financial advisory and investment banking services as
may from time to time be agreed upon by Sandler O=Neill and the Holding
Company.
Exhibit 2
The Hudson City Savings Institution
Hudson, New York
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
On November 20, 1997, the Board of Trustees of The Hudson City Savings
Institution (the "Bank") unanimously adopted a Plan of Conversion whereby the
Bank would convert from a New York chartered mutual savings institution to a New
York chartered stock savings institution to be known as the Hudson River Bank
and Trust Company or such other name as may be selected by the Board of
Trustees. The Plan of Conversion was amended by the Board of Trustees on
February 19, 1998. The Bank was chartered by the State of New York by an act of
the State legislature on April 4, 1850, such Act having been amended and
supplemented from time to time thereafter. The principal office of the Bank is
located at One Hudson City Centre, in the city of Hudson, county of Columbia,
New York. 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 Holding Company and 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 Depositors,
and then to trustees, 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 Offering or a 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 Trustees 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 Trustees or management as a result of the Conversion.
In furtherance of the Bank's long term commitment to its community, the
Plan provides that, in connection with the Conversion, the Holding Company will
make a donation of an undetermined amount of its stock to a foundation ("The
Foundation"), the name of which will be determined, established by the Holding
Company. Under the terms of the Plan, this donation will be subject to the
approval of the voting depositors of the Bank. In the event that the donation is
not approved, the Bank may determine to complete the Conversion without the
donation.
This Plan has been unanimously approved by the Board of Trustees of the
Bank, based upon its determination that the Conversion is in the best interests
of the Bank, its depositors and the communities served by the Bank. This Plan
sets forth the terms and conditions of the Conversion, and the procedures for
effecting the same. This Plan must be approved by the Superintendent or his or
her designees, must not be objected to by the FDIC and certain waivers must be
granted by the Banking Board. This Plan must also be approved by (1) the
affirmative vote of at least seventy-five percent (75%) in amount of deposit
liabilities of Eligible Account Holders represented in person or by proxy at the
Special Meeting, and, if required, (2) the affirmative vote of at least a
majority of the amount of votes eligible to be cast at the Special Meeting.
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<PAGE>
Upon the Conversion, each Person having a Deposit Account at the Bank
prior to the Conversion will continue to have a Deposit Account, without payment
therefor, in the same amount and subject to the same terms and conditions
(except for voting and liquidation rights) as in effect prior to the Conversion.
After the Conversion, the Bank will succeed to all the rights, interests, duties
and obligations of the Bank before the Conversion, including, but not limited
to, all rights and interests of the Bank in and to its assets and properties,
whether real, personal or mixed. The Bank will continue to be a member of the
Federal Home Loan Bank System. All of the Bank=s insured Deposit Accounts will
continue to be insured by the Bank Insurance Fund of the FDIC to the extent
provided by applicable law.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in '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 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: The Hudson City Savings Institution or such other name as the
institution may adopt.
Banking Board: The Banking Board of the State of New York.
BIF: Bank Insurance Fund.
Conversion: Change of the Bank's mutual charter and bylaws to 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 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.
P-2
<PAGE>
Depositor: Any person or entity that qualifies as a depositor of the
Bank pursuant to its certificate of incorporation and bylaws.
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 counties in which the
Bank has offices.
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 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.
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 Depositors: Depositors of the Bank, other than Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
P-3
<PAGE>
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 through the Underwriters to
selected depositors 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 $100 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.
Regulatory Authorities: The FDIC, the FRB, the Superintendent and the
OTS.
Savings Account: The term ASavings Account@ means any withdrawable
account in the Bank except a demand account.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Depositors 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 Depositors, and Trustees, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Superintendent: Superintendent of Banking of the State of New York.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the FDIC.
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.
P-4
<PAGE>
Underwriters: The investment banking firm or firms agreeing to offer
and sell Holding Company Conversion Stock in the Public Offering.
Voting Record Date: The date set by the Board of Trustees in accordance
with federal and New York State regulations for determining Depositors eligible
to vote at the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE DEPOSITORS FOR
APPROVAL
Prior to submission of the Plan of Conversion to its Depositors for
approval, the Bank must receive from the appropriate Regulatory Authorities
approval of the Application for Approval of Conversion to convert to the stock
form of organization. The following steps must be taken prior to such regulatory
approval:
A. The Board of Trustees shall adopt the Plan by not less than a two-thirds
vote.
B. The Bank shall notify its Depositors 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.
C. Copies of the Plan adopted by the Board of Trustees shall be made available
for inspection at each office of the Bank.
D. The Bank will promptly cause an Application for Approval of Conversion to
be prepared and filed with the Superintendent for his approval, with the
Banking Board for the granting of any waivers, and with the FDIC (in the
form of a notice for their non-objection). Additionally, a Holding Company
Application will be prepared and filed with the OTS for its approval and a
Registration Statement on Form S-1 will be prepared and filed with the SEC.
E. Upon receipt of notice from the appropriate Regulatory Authorities to do
so, the Bank shall notify its Depositors 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.
Following (i) approval of the Bank=s Application for Conversion by the
Superintendent, (ii) the non-objection of the FDIC and (iii) the receipt of all
necessary waivers of the Banking Board, the Bank shall submit the Plan to the
Bank=s Eligible Account Holders for approval at the Special Meeting. The Bank
shall mail to each Eligible Account Holder, at his or her last known address
appearing on the records of the Bank, a copy of the Plan and the proposed
Restated Organization Certificate of the Bank and proposed By-Laws of the Bank,
a Notice of Special Meeting, Proxy Card and Subscription Order form and a
long-form Proxy Statement (which contains a detailed description of the
Conversion and contains offering material relating to the Subscription Offering)
in the forms required by the Conversion Regulations, describing the Plan and
certain other matters relating to the Bank and its Conversion. Separate and
readily distinguishable postage-paid envelopes shall be provided for the return
of Proxy Cards and Subscription Order Forms.
The Special Meeting shall be held upon written notice given no less than
20 days nor more than 45 days prior to the date of the Special Meeting. At the
Special Meeting, each Eligible Account Holder shall be entitled to cast one vote
in person or by proxy for every one hundred dollars ($100.00) such Eligible
Account Holder had on deposit with the Bank as of the Eligibility Record Date;
provided, however, that no Eligible Account Holder shall be eligible to cast
more than one thousand (1,000) votes. The Board of Trustees shall appoint an
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<PAGE>
independent custodian and tabulator to receive and hold proxies to be voted at
the Special Meeting and count the votes cast in favor of and in opposition to
the Plan.
The Superintendent shall be notified of the results of the Special Meeting
by a certificate signed by the President and Secretary of the Bank within five
days after the conclusion of the Special Meeting. The Plan must be approved by
the affirmative vote of (i) at least seventy-five percent (75%) in amount of
deposit liabilities of the Eligible Account Holders represented in person or by
proxy at the Special Meeting and, if required, (ii) at least a majority of the
amount of votes entitled to be cast at the Special Meeting. If the Plan is so
approved, the Bank will take all other necessary steps to effect the Conversion
subject to the terms and conditions of the Plan. If the Plan is not so approved,
upon conclusion of the Special Meeting and any adjournment or postponement
thereof, the Plan shall not be implemented without further vote and all funds
submitted in the Subscription Offering and Community Offering will be returned
to subscribers, with interest as provided herein, and all withdrawal
authorizations will be canceled.
IV. CONVERSION PROCEDURE
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 Depositors and Trustees, 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 Offering or a Public
Offering; provided that the Bank's Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, Other Depositors and
Trustees, 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. No offer for sale of the Holding Company
Conversion Stock will be made prior to the mailing of the proxy statement for
the Special Meeting to Eligible Account Holders.
The period for the Subscription Offering and Direct Community Offering
will be not less than 20 days nor more than 45 days unless extended by the Bank.
Upon completion of the Subscription Offering and the Direct Community Offering,
if any, any unsubscribed shares of Holding Company Conversion Stock may be sold
through the Underwriters to selected Depositors or the general public in the
Public Offering. If for any reason all of the shares are not sold in the
Subscription Offering, the Direct Community Offering, if any, and the Public
Offering, if any, the Holding Company and the Bank will use their best efforts
to obtain other purchasers, subject to the approval of the appropriate
Regulatory Authorities. Completion of the sale of all shares of Holding Company
Conversion Stock not sold in the Subscription 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
appropriate Regulatory Authorities. The Holding Company and the Bank may jointly
seek one or more extensions of such 45-day 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 approval of the appropriate Regulatory Authorities 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.
P-6
<PAGE>
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 in the Conversion will be determined jointly by the Board of
Directors of the Holding Company and the Board of Trustees of 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
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 the
guidelines of the appropriate Regulatory Authorities 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.
If, following completion of the Subscription Offering and Direct
Community Offering, if any, a Public Offering is effected, the Actual
Subscription Price for each share of Holding Company Conversion Stock will
be the same as the Public Offering Price at which unsubscribed shares of
Holding Company Conversion Stock are initially offered for sale by the
Underwriters in the Public Offering.
If, upon completion of the Subscription Offering, Public Offering, if
any, and Direct Community Offering, if any, all of the Holding Company
Conversion Stock is subscribed for or only a limited number of shares
remain unsubscribed for, subject to Part VII hereof, 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 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
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.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be issued
without payment therefor to Eligible Account Holders, Tax-Qualified
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Employee Plans, Supplemental Eligible Account Holders, Other Depositors and
Trustees, 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 $250,000, 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 Trustees 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.
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
$250,000, 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.
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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.
4. Preference Category No. 4: Other Depositors
Each Other Depositor 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 Depositor shall be entitled to subscribe for
an amount of shares equal to the greater of $250,000, 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 Depositors 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 Depositors 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 depositors of this
Plan of Conversion.
5. Preference Category No. 5: Trustees, Officers and Employees
Each Trustee, 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 15% of the number of shares of
Holding Company Conversion Stock.
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b. The maximum amount of shares which may be purchased under
this Category by any Person is $250,000 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.
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 may 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, if any, in accordance with the regulations of
the appropriate Regulatory Authorities, 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 $250,000 of Holding Company Conversion
Stock in the Direct Community Offering, if any. Further, the Bank may limit
total subscriptions under this Section V.C.1 so as to assure that the
number of shares available for the Public Offering may be up to a specified
percentage of the number of shares of Holding Company Conversion Stock.
Finally, the Bank may reserve shares offered in the Direct Community
Offering for sales to institutional investors.
In the event of an oversubscription for shares in the 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
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, at 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 or in the Direct Community Offering, if any, may then
be sold through the Underwriters to selected Depositors or the general
public in the Public Offering. It is expected that the Public Offering will
commence as soon as practicable after termination of the Subscription
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Offering and the Direct Community Offering, if any. The Bank and the
Holding Company, in their sole discretion, may reject any subscription, in
whole or in part, received 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.
No person, by himself or herself, or with an Associate or group of Persons
acting in concert, may purchase more than $250,000 in the Public Offering,
if any.
3. If for any reason any shares remain unsold after the Subscription
Offering, the Public Offering, if any, and the Direct Community Offering,
if any, the Board of Directors of the Holding Company and the Board of
Trustees of 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 appropriate Regulatory Authorities 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 1% of the total offering of shares sold in the
Conversion. 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. Trustees and Officers and their Associates may not purchase in all
categories in the Conversion an aggregate of more than 25% 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 Trustees 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 purchase amount of Holding Company Conversion Stock
that may be purchased by any Person in the Conversion is $500, provided
sufficient shares are available for purchase.
4. The Board of Directors of the Holding Company and the Board of
Trustees of the Bank may, in their sole discretion, increase the maximum
purchase limitation referred to in 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 Board of Directors of the Holding Company and the Board of Trustees of
the Bank on a pro rata basis giving priority in accordance with the
priority rights set forth in this Section V.
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Depending upon market and financial conditions, the Board of Directors
of the Holding Company and the Board of Trustees of the Bank, with the approval
of the appropriate Regulatory Authorities and without further approval of the
Depositors, may increase or decrease any of the above purchase limitations.
For purposes of this Section V, the directors of the Holding Company
and the Trustees of 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 Trustees and Officers of the Holding Company or the Bank
will be transferable without restriction. Shares purchased by Trustees 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 and, as applicable, the Superintendent.
The certificates representing shares of Holding Company Conversion
Stock issued to Trustees 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 Trustees and Officers as
may be then applicable to such restricted stock.
No Trustee or Officer of the Holding Company or of the Bank, or
Associate of such a Trustee 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
Superintendent and, as applicable, the FDIC, 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.
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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 the Rules and Regulations of the appropriate
Regulatory Authorities.
The above limitations are subject to the Rules and Regulations of the
appropriate Regulatory Authorities which generally provide 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
the approval of the appropriate Regulatory Authorities, (iii) the
repurchases do not cause the Bank to become undercapitalized. 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 subsequent to
regulatory approval of the Plan.
3. Voting Rights. After Conversion, 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. Presently all voting rights are vested in the Board of
Trustees.
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 Trustee, 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 Depositors, 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 Depositors on the
Voting Record Date.
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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 appropriate Regulatory
Authorities 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
Depositors, and Trustees, 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, 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 $500 is the minimum purchase amount for 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
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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
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 appropriate Regulatory
Authorities.
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. CERTIFICATE OF INCORPORATION AND BYLAWS
A. As part of the Conversion, the Bank will take all appropriate steps
to amend its certificate of incorporation to read in the form of a stock
savings institution certificate of incorporation as prescribed by the
Regulatory Authorities. The name of the Bank, as converted, will be "The
Hudson River Bank and Trust Company." A copy of the proposed stock charter
is available upon request. By their approval of the Plan, the Depositors of
the Bank will thereby approve and adopt such certificate of incorporation.
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B. The Bank will also take appropriate steps to amend its bylaws to
read in the form prescribed by the appropriate Regulatory Authorities for a
stock savings institution. A copy of the proposed stock bylaws is available
upon request.
C. The effective date of the adoption of the Bank's certificate of
incorporation and bylaws shall be the date of the issuance and sale of the
Holding Company Conversion Stock as specified by the appropriate Regulatory
Authorities.
VII. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, and notwithstanding any other statement
herein to the contrary, the Holding Company intends to issue an amount equal to
no more than 8% of the shares of its Common Stock from its authorized but
unissued shares to The Foundation, a charitable organization created under
Section 501(c)(3) of the Internal Revenue Code. Such issuance (the
"Contribution") shall be in the form of either a direct contribution or a sale
for the aggregate amount of their par value. The Contribution is being made in
connection with the Conversion in order to complement the Bank's existing
community reinvestment activities and to support the communities in which the
Bank operates. The Contribution is expected to be completed not later than
twelve months after the completion of the Conversion.
The Foundation is dedicated to the promotion of charitable purposes
within the communities in which the Bank operates, including, but not limited
to, grants or donations to support not-for-profit medical facilities, cultural
activities, community groups and other types of organizations or projects. As a
private foundation, the Foundation is required to distribute annually in grants
or donations at least 5% of its net investment assets.
The authority for the affairs of the Foundation is vested in the Board
of Trustees of the Foundation, none of whom may vote as directors of the Bank or
the Holding Company on the Donation.
The Contribution is subject to the approval of a majority of the total
outstanding votes of the Bank's depositors eligible to be cast at the Special
Meeting. The Contribution will be considered as a separate matter from approval
of the Plan of Conversion. If the Bank's depositors approve the Plan of
Conversion, but not the Contribution, the Bank intends to complete the
Conversion without the Contribution. Failure to approve the Contribution may
materially increase the pro forma market value of the Common Stock being offered
since the estimated valuation range takes into account the after-tax impact of
the Donation. If such an event occurs, the Bank would be required to resolicit
subscribers. For comparison purposes, voting depositors will be provided with a
projection of the pro forma market value of the Conversion Stock, an estimated
price range and certain selected pro forma data that would result if the
Conversion were consummated without the Contribution.
VIII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding
Company will be made available to depositors upon request.
XI. TRUSTEES OF THE CONVERTED BANK
Each Person serving as a member of the Board of Trustees of the Bank at
the time of the Conversion will thereupon become a director of the Converted
Bank.
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X. 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
sometime following the Conversion in accordance with such regulations as are
applicable to the plans at that time.
XI. 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.
XII. 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 appropriate Regulatory Authorities, for a period of
three years thereafter.
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.
XIII. STATUS OF DEPOSIT 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 BIF
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.
XIV. 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 (prospectus) 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;
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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 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 BIF, shall be considered to
be a complete liquidation. In such transactions, the liquidation account shall
be assumed by the surviving institution.
XV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK
Regulations of the Regulatory Authorities 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 Regulatory Authorities, the
certificate of incorporation of the Converted Bank shall provide that for a
period of three 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 certificate of incorporation 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
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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 trustees or
directors; and (iii) special meetings of the shareholders relating to changes in
control or amendment of the certificate of incorporation may only be called by
the Board of Trustees or Directors, as appropriate.
XVI. 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 Eligible Account Holders by a
two-thirds vote of the Board of Directors of the Holding Company and the Board
of Trustees of the Bank. After submission of the Plan and proxy materials to the
Eligible Account Holders, the Plan may be amended by a two-thirds vote of the
respective Board of Directors of the Holding Company and the Board of Trustees
of the Bank only with the concurrence of the appropriate Regulatory Authorities.
In the event that the Bank determines that for tax purposes or otherwise it is
in the best interest of the Bank to convert from a mutual to a stock institution
without the concurrent formation of a holding company, the Plan may be
substantively amended, with the approval of the appropriate Regulatory
Authorities, in such respects as the Board of Trustees 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, Direct
Community or Public Offerings, 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 Eligible Account Holders with the concurrence of the appropriate
regulatory authorities shall not necessitate further approval by the Eligible
Account Holders unless otherwise required.
The Plan may be terminated by a two-thirds vote of the Bank's Board of
Trustees at any time prior to the Special Meeting of Eligible Account Holders,
and at any time following such Special Meeting with the concurrence of the
appropriate Regulatory Authorities. In its discretion, the Board of Trustees of
the Bank may modify or terminate the Plan upon the order or with the approval of
the appropriate Regulatory Authorities and without further approval by
Depositors. 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 Trustees of the Bank
is required in order for the Bank to terminate the Plan prior to the end of such
24-month period.
XVII. 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.
XVIII. 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.
XIX. 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.
P-20
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
HUDSON RIVER BANCORP, INC.
FIRST: The name of the Corporation is Hudson River 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 forty-five million (45,000,000)
consisting of:
1. five million (5,000,000) shares of preferred stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. forty million (40,000,000) 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
<PAGE>
the shares held in excess of the Limit. The number of votes which may be cast by
any record owner by virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person 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 March 5,
1998; 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; and provided further,
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<PAGE>
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 pursuant to a resolution adopted by a majority of the
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<PAGE>
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 or for such shorter period of time as the
Board of Directors may determine, 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.
5
<PAGE>
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
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<PAGE>
Interested Stockholder) which has the effect, directly or indirectly, 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
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<PAGE>
two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"Announcement Date"), or (ii) in the transaction in which it
became an Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article EIGHTH as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of
shares of any class of outstanding Voting Stock other than Common
Stock shall be at least equal to the highest of the following (it
being intended that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of outstanding
Voting Stock, whether or not the Interested Stockholder has previously
acquired any shares of a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of Voting
Stock acquired by it (i) within the two-year period immediately
prior to the Announcement Date, or (ii) in the transaction in
which it became an Interested Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be in
cash or in the same form as the Interested Stockholder has 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
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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 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:
9
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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 March 5, 1998; 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 March 5, 1998, 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
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plan nor any trustee with 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 March 5, 1998.
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
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limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate objectives as a financial institution
holding company and on the ability of its subsidiary financial institution or
institutions 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 March 5, 1998, 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
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person may have or hereafter 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
---- ---------------
Carl A. Florio The Hudson City Savings Institution
One Hudson City Centre
Hudson, New York 12534
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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 5th day of March, 1998.
/s/ Carl A. Florio
--------------------------------------
Carl A. Florio, Sole Incorporator
18
Exhibit 3.2
HUDSON RIVER 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
<PAGE>
a separate vote by a class or classes is required, a majority of the shares of
such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
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 90 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 90th 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
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Corporation's capital stock that are beneficially owned by such stockholder and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these 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 90 days prior to the date of the meeting; provided, however, that in
the event that less than 100 days' notice or public announcement 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 therefor by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the 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 or for such shorter period of time as the Board of
Directors may determine, 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.
Section 10. Age of Directors.
No person who has attained seventy-five (75) years of age may be
appointed or elected as a director of the Corporation. This restriction shall
not apply to any person who was serving as a trustee of The Hudson City Savings
Institution immediately prior to the mutual-to-stock conversion of such
institution.
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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 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.
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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.
(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.
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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.
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.
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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.
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.
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Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the 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.
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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.
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.
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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.
14
Exhibit 3.3
RESTATED ORGANIZATION CERTIFICATE
OF
HUDSON RIVER BANK AND TRUST COMPANY
UNDER SECTION 8007 OF
THE BANKING LAW
We, Carl A. Florio, being the President and Chief Executive Officer,
and Pamela M. Wood, being the Secretary, of Hudson River Bank and Trust Company,
in accordance with Section 8007 of the Banking Law of the State of New York (the
"New York Banking Law"), do hereby certify as follows:
FIRST, the name of the Corporation is Hudson River Bank and Trust
Company, originally formed under the name "The Hudson City Savings Institution."
SECOND, the Corporation was created under the name "The Hudson City
Savings Institution" by an Act of the Legislature of the State of New York,
passed April 4, 1850, such Act having been amended and supplemented from time to
time thereafter. Under Section 1001(5) of the Banking Law, such Act is the
Organization Certificate of the Corporation.
THIRD, the text of the Organization Certificate of the Corporation is
hereby amended and restated in its entirety to read as follows:
Section 1. Name.
The name by which the Corporation is to be known is Hudson River Bank
and Trust Company (the "Bank").
Section 2. Principal Office.
The principal office of the Bank shall be located in the City of
Hudson, County of Columbia, State of New York.
Section 3. Duration.
The duration of the Bank is perpetual.
Section 4. Capital Stock.
The total number of shares of all classes of the capital stock which
the Bank has authority to issue is forty-five million (45,000,000), of which
forty million (40,000,000) shall be common stock, par value $.01 per share
(ACommon Stock@) and of which five million (5,000,000) shall be preferred stock,
par value $.01 per share (APreferred Stock@). 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 4 or to the extent
<PAGE>
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), 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.
Nothing contained in this Section 4 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, provided,
that this restriction on voting separately by class or series shall not apply:
(i) to any provision which would authorize the holders of Preferred
Stock, voting as a class or series, to elect some members of the
Board of Directors, but 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
any regulatory authority;
(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 4 (or in any supplementary sections hereto), including
any amendment which would create or enlarge any class or series
ranking prior thereto in rights and preferences. An amendment
which increases the number of authorized shares of any class or
series of capital stock, or substitutes the surviving institution
in a merger or consolidation for the 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 of and
series(if any) of capital stock are as follows:
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A. Common Stock. Except as provided in this Section 4 (or in any
supplementary sections hereto) the holders of the Common Stock
shall exclusively possess all voting power. Each holder of shares
of Common Stock shall be entitled to one vote for each share held
by such holder. Shareholders shall not be entitled to cumulate
their votes for 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, or retirement
fund, or other retirement payments, if any, to which such holders
are respectively entitled in preference to the Common Stock, then
dividends may be paid on the Common Stock and on any class or
series of stock entitled to participate therewith as to dividends
out of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of
the 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 provision for distributions
to holders of any class or series of stock having preference over
the Common Stock in the liquidation, dissolution, or winding up
of the 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 amendments to this
Restated Organization Certificate for one or more classes of
Preferred Stock, which shall be separately identified. The shares
of any class may be divided into and 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 an amendment to this
Restated Organization Certificate. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on
the shares of such series, whether dividends shall be
cumulative and, if so, from which date(s), the payment
date(s) for dividends, and the participating or other
special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of
such series;
-3-
<PAGE>
(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;
(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 an amendment to this Restated
Organization Certificate, any authorized class of Preferred
Stock into series, and, within the limitations set forth in
this section and the remainder of this Restated Organization
Certificate, fix and determine the relative rights and
preferences of the shares of any series so established.
Prior to the issuance of any preferred shares of a series
established by an amendment to this Restated Organization
Certificate adopted by the Board of Directors, the Bank
shall make any filings of such amendments as may be required
by applicable law.
Section 5. 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.
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Section 6. Liquidation Account.
Pursuant to the regulations of the New York State Banking Board, the
Bank shall establish and maintain a liquidation account for the benefit of its
deposit account holders as of September 30, 1996 and March 31, 1998 ("eligible
depositors"). 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 of the Bank's eligible depositor's inchoate interest in the
liquidation account, to the extent it is still in existence; provided, that an
eligible depositor's inchoate interest in the liquidation account shall not
entitle such eligible depositor to any voting rights at meetings of the Bank's
stockholders.
Section 7. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the Bank's Restated Organization
Certificate or bylaws to the contrary, for a period of five years from the date
of consummation of the conversion of the Bank from mutual to stock form no
person shall directly or indirectly acquire the beneficial ownership of more
than 10 percent of any class of any equity security of the Bank. This limitation
shall not apply to a transaction in which the Bank forms a holding company in
conjunction with conversion, or thereafter, if such formation is without change
in the respective beneficial ownership interests of the Bank's 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. In the event
shares are acquired in violation of this Section 7, 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; provided, however a person shall not be deemed to
be the beneficial owner of shares represented by proxies held by such person
unless such shares are otherwise deemed beneficially owned by such person.
For the purposes of this Section 7, the following definitions apply:
(i) The term "person" includes an individual, a firm, a group acting
in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, any
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the Bank or any other
entity.
(ii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iii) The term "acting in concert" means (a) knowing participation in
a joint activity or conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) a
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combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
Section 8. Call for Special Meetings.
Special meetings of the stockholders for any purpose or purposes may be
called at any time by the Chairman of the Board of Directors or the majority of
the Whole Board of Directors (the term "Whole Board of Directors" shall mean the
number of authorized directorships, whether or not there exists any vacancies in
any previously authorized directorships).
Section 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
less than seven nor more than 30 except when a greater number is approved by the
Superintendent of Banks of the State of New York or his delegatees. Each of the
following persons shall be a director of the Bank (the "Superintendent") upon
the effectiveness of this Restated Organization Certificate, for the terms
indicated or until his successor is elected and qualified, and they shall
constitute the initial Board of Directors of the Bank:
Class I with terms to expire at the first annual meeting of
stockholders:
Carl A. Florio
William E. Collins
Earl Schram, Jr.
Class II with terms to expire at the annual meeting of stockholders one
year thereafter:
Stanley Bardwell, M.D.
Marilyn A. Herrington
John G. Kelly
Class III with terms to expire at the annual meeting two years
thereafter:
William H. Jones
Joseph W. Phelan
Marcia M. Race
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<PAGE>
Section 10. Amendment of Restated Organization Certificate.
Except as provided in Section 4, no amendment, addition, alteration,
change, or repeal of this Restated Organization Certificate shall be made,
unless such is first proposed by a majority of the Whole Board of Directors of
the Bank and then approved by the affirmative vote of the holders of at least 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 Superintendent in accordance with applicable
regulatory procedures.
Section 11. Amendment of Bylaws.
No amendment, addition, alteration, change or repeal of the Bylaws of
the Bank shall be made, unless made in a manner consistent with the New York
Banking Law and the regulations thereunder and approved by a majority of the
Whole Board of Directors or by the affirmative vote of at least 80% of the votes
eligible to be cast by the stockholders of the Bank at any legal meeting.
Section 12. Indemnification.
(a) Scope of Indemnification. The Bank shall, to the maximum extent
permitted and in the manner provided by the New York Banking Law
and any applicable federal law, indemnify each person made, or
threatened to be made, a party to any action, suit or proceeding,
whether criminal or civil, by reason of the fact that such person
or such person's testator or intestate is or was a director or
officer of the Bank, or is or was serving, in any capacity, at
the request of the Bank, any other corporation, or any
partnership, joint venture, trust, employee benefit plan or other
enterprise, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, including attorneys' fees and
expenses actually and necessarily incurred in connection
therewith, or any appeal therein, provided that the person to be
indemnified has met the applicable standard of conduct to be so
indemnified under the New York Banking Law or any other
applicable law.
(b) Reimbursement of Expenses. The Bank shall advance or promptly
reimburse upon request any person entitled to indemnification
hereunder for all reasonable expenses, including attorneys' fees
and expenses, reasonably incurred in defending any action or
proceeding in advance of the final disposition thereof upon
receipt of an undertaking by or on behalf of such person to repay
such amount if such person is ultimately found not to be entitled
to indemnification or, where indemnification is granted, to the
extent the expenses so advanced or reimbursed exceed the amount
to which such person is entitled; provided, however, that such
person shall cooperate in good faith with any request by the Bank
that common counsel be used by the parties to any action or
proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interest
between or among parties.
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<PAGE>
(c) Additional Rights. Nothing herein shall limit or affect any right
of any director, officer, or other corporate personnel otherwise
than hereunder to indemnification or expenses, including
attorneys' fees and expenses, under any statute, rule,
regulation, certificate of incorporation, bylaws, insurance
policy, contract, or otherwise; without affecting or limiting the
rights of any director, officer or other corporate personnel
pursuant to this Section 12, the Bank is authorized to enter into
agreements with any of its directors, officers or other corporate
personnel extending rights to indemnification and advancement of
expenses to the fullest extent permitted by applicable law.
(d) Notice of Amendments or Elimination. Anything in this Restated
Organization Certificate to the contrary notwithstanding, no
elimination or amendment of this Section 12 adversely affecting
the right of any person to indemnification or advancement of
expenses hereunder shall be effective until the 60th day
following notice to such person of such action, and no
elimination of or amendment to this Section 12 shall deprive any
such person's rights hereunder arising out of alleged or actual
occurrences, act or failures to act prior to such 60th day. Any
amendments or eliminations made pursuant to this Section 12 are
only effective with regard to acts occurring after such date.
(e) Continuation of Benefit. The indemnification of any person
provided by this Section 12 shall continue after such person has
ceased to be a director or officer of the Bank and shall inure to
the benefit of such person's heirs, executors, administrators and
legal representatives.
(f) Severability of Provisions. In case any provision in this Section
12 shall be determined at any time to be unenforceable in any
respect, the other provisions of this Section 12 shall not in any
way be affected or impaired thereby, and the affected provision
shall be given the fullest possible enforcement in the
circumstances, it being the intention of the Bank to afford
indemnification and advancement of expenses to its directors or
officers, acting in such capacities or in the other capacities
mentioned herein, to the fullest extent permitted by law.
As approved by a majority of the Board of Trustees of the Bank on
_________, 1998 and approved by 75% of the deposit liabilities of eligible
depositors of the Bank present in person or by proxy at a meeting of eligible
depositors held on _________ __ 1998, to be effective on the date filed by the
Superintendent of Banks of the State of New York in his office.
_____________________________________ _______________________________
Carl A. Florio Pamela M. Wood
President and Chief Executive Officer Secretary
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Exhibit 3.4
BYLAWS OF
HUDSON RIVER BANK AND TRUST COMPANY
ARTICLE I. PRINCIPAL OFFICE
The principal office of Hudson River Bank and Trust Company (the
ABank") shall be located in the City of Hudson, County of Columbia, State of New
York.
ARTICLE II. STOCKHOLDERS
Section l. Place of Meetings.
All annual and special meetings of stockholders shall be held at the
principal 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 the stockholders of the Bank for the election of Directors
and for the transaction of any other appropriate business of the Bank shall be
held annually within 120 days after the end of each calendar year.
Section 3. Special Meetings.
Special meetings of stockholders for any purpose or purposes, may be
called at any time by the Chairman of the Board of Directors or by a majority of
the Whole Board of Directors. The term "Whole Board of Directors" shall mean the
number of authorized directorships, whether or not there exists any vacancies in
any previously authorized directorships.
Section 4. Conduct of Meetings.
The Chairman of the Board of Directors shall preside at all meetings
and in his absence, a person designated by a majority of the Board of Directors
shall preside at all meetings. The chairman of any meeting of stockholders shall
determine the order of business and the procedures at the meeting, including
such regulations of the manner of voting and the conduct of discussion as seem
to him in order.
Section 5. Notice of Meetings.
Written notice stating the place, day and hour of the meeting and the
purpose(s) for which the meeting is called shall be delivered not fewer than 10
nor more than 50 days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman of the Board of Directors, the
Secretary, or the Board of Directors calling the meeting, to each stockholder 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 stockholder at the
address as it appears on the stock transfer books or records of the Bank as of
<PAGE>
the record date prescribed in Section 7 of this Article II or at such other
address as the stockholders shall have furnished in writing to the Secretary of
the Bank, with postage prepaid. When any stockholders' meeting, either annual or
special, is adjourned to another time or place, no notice of the adjourned
meeting need be given, other than an announcement at the meeting at which such
adjournment is taken giving the time and place to which the meeting is
adjourned. However, if, after adjournment, the Board of Directors fixes a new
record date for the adjourned meeting, notice of the adjourned meeting shall be
given to each stockholder of record as of the new record date.
Section 6. Waiver of Notice.
Notice of any annual or special meeting need not be given to any
stockholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by such stockholder.
Section 7. Fixing of Record Date.
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment, or stockholders entitled
to receive payment of any dividend, or in order to make a determination of
stockholders for any other proper purpose, the Board of Directors shall fix in
advance a date as the record date for any such determination of stockholders.
Such date in any case shall be not more than 50 days and, in case of a meeting
of stockholders, not fewer than 10 days, prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment unless the Board of Directors fixes a new record date
for the adjourned meeting.
Section 8. Voting Lists.
A list of stockholders as of the record date, certified by the officer
responsible for its preparation or by a transfer agent of the Bank, shall be
produced at any meeting of stockholders upon the request thereat or prior
thereto of any stockholder. If the right to vote at any meeting is challenged,
the inspectors of election, or person presiding thereat, shall require such list
of stockholders to be produced as evidence of the right of the persons
challenged to vote at such meeting, and all persons who appear from such list to
be stockholders entitled to vote thereat may vote at such meeting.
Section 9. 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
stockholders. The stockholders present at a duly organized meeting may continue
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<PAGE>
to transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to constitute less than a quorum. If less than a majority of the
outstanding shares is represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The existence of a quorum at any meeting, or the existence
of a duly organized meeting at which enough stockholders have withdrawn from
such meeting to constitute less than a quorum, however, shall not serve to
amend, alter or modify any provisions in the Bank's Restated Organization
Certificate or these Bylaws which require the vote of more than a majority of
the outstanding shares entitled to vote at a duly organized meeting.
Section 10. Proxies.
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Proxies solicited on behalf of the management of the Bank shall be voted
as directed by the stockholder or, in the absence of such direction, as
determined by 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 11. 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
stockholders of the Bank any one or more of such stockholders may cast, in
person or by proxy, all votes to which such ownership is entitled. In the event
an attempt is made to cast conflicting votes, in person or by proxy, by the
several persons in whose names shares of stock stand, the vote or votes to which
those persons are entitled shall be cast as directed by a majority of those
holding such and present in person or by proxy at such meeting, but no votes
shall be cast for such stock if a majority cannot agree.
Section 12. 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, conservator,
committee, or other fiduciary, except a trustee, may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares held
by a trustee may be voted by him, either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such shares
into his name as trustee or into the name of his nominee. Shares held by or
under the control of a receiver may be voted by such receiver without the
transfer into his name, if authority to do so is contained in an appropriate
order of the court or other public authority by which such receiver was
appointed.
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<PAGE>
A stockholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee or
nominee 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 13. Cumulative Voting.
Stockholders shall not be entitled to cumulate their votes for the
election of directors.
Section 14. Nominations.
The Board of Directors, or a committee appointed by the Board of
Directors, shall select the nominees for election as directors of the Bank.
Except in the case of a nominee substituted as a result of the death,
incapacity, withdrawal or other inability to serve of a nominee, the Board of
Directors shall deliver written nominations to the Secretary of the Bank at
least 20 days prior to the date of the annual meeting. Provided the Board of
Directors, or a committee appointed by the Board of Directors, makes such
nominations, no nominations for directors except those made by the Board of
Directors or such committee shall be voted upon at the annual meeting unless
other nominations by stockholders are made in writing and delivered to the
secretary of the Bank at least 30 days prior to the date of the annual meeting.
Ballots bearing the names of all persons nominated by the nominating committee
and stockholders shall be provided for use at the annual meeting.
Section 15. New Business.
Any new business to be taken up at an annual meeting shall be stated in
writing and filed with the Bank at least 45 days before the date of the annual
meeting, and all business so stated, proposed, and filed shall be considered at
the annual meeting, but no other proposal shall be acted upon at the annual
meeting. Any stockholder may make any other proposal at the annual meeting and
the same may be discussed and considered, but unless stated in writing and filed
with the secretary at least 45 days before the meeting, such proposal shall be
laid over for action at an adjourned, special, or annual meeting of the
stockholders taking place 30 days or more thereafter. This provision shall not
prevent the consideration and approval or disapproval at the annual meeting of
reports of officers, directors and committees; but in connection with such
reports no new business shall be acted upon at such annual meeting unless stated
and filed as herein provided.
Section 16. Informal Action by Stockholders.
Any action required to be taken at a meeting of stockholders, or any
other action which may be taken at a meeting of the stockholders, may be taken
without a meeting if consent in writing, setting forth the action so taken,
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<PAGE>
shall be given by all of the stockholders entitled to vote with respect to the
subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section 1. Responsibilities; Number of Directors.
The business and affairs of the Bank shall be under the direction of
its Board of Directors. The Board of Directors shall consist of not less than 7
nor more than 30 directors. Within the foregoing limits, the number of directors
shall be determined by resolution of the Board of Directors. The Board of
Directors 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 2. Qualifications.
Each director shall be at least 18 years of age and at least one-half
of the directors shall be citizens of the United States at the time of their
election and during their continuance in office.
Section 3. Age of Directors.
No person who has attained seventy-five (75) years of age may be
appointed or elected as a director of the Bank. This restriction shall not apply
to any person who was serving as a trustee of the Bank immediately prior to its
mutual-to-stock conversion.
Section 4. Regular and Annual Meetings.
An annual meeting of the Board of Directors for the election of
officers shall be held, without notice other than these By-Laws, immediately
after, and at the same place as, the annual meeting of stockholders of the Bank,
or at such other time or place within 25 days following the annual meeting of
stockholders as the Board of Directors may fix by resolution. The Board of
Directors shall hold at least 10 regular meetings per year and shall be required
to meet at least twice during any three consecutive months during the calendar
year. For these purposes, the annual meeting shall be considered a regular
meeting. The Board of Directors may provide, by resolution, the time and place
for the holding of regular meetings of the Board of Directors without notice
other than such resolution.
Section 5. Special Meetings.
Special meetings of the Board of Directors may be called at any time by
or at the request of the Chairman, if one has been elected, or by the President.
Special meetings of the Board of Directors shall also be convened by the
Secretary upon the written request of at least three directors. The persons
authorized to call special meetings of the Board of Directors shall give notice
of such meetings in the manner prescribed by these By-Laws and may fix any
place, within or without the Bank's regular business area, as the place for
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<PAGE>
holding any special meeting of the Board of Directors called by such persons. No
business shall be conducted at a special meeting other than that specified in
the notice of meeting.
Section 6. Conduct of Meetings.
Meetings of the Board of Directors shall be presided over by the
Chairman, if a Chairman has been elected by the Board of Directors, or such
other director or officer as the Chairman shall designate. If a Chairman has not
been elected by the Board of Directors or the Chairman is absent or otherwise
unable to preside over the meeting, the presiding officer shall be the
President. If the President is absent or otherwise unable to preside over the
meeting, the presiding officer shall be the then senior member of the Board of
Directors in terms of length of service on the Board of Directors (including its
predecessor body, the Board of Trustees of the Bank prior to the Bank's
mutual-to-stock conversion). The Secretary, or in the absence or disability of
the Secretary, a person appointed by the Chairman (or other presiding person),
shall act as secretary of the meeting. The Chairman (or other presiding person)
shall conduct all meetings of the Board of Directors in accordance with the best
interests of the Bank and shall have the authority and discretion to establish
reasonable procedural rules for the conduct of Board of Directors meetings. Any
one or more directors may participate in a meeting of the Board of Directors or
committee thereof by means of a conference telephone or communications equipment
allowing all persons participating in the meeting to hear each other at the same
time. Participation by such means shall constitute presence in person at any
such meeting.
Section 7. Notice of Meetings; Waiver of Notice.
Except as otherwise provided herein, at least 24 hours' notice of
meetings shall be given to each director if given in person or by telephone,
telegraph, telex, facsimile, or other electronic transmission, and at least two
business days notice of meetings shall be given if notice is given in writing
and delivered by courier or by postage-prepaid mail. The purpose of any special
meeting shall be stated in the notice. Such notice shall be deemed given when
sent or given to any such mail or courier service or company providing
electronic transmission service. Any director may waive notice of any meeting by
filing a signed waiver of notice with the Secretary of the Bank, whether before
or after the meeting. The attendance of a director at a meeting shall constitute
a waiver of notice of such meeting if the director does not protest, prior
thereto or at its commencement, the lack of notice to such director.
Section 8. Quorum and Voting Requirements.
A quorum at any meeting of the Board of Directors shall consist of not
less than a majority of the Whole Board of Directors or such greater number as
shall be required by law, these By-Laws or the Restated Organization Certificate
of the Bank. If less than a quorum is present, the majority of those directors
present may adjourn the meeting to another time and place without further
notice. At such adjourned meeting at which a quorum shall be represented, any
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<PAGE>
business may be transacted that might have been transacted at the meeting as
originally noticed. Except as otherwise provided by law, the Restated
Organization Certificate of the Bank or these By-Laws, a majority vote of the
directors present at a meeting, if a quorum is present at the time of such vote,
shall constitute an act of the Board of Directors.
Section 9. Resignation.
Any director may resign at any time by sending a written notice of such
resignation to the principal office of the Bank addressed to the Chairman, if
one has been elected, or the President. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof.
Section 10. Removal.
Notwithstanding any other provision of the Restated Organization
Certificate of the Bank or these By-Laws, any director may be removed at any
time with or without cause, upon the affirmative vote of the holders of record
of not less than 80% of the outstanding shares of capital stock of the Bank
entitled to vote generally in the election of directors at a meeting of the
stockholders called for that purpose.
Section 11. Vacancies.
Subject to the limitations prescribed by law, the Restated Organization
Certificate of the Bank and these By-Laws, all vacancies in the office of
director, including vacancies created by newly created directorships resulting
from an increase in the number of directors, shall be filled by the
stockholders, except that vacancies not exceeding one-third of the entire Board
of Directors may be filled by the affirmative vote of a majority of the
directors then holding office. No person shall be elected a director unless
nominated at a previous regular or special meeting, called for that purpose,
upon the recommendation of the Board of Directors, or a committee appointed by
the Board of Directors. Any director so elected shall serve for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until his successor shall be elected and
qualified.
Section 12. Compensation.
The compensation of the directors of the Bank shall be fixed by the
Board of Directors.
Section 13. Emergency Authority.
In the event there shall occur an acute emergency resulting from a
hostile attack, as defined in Article 7 of the New York State Defense Emergency
Act, which shall be of such severity as to prevent the conduct and management of
the affairs and business of the Bank by its Directors and officers as otherwise
provided in these Bylaws, any three or more available members of the then
incumbent Executive Committee shall constitute an emergency Board of Directors
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<PAGE>
which shall have the power, subject to limitations prescribed in Article 7 of
the New York State Defense Emergency Act, by a majority of such persons present,
to take any and every action which may be necessary to meet the exigencies of
the acute emergency and to enable the Bank to conduct its business during such
period, including the relocation elsewhere of any office of the Bank which shall
be unable to function because of the acute emergency. If during the period of
acute emergency there shall be no Executive Committee, or a minimum of three
members of the then incumbent Executive Committee shall not be available, then
and in that event such other available Directors as may be needed to obtain the
minimum of three members shall serve on the emergency Board of Directors.
ARTICLE IV. COMMITTEES
Section 1. Enumeration of Committees.
The standing committees of the Board of Directors shall be an Executive
Committee, an Audit Committee, and a Nominating Committee. The Board of
Directors, by vote of a majority of the whole Board of Directors, may from time
to time designate additional committees of the Board of Directors, either
temporary or permanent, with such lawfully delegable powers and duties as it
thereby confers not inconsistent with these By-laws, to serve at the pleasure of
the Board of Directors and shall, for these committees and any others provided
for herein, elect a Director or Directors to serve as the member or members,
designating, if it desires, other Directors as alternate members ("Alternate
Directors") who may replace any absent or disqualified member at any meeting of
the committee; provided however, that the Chairman shall be a member of, and
shall serve as the chairman of the Executive Committee and he shall be an
ex-officio member of all other committees, except the Audit Committee and any
other committee on which he is prohibited from being a member, by law, the
Restated Organization Certificate or these Bylaws. The Board of Directors, by a
resolution adopted by a majority of the Whole Board of Directors may terminate
any committee previously established.
Section 2. The Executive Committee.
The Executive Committee shall consist of the Chairman of the Board of
Directors and four additional Directors elected annually by the vote of the
majority of the Whole Board of Directors. If any member of the Executive
Committee shall be absent from any meeting of the committee, the Chairman shall
designate some other Director, other than one serving as a salaried officer, to
act as a member of the committee at that meeting. In the event there shall be a
vacancy in the office of Chairman, then and in that event such other additional
Director or Directors as may be needed to obtain the full complement of five
members shall be elected by the Board of Directors to serve until the vacancy is
filled, or until the next annual meeting. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the Whole Board of Directors. Regular meetings of the Executive
Committee may be held without notice at such times and places as the Executive
Committee may fix from time to time by resolution. Special meetings of the
committee may be called by the Chairman or at any time by any two members of the
committee, upon twenty-four hours' notice by mail, in person, or by telegraph or
telephone. The notice of a special meeting of the committee, however given,
-8-
<PAGE>
shall state the time when and the place, which shall be within the State of New
York, where the meeting is to be held and the business which is to be presented
and no business other than that stated in the notice shall be transacted at said
meeting. The Executive Committee may make rules for the regulation of its
meetings and proceedings not inconsistent with these Bylaws. Four members of the
committee, including designees designated to act for an absent member or members
of the committee, shall be necessary for a quorum at any meeting of the
committee. Attendance by Alternate Directors shall constitute membership on the
Committee for determining quorum requirements. Action of the Executive Committee
must be authorized by the affirmative vote of a majority of the members present
at a meeting at which a quorum is present. Any action required or permitted to
be taken by the Executive Committee at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the members of the Executive Committee. Except as otherwise provided
herein, the Executive Committee, when the Board of Directors is not in session,
shall have and may exercise all of the authority of the Board of Directors,
except to the extent, if any, that such authority may be limited by resolution
adopted by a majority of the Whole Board of Directors or by the laws of the
State of New York. In addition, the Executive Committee shall not have the
authority of the Board of Directors with reference to: the submission to
stockholders of any action that requires stockholders' authorization under New
York law; the filling of vacancies in the Board of Directors or in any committee
of the Board of Directors; the fixing of compensation of the Directors for
serving on the Board of Directors or any committee thereof; the amendment or
repeal of any resolution of the Board of Directors which by its terms shall not
be so amendable or repealable; the taking of any action which is expressly
required by New York law to be taken at a meeting of the Board of Directors or
by a specified proportion of Directors; the amendment or repeal of the Restated
Organization Certificate or Bylaws of the Bank or adoption of new Bylaws of the
Bank; recommending to the stockholders 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. The Nominating Committee.
The Board of Directors, by resolution adopted by a majority of the
Whole Board of Directors, shall appoint a Nominating Committee of the Board of
the Board of Directors, consisting of not less than three Directors. The
Nominating Committee shall have authority (a) to review any nominations for
election to the Board of Directors made by a stockholder of the Bank and (b) to
recommend to the Whole Board of Directors nominees for election to the Board of
Directors (i) to replace those Directors whose terms expire at the annual
meeting of stockholders next ensuing and (ii) to fill vacancies resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, or resulting from an increase in the authorized number of Directors.
-9-
<PAGE>
Section 4. The Audit Committee.
The Audit Committee shall consist of two or more Directors, none of
whom shall be a salaried officer of the Bank, who shall be elected to said
Committee at the annual meeting of the Board of Directors, or in the case of the
filling of a vacancy (such vacancy, in every case to be filled by an existing
non-salaried Director) at any regular or special meeting of the Board of
Directors. The Audit Committee shall assist the Board of Directors in fulfilling
its obligation to oversee the appropriateness of accounting policies, and Bank
procedures and controls and shall be charged with the duty of carrying out the
requirements of Section 254 of the Banking Law of the State of New York (the
ANew York Banking Law@) as the same now is in force or as it may be amended or
of any law substituted therefor. In performing its functions, the Audit
Committee shall utilize the expertise of the Bank's internal Auditing Department
under the direction of the Bank's internal Auditor. The Audit Committee shall
hold formal meetings with the Bank's internal auditors on a quarterly basis.
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. Any two
or more offices may be held by the same person, except for the offices of
President and Secretary. 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 stockholders. If
the election of officers is not held at such meeting, such election shall be
held as soon thereafter as possible. Each officer shall hold office until a
successor has been duly elected and qualified or until the officer's death,
resignation, 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 applicable law, 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 at any time with
or without cause, but such removal, other than for cause, shall be without
prejudice to the contractual rights, if any, of the person so removed.
-10-
<PAGE>
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. SECURITIES AND INVESTMENTS
Section 1. Loans and Investments.
The Board of Directors shall from time to time determine and direct to
what extent the funds and property of the Bank shall be invested, and, subject
to all applicable provisions of law, the kind and character of the investments
which are to be made and how the same shall be handled and dealt with. No loans
shall be contracted on behalf of the Bank and no evidence of indebtedness shall
be issued in its name unless authorized by the Board of Directors. Such
authority may be general or confined to specific instances.
Section 2. Care and Custody of Securities.
All stocks, bonds and other securities, including bonds and mortgages,
not directed by the Board of Directors to be held in bearer form, or in the name
of a nominee, shall be in the name of the Bank and, to the extent that the form
of the several securities may permit or as may be permitted or required by law,
shall be registered or recorded in the name of the Bank. All securities
including bonds and mortgages held by the Bank shall be kept in such manner and
at such places as the Board of Directors, having due regard for the safety and
protection thereof, may direct, and all or any part thereof may be lodged or
deposited for safekeeping with such other institutions as the Board of Directors
may from time to time approve.
Section 3. Transfers of Securities, Etc.
Transfers and assignments of stocks, bonds and other securities
standing, issued or registered in the name of the Bank may be signed by any two
of the following officers acting by virtue of their several offices, to wit: the
Chairman, the President, an Executive Vice President, the Secretary, or may be
signed by any one of said officers together with such other officer or officers,
or person or persons, as the Board of Directors may from time to time authorize
or designate.
The Chairman or the President, or in their absence an Executive Vice
President or the Secretary, shall execute any and all instruments for the proper
transaction of the business of the Bank relating to its mortgage investments,
including extensions, modifications, alterations, and amendments, assignments
and satisfaction pieces. The Board of Directors may, nevertheless, at any time
authorize and empower other additional officers or employees to do any one or
more of these things.
-11-
<PAGE>
ARTICLE VII. DEPOSITORIES, CHECKS AND DRAFTS
Section 1. Depositaries and Withdrawals.
The Board of Directors may from time to time designate banks, trust
companies or similar institutions to be depositaries of funds of the Bank and
may by resolution designate the officer or officers, or employee or employees,
who shall be authorized to sign the checks, drafts, vouchers or orders of the
Bank upon which such depositaries shall be authorized to pay out the moneys so
deposited. Unless and until the Board of Directors shall otherwise provide, such
checks, drafts, vouchers or orders for the payment of deposited funds shall be
signed by any two of the following officers: the Chairman, the President, the
Chief Financial Officer, an Executive Vice President, a Senior Vice President, a
Vice President, the Secretary, the Controller, an Assistant Vice President, an
Assistant Secretary, an Assistant Controller and the Assistant to the President,
if the Board of Directors of Directors shall have established the offices of
Assistant Vice President, Assistant Secretary, Assistant Controller or Assistant
to the Chairman.
Section 2. Depositors' Withdrawals.
The Chairman, the President, an Executive Vice President or the
Secretary shall designate those officers and employees who shall be authorized
to sign or countersign checks drawn upon the general deposit accounts of the
Bank issued in payment of depositor withdrawals. The Board of Directors may also
adopt such other means of payment of depositor withdrawals as to it may seem
proper and expedient.
ARTICLE VIII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section l. Certificates for Shares.
Certificates representing shares of capital stock of the Bank shall be
in such form as shall be determined by the Board of Directors. Such certificates
shall be signed by the Chairman of the Board of Directors 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 and
cancelled, except that in case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the Bank as the Board
of Directors may prescribe.
-12-
<PAGE>
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 legal representative, who shall furnish proper
evidence of such authority, or by his attorney authorized by a duly executed
power of attorney and filed with the 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 IX. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Bank shall be as fixed by the Board of
Directors. 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 stockholders.
ARTICLE X. DIVIDENDS
Subject to the terms of the Bank's Restated Organization Certificate
and applicable law, the Board of Directors may, from time to time, declare, and
the Bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE XI. 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, or in such other
form deemed appropriate by the Board of Directors. The year of incorporation or
an emblem may appear in the center.
ARTICLE XII. SURETY BONDS
Section 1. Surety Bonds and Premiums Thereon.
The Bank shall procure from a responsible surety company approved by
the Board of Directors and shall keep continuously in force and effect a
banker's blanket bond of insurance or a fidelity bond of similar type and
character covering all of the officers and employees of the Bank in such amount
as the Board of Directors may fix. The Board of Directors may also require that
individual officers or employees shall furnish separate bonds conditioned for
the faithful performance of their several duties. It shall be obligatory upon
the officers and employees to furnish to the Bank and to the surety company
involved any and all information necessary or appropriate to the procurement of
any bond or bonds herein provided for. The Bank may dismiss any officer or
employee who shall fail when asked or who shall refuse to give any and all
proper and relevant information required by the designated surety company or as
to whom such surety company shall decline to give a bond or whom the surety
company shall decline to include in a general bond.
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<PAGE>
All expenses connected with such bond or bonds and all premiums thereon
shall be borne by the Bank.
ARTICLE XIII. RULES AND REGULATIONS
Management shall adopt rules and regulations not inconsistent with law
for the payment of deposits and interest and, generally, for the transaction and
management of the affairs of the Bank. Such rules and regulations shall be
posted in a conspicuous place in the offices of the Bank and shall be available
to depositors upon request. Such posting shall be taken and held as actual
notice to and be binding upon each depositor and to all persons claiming any
interest in any account. All notices to the Bank from depositors, or other
persons claiming any interest in any account, shall be not effective unless they
are in writing and signed by the persons giving such notice.
Rules and regulations adopted by management or any amendments thereto
shall be transmitted to the Board of Directors at its next regular monthly
meeting following the adoption of same.
ARTICLE XIV. AMENDMENTS
These Bylaws may be amended in a manner consistent with the New York
Banking Law and the regulations thereunder at any time by a majority vote of the
Whole Board of Directors, or by the affirmative vote of at least 80% of the
votes eligible to be cast by the stockholders of the Bank at any legal meeting.
-14-
Exhibit 4
HUDSON RIVER BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK
$.01 PAR VALUE PER SHARE OF HUDSON RIVER
BANCORP, INC.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, HUDSON RIVER BANCORP, INC. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated:
______________________ [SEAL] ________________________
Pamela Wood Carl A. Florio
Secretary President and Chief
Executive Officer
<PAGE>
HUDSON RIVER BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
Exhibit 5
[SILVER, FREEDMAN & TAFF LETTERHEAD]
March 5, 1998
Board of Trustees
The Hudson City Savings Institution
1 Hudson City Centre
Hudson, New York 12534
Re: The Offering of up to 15,525,000 Shares of Hudson River Bancorp, Inc.
Common Stock
---------------------------------------------------------------------
Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with the conversion of The Hudson City Savings Institution
(the "Bank"), a New York chartered savings bank, from the mutual form of
ownership to the stock form of ownership (the "Conversion"), and the related
subscription offering, community offering and syndicated community offering (the
"Offerings") by Hudson River Bancorp, Inc., a Delaware corporation (the
"Company"), of up to 15,525,000 shares of its common stock, par value $.01 per
share, ("Common Stock"), 17,853,750 shares if the Estimated Valuation Range is
increased up to 15% to reflect changes in market and financial conditions
following commencement of the Offerings).
In connection with your request for our opinion, you have provided to
us and we have reviewed the Company's certificate of incorporation filed with
the Delaware Secretary of State on March 5, 1998 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
March 9, 1998 (the "Registration Statement"); resolutions of the Board of
Directors of the Company (the "Board") concerning the organization of the
Company, the Offerings and designation of a Pricing Committee of the Board, and
the form of stock certificate approved by the Board to represent shares of
Common Stock. We have also been furnished a certificate of the Delaware
Secretary of State certifying the Company's good standing as a Delaware
corporation. Capitalized terms used but not defined herein shall have the
meaning given them in the Certificate of Incorporation.
<PAGE>
Board of Trustees
The Hudson City Savings Institution
Page 2
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds which the ESOP Trust will
use to purchase shares of Common Stock for which the ESOP Trust subscribes
pursuant to the Offerings and for purposes of rendering the opinion set forth in
paragraph 2 below, we assume that:
(a) the Board has duly authorized the loan to the ESOP Trust (the
"Loan"); (b) the ESOP serves a valid corporate purpose; (c) the Loan
will be made at an interest rate and on other terms that are fair to
the Company; (d) the terms of the Loan will be set forth in customary
and appropriate documents including, without limitation, a promissory
note representing the indebtedness of the ESOP Trust to the Company as
a result of the Loan; and (e) the closing for the Loan and for the sale
of Common Stock to the ESOP Trust will be held after the closing for
the sale of the other shares of Common Stock sold in the Offerings and
the receipt by the Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common stock to be sold in the Offerings, the
Common Stock to be issued in the Offerings (including the shares to be issued to
the ESOP Trust and the shares to be granted to a charitable foundation to be
established by the Company in connection with the Conversion) will be duly
authorized and, when such shares are sold and paid for in accordance with the
terms set forth in the Prospectus and such resolution of the Pricing Committee,
and certificates representing such shares in the form provided to us are duly
and properly issued, will be validly issued, fully paid and nonassessable.
This opinion is furnished solely for your benefit and may not be relied
upon by any other person. We consent to the filing of this opinion as an exhibit
to the Registration Statement on Form S-1, Notice of the Application for
Conversion, and the Form 86-AC and to the use of the name of our firm where it
appears in the Registration Statement, Notice of the Application for Conversion,
Form 86-AC and in the Prospectus.
Very truly yours,
/s/ SILVER FREEDMAN AND TAFF, L.L.P.
Exhibit 8.1
March 3, 1998
Board of Trustees
The Hudson City Savings Institution
1 Hudson City Center
Hudson, New York 12534
RE: Federal Income Tax Opinion Relating To The Conversion Of The
Hudson City Savings Institution From A State-Chartered Mutual
Savings Institution To A State-Chartered Stock Savings
Institution Under Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, As Amended
-----------------------------------------------------------------
Gentlemen:
In accordance with your request set forth hereinbelow is the opinion of
this firm relating to the federal income tax consequences of the conversion of
The Hudson City Savings Institution (AMutual@) from a New York chartered mutual
savings institution to a New York chartered stock savings institution ("Stock
Institution") pursuant to the provisions of Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined herein
shall have the meaning ascribed to them in the Plan of Conversion dated November
20, 1997 (the "Plan").
The following assumptions have been made in connection with our
opinions hereinbelow:
1. The Conversion is implemented in accordance with the terms of the
Plan and all conditions precedent contained in the Plan shall be performed or
waived prior to the consummation of the Conversion.
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 2
- --------------------------------------------------------------------------------
2. No amount of the savings accounts and deposits of Mutual, as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, will be
excluded from participating in the liquidation account of Stock Institution. To
the best of the knowledge of the management of Mutual there is not now, nor will
there be at the time of the Conversion, any plan or intention, on the part of
the depositors in Mutual to withdraw their deposits following the Conversion.
Deposits withdrawn immediately prior to or immediately subsequent to the
Conversion (other than maturing deposits) are considered in making these
assumptions.
3. Holding Company and Stock Institution each have no plan or intention
to redeem or otherwise acquire any of the Holding Company Conversion Stock to be
issued in the proposed transaction.
4. Immediately following the consummation of the proposed transaction,
Stock Institution will possess the same assets and liabilities as Mutual held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to Holding Company except for assets used to
pay expenses of the Conversion. The liabilities transferred to Stock Institution
were incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to deposit account holders in lieu
of Subscription Rights or an interest in the liquidation account of Stock
Institution.
6. Following the Conversion, Stock Institution will continue to engage
in its business in substantially the same manner as Mutual engaged in business
prior to the Conversion, and it has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. There is no plan or intention for Stock Institution to be liquidated
or merged with another corporation following the consummation of the Conversion.
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 3
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8. The fair market value of each savings account plus an interest in
the liquidation account of Stock Institution will, in each instance, be
approximately equal to the fair market value of each savings account of Mutual
plus the interest in the residual equity of Mutual surrendered in exchange
therefor.
9. Mutual, Stock Institution and Holding Company are each corporations
within the meaning of Section 7701(a)(3) of the Code.
10. Holding Company has no plan or intention to sell or otherwise
dispose of the stock of Stock Institution received by it in the proposed
transaction.
11. Both Stock Institution and Holding Company have no plan or
intention, either currently or at the time of Conversion, to issue additional
shares of common stock following the proposed transaction, other than (a) shares
that may be issued to employees, directors and/or trustees pursuant to certain
stock option and stock incentive plans or that may be issued to employee benefit
plans and (b) up to 3% of Holding Company Common Stock to the Hudson River Bank
& Trust Company Foundation of Holding Company, a charitable organization created
under Section 501 (c)(3) of the Code (the AFoundation@).
12. If all of the net proceeds from the sale of Holding Company
Conversion Stock had been contributed by Holding Company to Stock Institution in
exchange for common stock of Stock Institution in the transaction, as opposed to
Holding Company retaining a portion of such net proceeds (the "retained
proceeds"), and Stock Institution immediately thereafter made a distribution of
the retained proceeds to Holding Company, Stock Institution would have
sufficient current and accumulated earnings and profits for tax purposes such
that the distribution would not result in the recapture of any portion of the
bad debt reserves of Stock Institution.
13. Assets used to pay expenses of the Conversion and all distributions
(except for regular, normal interest payments and other payments in the normal
course of business made by Mutual immediately preceding the transaction) will in
the aggregate constitute less than 1% of the net assets of Mutual and any such
expenses and distributions will be paid from the proceeds of the sale of Holding
Company Conversion Stock.
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 4
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14. All distributions to deposit account holders in their capacity as
deposit account holders (except for regular, normal interest payments made by
Mutual), will, in the aggregate, constitute less than 1% of the fair market
value of the net assets of Mutual.
15. At the time of the proposed transaction, the fair market value of
the assets of Mutual on a going concern basis (including intangibles) will equal
or exceed the amount of its liabilities plus the amount of liabilities to which
such assets are subject. Mutual will have a positive regulatory net worth at the
time of the Conversion.
16. Mutual is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 of the Code applies.
17. Mutual's Eligible Account Holders and Supplemental Eligible Account
Holders will pay expenses of the Conversion solely attributable to them, if any.
18. The liabilities of Mutual assumed by Stock Institution plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Mutual in the ordinary course of its business and are associated with the
assets being transferred.
19. There will be no purchase price advantage for Mutual's deposit
account holders who purchase Holding Company Conversion Stock.
20. Neither Mutual nor Stock Institution is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
21. None of the compensation to be received by any deposit account
holder-employees of Mutual or Holding Company will be separate consideration
for, or allocable to, any of their deposits in Mutual. No interest in the
liquidation account of Stock Institution will be received by any deposit account
holder-employee as separate consideration for, or will otherwise be allocable
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 5
- --------------------------------------------------------------------------------
to, any employment agreement, and the compensation paid to each deposit account
holder-employee, during the twelve-month period preceding or subsequent to the
Conversion, will be for services actually rendered and will be commensurate with
amounts paid to the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued to or
purchased by any deposit account holder-employee of Mutual or Holding Company at
a discount or as compensation in the proposed transaction.
22. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual by
instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary interests of
depositors prior to the Conversion of Mutual as the equity holders of Mutual.
23. The proposed transaction does not involve the payment to Stock
Institution or Mutual of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
24. On a per share basis, the purchase price of Holding Company
Conversion Stock will be equal to the fair market value of such stock at the
time of the completion of the proposed transaction.
25. Mutual has received or will receive an opinion from RP Financial
LC. ("Appraiser's Opinion"), which concludes that the Subscription Rights to be
received by Eligible Account Holders, Supplemental Eligible Account Holders and
other eligible subscribers do not have any ascertainable fair market value,
since they are acquired by the recipients without cost, are non-transferable and
of short duration, and afford the recipients a right only to purchase Holding
Company Conversion Stock at a price equal to its estimated fair market value,
which will be the same price as the Public Offering Price for unsubscribed
shares of Holding Company Conversion Stock.
26. Mutual will not have any net operating losses, capital loss
carryovers or built-in losses at the time of the Conversion.
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 6
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As part of the Conversion, Holding Company intends to donate to the
Foundation up to 3% shares of its common stock. The funding of the Foundation as
part of the Conversion is subject to separate approval by a majority of the
voting depositors of Mutual at the Special Meeting. In the event that the
Foundation does not receive the prerequisite approval, Mutual may complete the
Conversion without funding the Foundation.
The Plan states that the Foundation is intended to complement Mutual's
existing community reinvestment activities and to support the communities in
which Mutual operates.
The Foundation will be dedicated to the promotion of charitable
purposes within the communities that Mutual operates, including, but not limited
to grants or donations to support not-for-profit medical facilities, cultural
activities, community groups and other types of organizations or projects. The
Foundation will annually distribute total grants and donations to assist
charitable organizations or to fund projects of not less than five percent (5%)
of its net investment assets.
OPINION
Based solely on the assumptions set forth hereinabove and our analysis
and examination of applicable federal income tax laws, rulings, regulations,
judicial precedents and the Appraiser's Opinion, we are of the opinion that if
the transaction is undertaken in accordance with the above assumptions:
(1) The Conversion will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Institution will
recognize any gain or loss as a result of the transaction (Rev. Rul. 80-105,
1980-1 C.B. 78). Mutual and Stock Institution will each be a party to a
reorganization within the meaning of Section 368(b) of the Code.
(2) Stock Institution will recognize no gain or loss upon the receipt
of money and other property, if any, in the Conversion, in exchange for its
shares. (Section 1032(a) of the Code.)
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 7
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(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Holding Company Conversion Stock. (Section 1032(a) of the
Code.)
(4) The basis of Mutual's assets in the hands of Stock Institution will
be the same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. (Section 362(b) of the Code.)
(5) Stock Institution's holding period of the assets of Mutual will
include the period during which such assets were held by Mutual prior to the
Conversion. (Section 1223(2) of the Code).
(6) Stock Institution, for purposes of Section 381 of the Code, will be
treated as if there had been no reorganization. The tax attributes of Mutual
enumerated in Section 381(a) of the Code will be taken into account by Stock
Institution as if there had been no reorganization. Accordingly, the tax year of
Mutual will not end on the effective date of the Conversion. The part of the tax
year of Mutual before the Conversion will be includible in the tax year of Stock
Institution after the Conversion. Therefore, Mutual will not have to file a
federal income tax return for the portion of the tax year prior to the
Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126).
(7) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Stock Institution,
Subscription Rights and/or interests in the liquidation account of Stock
Institution. Any gain resulting therefrom will be recognized, but only in an
amount not in excess of the fair market value of the liquidation accounts and/or
Subscription Rights received. The liquidation accounts will have nominal, if
any, fair market value. Based solely on the accuracy of the conclusion reached
in the Appraiser's Opinion, and our reliance on such opinion, that the
Subscription Rights have no value at the time of distribution or exercise, no
gain or loss will be required to be recognized by depositors upon receipt or
distribution of Subscription Rights. (Section 1001 of the Code); See Paulsen v.
Commissioner, 469 U.S. 131,139 (1985). Likewise, based solely on the accuracy of
the aforesaid conclusion reached in the Appraiser's Opinion, and our reliance
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 8
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thereon, we give the following opinions: (a) no taxable income will be
recognized by the trustees, officers and employees of Mutual upon the
distribution to them of Subscription Rights or upon the exercise or lapse of the
Subscription Rights to acquire Holding Company Conversion Stock at fair market
value; (b) no taxable income will be realized by the depositors of Mutual as a
result of the exercise or lapse of the Subscription Rights to purchase Holding
Company Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2 C.B.
182; and (c) no taxable income will be realized by Mutual, Stock Institution or
Holding Company on the issuance or distribution of Subscription Rights to
depositors of Mutual to purchase shares of Holding Company Conversion Stock at
fair market value. (Section 311 of the Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription Rights are
subsequently found to have a fair market value, income may be recognized by
various recipients of the Subscription Rights (in certain cases, whether or not
the rights are exercised) and Holding Company and/or Stock Institution may be
taxable on the distribution of the Subscription Rights. (Section 311 of the
Code). In this regard, the Subscription Rights may be taxed partially or
entirely at ordinary income tax rates.
(8) The creation of the liquidation account on the records of Stock
Institution will have no effect on Mutual's or Stock Institution's taxable
income, deductions, or tax bad debt reserve.
(9) A depositor's basis in the savings deposits of Stock Institution
will be the same as the basis of his savings deposits in Mutual. (Section 1012
of the Code). Based upon the Appraiser's Opinion, the basis of the Subscription
Rights will be zero. The basis of the interest in the liquidation account of
Stock Institution received by Eligible Account Holders and Supplemental Eligible
Account Holders will be equal to the cost of such property, i.e., the fair
market value of the proprietary interest in Mutual, which in this transaction we
assume to be zero.
<PAGE>
Board of Trustees
The Hudson City Savings Institution
March 3, 1998
Page 9
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(10) The basis of Holding Company Conversion Stock to its shareholders
will be the purchase price thereof. (Section 1012 of the Code).
(11) Regardless of any book entries that are made for the establishment
of a liquidation account, the reorganization will not diminish the accumulated
earnings and profits of Mutual available for the subsequent distribution of
dividends, within the meaning of Section 316 of the Code. Section 1.312-11(b)
and (c) of the Regulations. Stock Institution will succeed to and take into
account the earnings and profits or deficit in earnings and profits, of Mutual
as of the date of Conversion.
The above opinions are effective to the extent that Mutual is solvent.
No opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the transaction
under the provisions of any of the other sections of the Code and Income Tax
Regulations which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
which are not specifically covered by the opinions set forth above. No opinion
is expressed as to the tax treatment of the establishment or funding of the
Foundation.
Respectfully submitted,
SILVER, FREEDMAN & TAFF, L.L.P.
/s/ SILVER, FREEDMAN & TAFF, L.L.P.
-----------------------------------
Exhibit 8.3
March 6, 1998
Board of Trustees
The Hudson City Savings Institution
One Hudson City Centre
Hudson, New York 12534
Re: Plan of Conversion: Subscription Rights
The Hudson City Savings Institution
----------------------------------------
Ladies and Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Trustees of The Hudson City Savings Institution ("HCSI" or the "Bank") whereby
the Bank will convert from a New York state chartered mutual savings bank to a
New York state chartered stock savings bank and issue all of the Bank's
outstanding capital stock to Hudson River Bancorp, Inc. (the "Holding Company").
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) Supplemental Eligible Account Holders; and (4) Other Members. 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 stocks 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 Subscription Offering will thereafter be able to buy or sell
such shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Ronald S. Riggins
---------------------
Ronald S. Riggins
President
Exhibit 10.1
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANK & TRUST COMPANY, a
state-chartered savings bank organized and existing under the laws of the State
of New York, the ("Bank"), and Carl A. Florio, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the President and Chief
Executive Officer of the Bank and as the President and Chief Executive Officer
of Hudson River Bancorp, Inc. (the "Company"), and effective as of the date of
this Agreement, the Bank has converted from mutual to capital stock form and has
become the wholly owned subsidiary of the Company; and
WHEREAS, the Bank desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Bank (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Bank and the Executive
hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Bank or the Executive elects not to
extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as President and Chief Executive Officer of
the Bank, having such power, authority and responsibility and performing such
duties as are prescribed by or under the By-Laws of the Bank and as are
customarily associated with such position. The Executive shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Bank and shall use his best efforts to advance the
interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Bank shall pay to him a salary equal to the base salary from the
Company and the Bank in effect on the date of this Agreement, less the amount of
base salary actually paid to the Executive by the Company during the Employment
Period. The Executive's salary shall be payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. The Board shall review the Executive's annual rate of salary at
such times during the Employment Period as it deems appropriate, but not less
frequently than once every twelve months, and may, in its discretion, approve an
increase therein. In addition to salary, the Executive may receive other cash
compensation from the Bank for services hereunder at such times, in such amounts
and on such terms and conditions as the Board may determine from time to time.
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<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee benefit
plans and programs and compensation plans and programs and consistent with the
Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Bank shall cause the Executive to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank or service in
other capacities at the request of the Bank. The coverage provided to the
Executive pursuant to this section 6 shall be of the same scope and on the same
terms and conditions as the coverage (if any) provided to other officers or
directors of the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Bank shall
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Bank or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Company on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
3
<PAGE>
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Company, he shall continue to
perform services for the Bank in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Company in a manner inconsistent with the terms of such discharge or suspension
or any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Bank's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Bank shall maintain its principal executive
offices, or at such other location as the Bank and the Executive may mutually
agree upon. The Bank shall provide the Executive at his principal place of
employment with a private office, secretarial services and other support
services and facilities suitable to his position with the Bank and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Bank shall reimburse the Executive for his ordinary and necessary
business expenses, including, without limitation, the Executive's travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Bank of an itemized
account of such expenses in such form as the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in
section 9(b) in the event that:
(i) his employment with the Bank terminates during the Employment
Period as a result of the Executive's voluntary resignation within 90 days
following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Bank stated in section
3 of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Bank to elect or re-elect the Executive to the
Board or the failure of the Board (or the nominating committee
thereof) to nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which
the Executive gives written notice to the Bank of its material
failure, whether by amendment of the Bank's Restated Organization
Certificate, the Bank's By-Laws, action of the Board or the Bank's
shareholders or otherwise, to vest in the Executive the functions,
duties, or responsibilities prescribed in section 3 of this Agreement,
unless, during such 30-day period, the Bank cures such failure;
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<PAGE>
(D) the expiration of a 30-day period following the date on which
the Executive gives written notice to the Bank of its material breach
of any term, condition or covenant contained in this Agreement
(including, without limitation, any reduction of the Executive's rate
of base salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which the
Executive participates which, either individually or together with
other changes, has a material adverse effect on the aggregate value of
his total compensation package), unless, during such 30-day period,
the Bank cures such failure; or
(E) a change in the Executive's principal place of employment for
a distance in excess of 50 miles from the Bank's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of
the Bank, the Bank or any of their respective subsidiaries or
affiliates; or
(ii) the Executive's employment with the Bank is terminated by the
Bank during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a)
of this Agreement, the Bank shall pay and provide to the Executive (or, in
the event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all
items which constitute wages under applicable law and the payment of which
is not otherwise provided for in this section 9(b)) as of the date of the
termination of his employment with the Bank, such payment to be made at the
time and in the manner prescribed by law applicable to the payment of wages
but in no event later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers and
employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to section 9(b)(ii), and
after taking into account the coverage provided by any subsequent employer,
if and to the extent necessary to provide for the Executive, for the
Remaining Unexpired Employment Period, coverage equivalent to the coverage
to which he would have been entitled under such plans (as in effect on the
date of his termination of employment, or, if his termination of employment
occurs after a Change of Control, on the date of such Change of Control,
whichever benefits are greater), if he had continued working for the Bank
during the Remaining Unexpired Employment Period at the highest annual rate
of salary achieved during the Employment Period;
5
<PAGE>
(iv) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary (excluding any additional payments made to the
Executive in lieu of the use of an automobile) that the Executive would
have earned if he had continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary achieved
during the Employment Period, where such present value is to be determined
using a discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), compounded using the compounding periods
corresponding to the Bank's regular payroll periods for its officers, such
lump sum to be paid in lieu of all other payments of salary provided for
under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any,
of:
(A) the present value of the aggregate benefits to which he would
be entitled under The Retirement Plan of the Hudson River Bank & Trust
Company (together with the defined benefit portion of the Benefit
Restoration Plan of Hudson River Bank & Trust Company and any other
supplemental defined benefit plan) and any and all other qualified and
non-qualified defined benefit pension plans maintained by, or covering
employees of, the Bank if he were 100% vested thereunder and had
continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the Employment Period; over
(B) the present value of the benefits to which he is actually
entitled under such defined benefit pension plans as of the date of his
termination; where such present values are to be determined using the
mortality tables prescribed under section 415(b)(2)(E)(v) of the Code
and a discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which he would
have been entitled under the Hudson River Bank & Trust Company 401(k)
Savings Plan, the Hudson River Bancorp, Inc. Employee Stock Ownership Plan
(together with the defined contribution portion of the Benefit Restoration
Plan of Hudson River Bank & Trust Company or any other supplemental defined
contribution plan) and any and all other qualified and non-qualified
defined contribution plans maintained by, or covering employees of, the
Bank as if he were 100% vested thereunder and had continued working for the
Bank during the Remaining Unexpired Employment Period at the highest annual
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<PAGE>
rate of salary achieved during the Employment Period and making the maximum
amount of employee contributions, if any, required or permitted under such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that corresponds to
the frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the
payments that would have been made (without discounting for early payment)
to the Executive under any cash bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of, the
Bank if he had continued working for the Bank during the Remaining
Unexpired Employment Period and had earned the maximum bonus or incentive
award in each calendar year that ends during the Remaining Unexpired
Employment Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Executive during
each such calendar year at the highest annual rate of salary achieved
during the Employment Period.
(viii) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of
options or appreciation rights issued to the Executive under any stock
option and appreciation rights plan or program maintained by, or covering
employees of, the Bank, a lump sum payment in an amount equal to the
product of:
(A) the excess of (I) the fair market value of a share of stock
of the same class as the stock subject to the option or appreciation
right, determined as of the date of termination of employment, over
(II) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock option
or appreciation rights plan or program maintained by, or covering employees
of, the Bank, even if he is not vested under the terms of such plan or
program; and
(ix) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of
any shares awarded to the Executive under any restricted stock plan
maintained by, or covering employees of, the Bank, a lump sum payment in an
amount equal to the product of:
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<PAGE>
(A) the fair market value of a share of stock of the same class
of stock granted under such plan, determined as of the date of the
Executive's termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by,
or covering employees of, the Bank, even if he is not vested under the
terms of such plan.
The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank may
condition the payments and benefits (if any) due under sections 9(b)(iii), (iv),
(v), (vi) and (vii) on the receipt of the Executive's resignation from any and
all positions which he holds as an officer, director or committee member with
respect to the Bank or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of
this Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform his assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with his
performance of services for the Bank or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to his
performance of services for the Bank, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Bank
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Bank, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Bank shall have no further obligations
under this Agreement, other than the payment to the Executive of his earned but
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unpaid salary as of the date of the termination of his employment and the
provision of such other benefits, if any, to which he is entitled as a former
employee under the Bank's employee benefit plans and programs and compensation
plans and programs.
For purposes of this section 10, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Bank. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Bank
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Bank. Prior to the date
on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
him a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations to refute the grounds for
the proposed determination.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Bank ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Bank of a transaction
that would result and does result in the reorganization, merger or
consolidation of the Bank, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the
Bank; and
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<PAGE>
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the securities entitled to vote generally in the
election of directors of the Bank;
(ii) the acquisition of all or substantially all of the assets of
the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the shareholders of the Bank of any transaction which
would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Bank, or
approval by the shareholders of the Bank of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to any
of the following groups:
(A) individuals who were members of the Board on the date of
this Agreement; or
(B) individuals who first became members of the Board after
the date of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such
board, or of a nominating committee thereof, in office at
the time of such first election; or
(2) upon election by the shareholders of the Board to
serve as a member of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of a
nominating committee thereof, in office at the time of such
first nomination;
provided, however, that such individual's election or nomination did not
result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) other than by or on behalf of the Board of the Bank; or
(v) any event which would be described in section 11(a)(i), (ii),
(iii) or (iv) if the term "Company" were substituted for the term "Bank"
therein and the term "Company Board" were substituted for the term "Board"
therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Bank
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Bank shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or his termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Bank or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive= employment
with the Bank or its predecessor if such period is less than five years). The
Bank shall also continue to provide to the Executive and to his eligible
dependents the benefits described in section 9(b)(iii) hereof for a period of at
least 36 months following the later of the effective time of such Change in
Control or his termination of employment.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is
terminated upon or following (i) a Change in Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Company or the Bank or "in the ownership of a substantial portion of the
assets" of the Company or the Bank within the meaning of section 280G of the
Code. If this section 12 applies, then, if for any taxable year, the Executive
shall be liable for the payment of an excise tax under section 4999 of the Code
with respect to any payment in the nature of compensation made by the Bank or
any direct or indirect subsidiary or affiliate of the Bank to (or for the
benefit of) the Executive, the Bank shall pay to the Executive an amount equal
to X determined under the following formula:
E x P
X= ---------------------------------------
1 - [F I x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under section
4999 of the Code;
11
<PAGE>
P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable to
the Executive under the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Company, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Bank, as the case may be, shall
pay to the other party at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under section 12(a), when increased by the amount of the payment made to the
Executive under this section 12(b) by the Bank, or when reduced by the amount of
the payment made to the Bank under this section 12(b) by the Executive, equals
the amount that should have properly been paid to the Executive under section
12(a). The interest paid under this section 12(b) shall be determined at the
rate provided under section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the Executive under this section 12, the
Executive shall furnish to the Bank a copy of each tax return which reflects a
liability for an excise tax payment made by the Bank, at least 20 days before
the date on which such return is required to be filed with the Internal Revenue
Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Bank prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
12
<PAGE>
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Bank
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, the Executive
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Bank or any entity which is a subsidiary
of the Bank or of which the Bank is a subsidiary, any material document or
information obtained from the Bank, or from its parent or subsidiaries, in the
course of his employment with any of them concerning their properties,
operations or business (unless such document or information is readily
ascertainable from public or published information or trade sources or has
otherwise been made available to the public through no fault of his own) until
the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Bank's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one
year following his termination of employment with the Bank, he shall not,
without the written consent of the Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended,
or that a reasonable person acting in like circumstances would expect, to
have the effect of causing any officer or employee of the Bank or any of
its subsidiaries or affiliates to terminate his employment and accept
employment or become affiliated with, or provide services for compensation
in any capacity whatsoever to, any savings bank, savings and loan bank,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 13;
(b) provide any information, advice or recommendation with respect to
any such officer or employee of any savings bank, savings and loan bank,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 13, that is
intended, or that a reasonable person acting in like circumstances would
expect, to have the effect of causing any officer or employee of the Bank
or any of its subsidiaries or affiliates to terminate his employment and
accept employment or become affiliated with, or provide services for
13
<PAGE>
compensation in any capacity whatsoever to, any savings bank, savings and
loan association, bank, bank holding company, savings and loan holding
company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of
the Bank to terminate an existing business or commercial relationship with
the Bank.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Bank or by the Executive, shall have no
effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank from time to
time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Executive to which the Bank is a party and any duplicative
amount payable under any such agreement, plan or program shall be applied as an
offset to reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Bank and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank's obligations hereunder at least 60
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
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<PAGE>
If to the Executive:
----------------------
----------------------
----------------------
If to the Bank:
Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Bank shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Bank's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, and such amounts shall not be reduced whether
or not the Executive obtains other employment. Unless it is determined that a
claim made by the Executive was either frivolous or made in bad faith, the Bank
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of or in
connection with his consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Bank, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
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<PAGE>
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
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<PAGE>
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Company
or any other direct or indirect subsidiary or affiliate of the Bank, it is
intended that any compensation or benefits provided to the Executive by such
other employer shall not duplicate the compensation or benefits provided under
this Agreement. The compensation and benefits payable under this Agreement shall
be reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments
to the Executive by the Bank, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and the Executive has hereunto set his hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANK & TRUST COMPANY
By_____________________________ By____________________________________
Secretary Name:
Title:
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<PAGE>
[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came __________________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me duly sworn,
did depose and say that he resides at the address set forth in said instrument,
and that he signed his name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at _______________________________________, that
he is the _______________________ of HUDSON RIVER BANK & TRUST COMPANY, the New
York State chartered stock savings bank described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he or she signed his name
thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
19
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANK & TRUST COMPANY, a
state-chartered savings bank organized and existing under the laws of the State
of New York, the ("Bank"), and Timothy E. Blow, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Chief Financial Officer
of the Bank and as the Chief Financial Officer of Hudson River Bancorp, Inc.
(the "Company"), and effective as of the date of this Agreement, the Bank has
converted from mutual to capital stock form and has become the wholly owned
subsidiary of the Company; and
WHEREAS, the Bank desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Bank (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Bank and the Executive
hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Bank or the Executive elects not to
extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Chief Financial Officer of the Bank,
having such power, authority and responsibility and performing such duties as
are prescribed by or under the By-Laws of the Bank and as are customarily
associated with such position. The Executive shall devote his full business time
and attention (other than during weekends, holidays, approved vacation periods,
and periods of illness or approved leaves of absence) to the business and
affairs of the Bank and shall use his best efforts to advance the interests of
the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Bank shall pay to him a salary equal to the base salary from the
Company and the Bank in effect on the date of this Agreement, less the amount of
base salary actually paid to the Executive by the Company during the Employment
Period. The Executive's salary shall be payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. The Board shall review the Executive's annual rate of salary at
such times during the Employment Period as it deems appropriate, but not less
frequently than once every twelve months, and may, in its discretion, approve an
increase therein. In addition to salary, the Executive may receive other cash
compensation from the Bank for services hereunder at such times, in such amounts
and on such terms and conditions as the Board may determine from time to time.
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<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee benefit
plans and programs and compensation plans and programs and consistent with the
Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Bank shall cause the Executive to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank or service in
other capacities at the request of the Bank. The coverage provided to the
Executive pursuant to this section 6 shall be of the same scope and on the same
terms and conditions as the coverage (if any) provided to other officers or
directors of the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Bank shall
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Bank or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Company on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
3
<PAGE>
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Company, he shall continue to
perform services for the Bank in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Company in a manner inconsistent with the terms of such discharge or suspension
or any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Bank's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Bank shall maintain its principal executive
offices, or at such other location as the Bank and the Executive may mutually
agree upon. The Bank shall provide the Executive at his principal place of
employment with a private office, secretarial services and other support
services and facilities suitable to his position with the Bank and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Bank shall reimburse the Executive for his ordinary and necessary
business expenses, including, without limitation, the Executive's travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Bank of an itemized
account of such expenses in such form as the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in
section 9(b) in the event that:
(i) his employment with the Bank terminates during the Employment
Period as a result of the Executive's voluntary resignation within 90 days
following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Bank stated in section
3 of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Bank to elect or re-elect the Executive to the
Board or the failure of the Board (or the nominating committee
thereof) to nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which
the Executive gives written notice to the Bank of its material
failure, whether by amendment of the Bank's Restated Organization
Certificate, the Bank's By-Laws, action of the Board or the Bank's
shareholders or otherwise, to vest in the Executive the functions,
duties, or responsibilities prescribed in section 3 of this Agreement,
unless, during such 30-day period, the Bank cures such failure;
4
<PAGE>
(D) the expiration of a 30-day period following the date on which
the Executive gives written notice to the Bank of its material breach
of any term, condition or covenant contained in this Agreement
(including, without limitation, any reduction of the Executive's rate
of base salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which the
Executive participates which, either individually or together with
other changes, has a material adverse effect on the aggregate value of
his total compensation package), unless, during such 30-day period,
the Bank cures such failure; or
(E) a change in the Executive's principal place of employment for
a distance in excess of 50 miles from the Bank's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of
the Bank, the Bank or any of their respective subsidiaries or
affiliates; or
(ii) the Executive's employment with the Bank is terminated by the
Bank during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a)
of this Agreement, the Bank shall pay and provide to the Executive (or, in
the event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all
items which constitute wages under applicable law and the payment of which
is not otherwise provided for in this section 9(b)) as of the date of the
termination of his employment with the Bank, such payment to be made at the
time and in the manner prescribed by law applicable to the payment of wages
but in no event later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers and
employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to section 9(b)(ii), and
after taking into account the coverage provided by any subsequent employer,
if and to the extent necessary to provide for the Executive, for the
Remaining Unexpired Employment Period, coverage equivalent to the coverage
to which he would have been entitled under such plans (as in effect on the
date of his termination of employment, or, if his termination of employment
occurs after a Change of Control, on the date of such Change of Control,
whichever benefits are greater), if he had continued working for the Bank
during the Remaining Unexpired Employment Period at the highest annual rate
of salary achieved during the Employment Period;
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(iv) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary (excluding any additional payments made to the
Executive in lieu of the use of an automobile) that the Executive would
have earned if he had continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary achieved
during the Employment Period, where such present value is to be determined
using a discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), compounded using the compounding periods
corresponding to the Bank's regular payroll periods for its officers, such
lump sum to be paid in lieu of all other payments of salary provided for
under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any,
of:
(A) the present value of the aggregate benefits to which he would
be entitled under The Retirement Plan of the Hudson River Bank & Trust
Company (together with the defined benefit portion of the Benefit
Restoration Plan of Hudson River Bank & Trust Company and any other
supplemental defined benefit plan) and any and all other qualified and
non-qualified defined benefit pension plans maintained by, or covering
employees of, the Bank if he were 100% vested thereunder and had
continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the Employment Period; over
(B) the present value of the benefits to which he is actually
entitled under such defined benefit pension plans as of the date of his
termination; where such present values are to be determined using the
mortality tables prescribed under section 415(b)(2)(E)(v) of the Code
and a discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which he would
have been entitled under the Hudson River Bank & Trust Company 401(k)
Savings Plan, the Hudson River Bancorp, Inc. Employee Stock Ownership Plan
(together with the defined contribution portion of the Benefit Restoration
Plan of Hudson River Bank & Trust Company or any other supplemental defined
contribution plan) and any and all other qualified and non-qualified
defined contribution plans maintained by, or covering employees of, the
Bank as if he were 100% vested thereunder and had continued working for the
Bank during the Remaining Unexpired Employment Period at the highest annual
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<PAGE>
rate of salary achieved during the Employment Period and making the maximum
amount of employee contributions, if any, required or permitted under such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that corresponds to
the frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the
payments that would have been made (without discounting for early payment)
to the Executive under any cash bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of, the
Bank if he had continued working for the Bank during the Remaining
Unexpired Employment Period and had earned the maximum bonus or incentive
award in each calendar year that ends during the Remaining Unexpired
Employment Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Executive during
each such calendar year at the highest annual rate of salary achieved
during the Employment Period.
(viii) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of
options or appreciation rights issued to the Executive under any stock
option and appreciation rights plan or program maintained by, or covering
employees of, the Bank, a lump sum payment in an amount equal to the
product of:
(A) the excess of (I) the fair market value of a share of stock
of the same class as the stock subject to the option or appreciation
right, determined as of the date of termination of employment, over
(II) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock option
or appreciation rights plan or program maintained by, or covering employees
of, the Bank, even if he is not vested under the terms of such plan or
program; and
(ix) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of
any shares awarded to the Executive under any restricted stock plan
maintained by, or covering employees of, the Bank, a lump sum payment in an
amount equal to the product of:
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<PAGE>
(A) the fair market value of a share of stock of the same class
of stock granted under such plan, determined as of the date of the
Executive's termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by,
or covering employees of, the Bank, even if he is not vested under the
terms of such plan.
The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank may
condition the payments and benefits (if any) due under sections 9(b)(iii), (iv),
(v), (vi) and (vii) on the receipt of the Executive's resignation from any and
all positions which he holds as an officer, director or committee member with
respect to the Bank or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of
this Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform his assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with his
performance of services for the Bank or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to his
performance of services for the Bank, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Bank
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Bank, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Bank shall have no further obligations
under this Agreement, other than the payment to the Executive of his earned but
8
<PAGE>
unpaid salary as of the date of the termination of his employment and the
provision of such other benefits, if any, to which he is entitled as a former
employee under the Bank's employee benefit plans and programs and compensation
plans and programs.
For purposes of this section 10, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Bank. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Bank
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Bank. Prior to the date
on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
him a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations to refute the grounds for
the proposed determination.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Bank ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Bank of a transaction
that would result and does result in the reorganization, merger or
consolidation of the Bank, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the
Bank; and
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<PAGE>
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the securities entitled to vote generally in the
election of directors of the Bank;
(ii) the acquisition of all or substantially all of the assets of
the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the shareholders of the Bank of any transaction which
would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Bank, or
approval by the shareholders of the Bank of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to any
of the following groups:
(A) individuals who were members of the Board on the date of
this Agreement; or
(B) individuals who first became members of the Board after
the date of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such
board, or of a nominating committee thereof, in office at
the time of such first election; or
(2) upon election by the shareholders of the Board to
serve as a member of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of a
nominating committee thereof, in office at the time of such
first nomination;
provided, however, that such individual's election or nomination did not
result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) other than by or on behalf of the Board of the Bank; or
(v) any event which would be described in section 11(a)(i), (ii),
(iii) or (iv) if the term "Company" were substituted for the term "Bank"
therein and the term "Company Board" were substituted for the term "Board"
therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Bank
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Bank shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or his termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Bank or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive= employment
with the Bank or its predecessor if such period is less than five years). The
Bank shall also continue to provide to the Executive and to his eligible
dependents the benefits described in section 9(b)(iii) hereof for a period of at
least 36 months following the later of the effective time of such Change in
Control or his termination of employment.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is
terminated upon or following (i) a Change in Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Company or the Bank or "in the ownership of a substantial portion of the
assets" of the Company or the Bank within the meaning of section 280G of the
Code. If this section 12 applies, then, if for any taxable year, the Executive
shall be liable for the payment of an excise tax under section 4999 of the Code
with respect to any payment in the nature of compensation made by the Bank or
any direct or indirect subsidiary or affiliate of the Bank to (or for the
benefit of) the Executive, the Bank shall pay to the Executive an amount equal
to X determined under the following formula:
E x P
X= ---------------------------------------
1 - [F I x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under section
4999 of the Code;
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P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable to
the Executive under the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Company, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Bank, as the case may be, shall
pay to the other party at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under section 12(a), when increased by the amount of the payment made to the
Executive under this section 12(b) by the Bank, or when reduced by the amount of
the payment made to the Bank under this section 12(b) by the Executive, equals
the amount that should have properly been paid to the Executive under section
12(a). The interest paid under this section 12(b) shall be determined at the
rate provided under section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the Executive under this section 12, the
Executive shall furnish to the Bank a copy of each tax return which reflects a
liability for an excise tax payment made by the Bank, at least 20 days before
the date on which such return is required to be filed with the Internal Revenue
Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Bank prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
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bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Bank
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, the Executive
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Bank or any entity which is a subsidiary
of the Bank or of which the Bank is a subsidiary, any material document or
information obtained from the Bank, or from its parent or subsidiaries, in the
course of his employment with any of them concerning their properties,
operations or business (unless such document or information is readily
ascertainable from public or published information or trade sources or has
otherwise been made available to the public through no fault of his own) until
the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Bank's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one
year following his termination of employment with the Bank, he shall not,
without the written consent of the Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended,
or that a reasonable person acting in like circumstances would expect, to
have the effect of causing any officer or employee of the Bank or any of
its subsidiaries or affiliates to terminate his employment and accept
employment or become affiliated with, or provide services for compensation
in any capacity whatsoever to, any savings bank, savings and loan bank,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 13;
(b) provide any information, advice or recommendation with respect to
any such officer or employee of any savings bank, savings and loan bank,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 13, that is
intended, or that a reasonable person acting in like circumstances would
expect, to have the effect of causing any officer or employee of the Bank
or any of its subsidiaries or affiliates to terminate his employment and
accept employment or become affiliated with, or provide services for
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compensation in any capacity whatsoever to, any savings bank, savings and
loan association, bank, bank holding company, savings and loan holding
company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of
the Bank to terminate an existing business or commercial relationship with
the Bank.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Bank or by the Executive, shall have no
effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank from time to
time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Executive to which the Bank is a party and any duplicative
amount payable under any such agreement, plan or program shall be applied as an
offset to reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Bank and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank's obligations hereunder at least 60
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
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If to the Executive:
----------------------
----------------------
----------------------
If to the Bank:
Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Bank shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Bank's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, and such amounts shall not be reduced whether
or not the Executive obtains other employment. Unless it is determined that a
claim made by the Executive was either frivolous or made in bad faith, the Bank
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of or in
connection with his consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Bank, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
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SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
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SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Company
or any other direct or indirect subsidiary or affiliate of the Bank, it is
intended that any compensation or benefits provided to the Executive by such
other employer shall not duplicate the compensation or benefits provided under
this Agreement. The compensation and benefits payable under this Agreement shall
be reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments
to the Executive by the Bank, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and the Executive has hereunto set his hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANK & TRUST COMPANY
By_____________________________ By____________________________________
Secretary Name:
Title:
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[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came __________________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me duly sworn,
did depose and say that he resides at the address set forth in said instrument,
and that he signed his name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
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STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at _______________________________________, that
he is the _______________________ of HUDSON RIVER BANK & TRUST COMPANY, the New
York State chartered stock savings bank described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he or she signed his name
thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
19
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANK & TRUST COMPANY, a
state-chartered savings bank organized and existing under the laws of the State
of New York, the ("Bank"), and Sidney D. Richter, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Senior Vice President of
the Bank and as the Senior Vice President of Hudson River Bancorp, Inc. (the
"Company"), and effective as of the date of this Agreement, the Bank has
converted from mutual to capital stock form and has become the wholly owned
subsidiary of the Company; and
WHEREAS, the Bank desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Bank (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Bank and the Executive
hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Bank or the Executive elects not to
extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Vice President of the Bank, having
such power, authority and responsibility and performing such duties as are
prescribed by or under the By-Laws of the Bank and as are customarily associated
with such position. The Executive shall devote his full business time and
attention (other than during weekends, holidays, approved vacation periods, and
periods of illness or approved leaves of absence) to the business and affairs of
the Bank and shall use his best efforts to advance the interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Bank shall pay to him a salary equal to the base salary from the
Company and the Bank in effect on the date of this Agreement, less the amount of
base salary actually paid to the Executive by the Company during the Employment
Period. The Executive's salary shall be payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. The Board shall review the Executive's annual rate of salary at
such times during the Employment Period as it deems appropriate, but not less
frequently than once every twelve months, and may, in its discretion, approve an
increase therein. In addition to salary, the Executive may receive other cash
compensation from the Bank for services hereunder at such times, in such amounts
and on such terms and conditions as the Board may determine from time to time.
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<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee benefit
plans and programs and compensation plans and programs and consistent with the
Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Bank shall cause the Executive to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank or service in
other capacities at the request of the Bank. The coverage provided to the
Executive pursuant to this section 6 shall be of the same scope and on the same
terms and conditions as the coverage (if any) provided to other officers or
directors of the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Bank shall
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Bank or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Company on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
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<PAGE>
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Company, he shall continue to
perform services for the Bank in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Company in a manner inconsistent with the terms of such discharge or suspension
or any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Bank's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Bank shall maintain its principal executive
offices, or at such other location as the Bank and the Executive may mutually
agree upon. The Bank shall provide the Executive at his principal place of
employment with a private office, secretarial services and other support
services and facilities suitable to his position with the Bank and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Bank shall reimburse the Executive for his ordinary and necessary
business expenses, including, without limitation, the Executive's travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Bank of an itemized
account of such expenses in such form as the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in
section 9(b) in the event that:
(i) his employment with the Bank terminates during the Employment
Period as a result of the Executive's voluntary resignation within 90 days
following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Bank stated in section
3 of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Bank to elect or re-elect the Executive to the
Board or the failure of the Board (or the nominating committee
thereof) to nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which
the Executive gives written notice to the Bank of its material
failure, whether by amendment of the Bank's Restated Organization
Certificate, the Bank's By-Laws, action of the Board or the Bank's
shareholders or otherwise, to vest in the Executive the functions,
duties, or responsibilities prescribed in section 3 of this Agreement,
unless, during such 30-day period, the Bank cures such failure;
4
<PAGE>
(D) the expiration of a 30-day period following the date on which
the Executive gives written notice to the Bank of its material breach
of any term, condition or covenant contained in this Agreement
(including, without limitation, any reduction of the Executive's rate
of base salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which the
Executive participates which, either individually or together with
other changes, has a material adverse effect on the aggregate value of
his total compensation package), unless, during such 30-day period,
the Bank cures such failure; or
(E) a change in the Executive's principal place of employment for
a distance in excess of 50 miles from the Bank's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of
the Bank, the Bank or any of their respective subsidiaries or
affiliates; or
(ii) the Executive's employment with the Bank is terminated by the
Bank during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a)
of this Agreement, the Bank shall pay and provide to the Executive (or, in
the event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all
items which constitute wages under applicable law and the payment of which
is not otherwise provided for in this section 9(b)) as of the date of the
termination of his employment with the Bank, such payment to be made at the
time and in the manner prescribed by law applicable to the payment of wages
but in no event later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers and
employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to section 9(b)(ii), and
after taking into account the coverage provided by any subsequent employer,
if and to the extent necessary to provide for the Executive, for the
Remaining Unexpired Employment Period, coverage equivalent to the coverage
to which he would have been entitled under such plans (as in effect on the
date of his termination of employment, or, if his termination of employment
occurs after a Change of Control, on the date of such Change of Control,
whichever benefits are greater), if he had continued working for the Bank
during the Remaining Unexpired Employment Period at the highest annual rate
of salary achieved during the Employment Period;
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<PAGE>
(iv) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary (excluding any additional payments made to the
Executive in lieu of the use of an automobile) that the Executive would
have earned if he had continued working for the Bank during the Remaining
Unexpired Employment Period at the highest annual rate of salary achieved
during the Employment Period, where such present value is to be determined
using a discount rate equal to the applicable short-term federal rate
prescribed under section 1274(d) of the Internal Revenue Code of 1986, as
amended (the "Code"), compounded using the compounding periods
corresponding to the Bank's regular payroll periods for its officers, such
lump sum to be paid in lieu of all other payments of salary provided for
under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any,
of:
(A) the present value of the aggregate benefits to which he would
be entitled under The Retirement Plan of the Hudson River Bank & Trust
Company (together with the defined benefit portion of the Benefit
Restoration Plan of Hudson River Bank & Trust Company and any other
supplemental defined benefit plan) and any and all other qualified and
non-qualified defined benefit pension plans maintained by, or covering
employees of, the Bank if he were 100% vested thereunder and had
continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
the Employment Period; over
(B) the present value of the benefits to which he is actually
entitled under such defined benefit pension plans as of the date of his
termination; where such present values are to be determined using the
mortality tables prescribed under section 415(b)(2)(E)(v) of the Code
and a discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which he would
have been entitled under the Hudson River Bank & Trust Company 401(k)
Savings Plan, the Hudson River Bancorp, Inc. Employee Stock Ownership Plan
(together with the defined contribution portion of the Benefit Restoration
Plan of Hudson River Bank & Trust Company or any other supplemental defined
contribution plan) and any and all other qualified and non-qualified
defined contribution plans maintained by, or covering employees of, the
Bank as if he were 100% vested thereunder and had continued working for the
Bank during the Remaining Unexpired Employment Period at the highest annual
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<PAGE>
rate of salary achieved during the Employment Period and making the maximum
amount of employee contributions, if any, required or permitted under such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that corresponds to
the frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the
payments that would have been made (without discounting for early payment)
to the Executive under any cash bonus or long-term or short-term cash
incentive compensation plan maintained by, or covering employees of, the
Bank if he had continued working for the Bank during the Remaining
Unexpired Employment Period and had earned the maximum bonus or incentive
award in each calendar year that ends during the Remaining Unexpired
Employment Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Executive under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Executive during
each such calendar year at the highest annual rate of salary achieved
during the Employment Period.
(viii) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of
options or appreciation rights issued to the Executive under any stock
option and appreciation rights plan or program maintained by, or covering
employees of, the Bank, a lump sum payment in an amount equal to the
product of:
(A) the excess of (I) the fair market value of a share of stock
of the same class as the stock subject to the option or appreciation
right, determined as of the date of termination of employment, over
(II) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock option
or appreciation rights plan or program maintained by, or covering employees
of, the Bank, even if he is not vested under the terms of such plan or
program; and
(ix) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of
any shares awarded to the Executive under any restricted stock plan
maintained by, or covering employees of, the Bank, a lump sum payment in an
amount equal to the product of:
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(A) the fair market value of a share of stock of the same class
of stock granted under such plan, determined as of the date of the
Executive's termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by,
or covering employees of, the Bank, even if he is not vested under the
terms of such plan.
The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank may
condition the payments and benefits (if any) due under sections 9(b)(iii), (iv),
(v), (vi) and (vii) on the receipt of the Executive's resignation from any and
all positions which he holds as an officer, director or committee member with
respect to the Bank or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of
this Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform his assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with his
performance of services for the Bank or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to his
performance of services for the Bank, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Bank
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Bank, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Bank shall have no further obligations
under this Agreement, other than the payment to the Executive of his earned but
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unpaid salary as of the date of the termination of his employment and the
provision of such other benefits, if any, to which he is entitled as a former
employee under the Bank's employee benefit plans and programs and compensation
plans and programs.
For purposes of this section 10, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Bank. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Bank
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Bank. Prior to the date
on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
him a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations to refute the grounds for
the proposed determination.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Bank ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Bank of a transaction
that would result and does result in the reorganization, merger or
consolidation of the Bank, respectively, with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the
Bank; and
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(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the securities entitled to vote generally in the
election of directors of the Bank;
(ii) the acquisition of all or substantially all of the assets of
the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the shareholders of the Bank of any transaction which
would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Bank, or
approval by the shareholders of the Bank of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to any
of the following groups:
(A) individuals who were members of the Board on the date of
this Agreement; or
(B) individuals who first became members of the Board after
the date of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such
board, or of a nominating committee thereof, in office at
the time of such first election; or
(2) upon election by the shareholders of the Board to
serve as a member of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of a
nominating committee thereof, in office at the time of such
first nomination;
provided, however, that such individual's election or nomination did not
result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) other than by or on behalf of the Board of the Bank; or
(v) any event which would be described in section 11(a)(i), (ii),
(iii) or (iv) if the term "Company" were substituted for the term "Bank"
therein and the term "Company Board" were substituted for the term "Board"
therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Bank
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Bank shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or his termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Bank or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive= employment
with the Bank or its predecessor if such period is less than five years). The
Bank shall also continue to provide to the Executive and to his eligible
dependents the benefits described in section 9(b)(iii) hereof for a period of at
least 36 months following the later of the effective time of such Change in
Control or his termination of employment.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is
terminated upon or following (i) a Change in Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Company or the Bank or "in the ownership of a substantial portion of the
assets" of the Company or the Bank within the meaning of section 280G of the
Code. If this section 12 applies, then, if for any taxable year, the Executive
shall be liable for the payment of an excise tax under section 4999 of the Code
with respect to any payment in the nature of compensation made by the Bank or
any direct or indirect subsidiary or affiliate of the Bank to (or for the
benefit of) the Executive, the Bank shall pay to the Executive an amount equal
to X determined under the following formula:
E x P
X= ---------------------------------------
1 - [F I x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under section
4999 of the Code;
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P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable to
the Executive under the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Company, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Bank, as the case may be, shall
pay to the other party at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under section 12(a), when increased by the amount of the payment made to the
Executive under this section 12(b) by the Bank, or when reduced by the amount of
the payment made to the Bank under this section 12(b) by the Executive, equals
the amount that should have properly been paid to the Executive under section
12(a). The interest paid under this section 12(b) shall be determined at the
rate provided under section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the Executive under this section 12, the
Executive shall furnish to the Bank a copy of each tax return which reflects a
liability for an excise tax payment made by the Bank, at least 20 days before
the date on which such return is required to be filed with the Internal Revenue
Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Bank prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
12
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bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Bank
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, the Executive
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Bank or any entity which is a subsidiary
of the Bank or of which the Bank is a subsidiary, any material document or
information obtained from the Bank, or from its parent or subsidiaries, in the
course of his employment with any of them concerning their properties,
operations or business (unless such document or information is readily
ascertainable from public or published information or trade sources or has
otherwise been made available to the public through no fault of his own) until
the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Bank's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one
year following his termination of employment with the Bank, he shall not,
without the written consent of the Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended,
or that a reasonable person acting in like circumstances would expect, to
have the effect of causing any officer or employee of the Bank or any of
its subsidiaries or affiliates to terminate his employment and accept
employment or become affiliated with, or provide services for compensation
in any capacity whatsoever to, any savings bank, savings and loan bank,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 13;
(b) provide any information, advice or recommendation with respect to
any such officer or employee of any savings bank, savings and loan bank,
bank, bank holding company, savings and loan holding company, or other
institution engaged in the business of accepting deposits, making loans or
doing business within the counties specified in section 13, that is
intended, or that a reasonable person acting in like circumstances would
expect, to have the effect of causing any officer or employee of the Bank
or any of its subsidiaries or affiliates to terminate his employment and
accept employment or become affiliated with, or provide services for
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compensation in any capacity whatsoever to, any savings bank, savings and
loan association, bank, bank holding company, savings and loan holding
company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of
the Bank to terminate an existing business or commercial relationship with
the Bank.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Bank or by the Executive, shall have no
effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank from time to
time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Executive to which the Bank is a party and any duplicative
amount payable under any such agreement, plan or program shall be applied as an
offset to reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Bank and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank's obligations hereunder at least 60
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
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If to the Executive:
----------------------
----------------------
----------------------
If to the Bank:
Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Bank shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Bank's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, and such amounts shall not be reduced whether
or not the Executive obtains other employment. Unless it is determined that a
claim made by the Executive was either frivolous or made in bad faith, the Bank
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of or in
connection with his consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Bank, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
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SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
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SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Company
or any other direct or indirect subsidiary or affiliate of the Bank, it is
intended that any compensation or benefits provided to the Executive by such
other employer shall not duplicate the compensation or benefits provided under
this Agreement. The compensation and benefits payable under this Agreement shall
be reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments
to the Executive by the Bank, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and the Executive has hereunto set his hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANK & TRUST COMPANY
By_____________________________ By____________________________________
Secretary Name:
Title:
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[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came __________________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me duly sworn,
did depose and say that he resides at the address set forth in said instrument,
and that he signed his name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
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STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at _______________________________________, that
he is the _______________________ of HUDSON RIVER BANK & TRUST COMPANY, the New
York State chartered stock savings bank described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he or she signed his name
thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANK & TRUST COMPANY, a
state-chartered savings bank organized and existing under the laws of the State
of New York, the ("Bank"), and Pamela M. Wood, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Senior Vice President
and Secretary of the Bank and as the Senior Vice President and Secretary of
Hudson River Bancorp, Inc. (the "Company"), and effective as of the date of this
Agreement, the Bank has converted from mutual to capital stock form and has
become the wholly owned subsidiary of the Company; and
WHEREAS, the Bank desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Bank (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Bank and the Executive
hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Bank or the Executive elects not to
extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Bank for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Vice President and Secretary of the
Bank, having such power, authority and responsibility and performing such duties
as are prescribed by or under the By-Laws of the Bank and as are customarily
associated with such position. The Executive shall devote her full business time
and attention (other than during weekends, holidays, approved vacation periods,
and periods of illness or approved leaves of absence) to the business and
affairs of the Bank and shall use her best efforts to advance the interests of
the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Bank shall pay to her a salary equal to the base salary from the
Company and the Bank in effect on the date of this Agreement, less the amount of
base salary actually paid to the Executive by the Company during the Employment
Period. The Executive's salary shall be payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. The Board shall review the Executive's annual rate of salary at
such times during the Employment Period as it deems appropriate, but not less
frequently than once every twelve months, and may, in its discretion, approve an
increase therein. In addition to salary, the Executive may receive other cash
compensation from the Bank for services hereunder at such times, in such amounts
and on such terms and conditions as the Board may determine from time to time.
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an
employee of the Bank and shall be entitled to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee benefit
plans and programs and compensation plans and programs and consistent with the
Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years
thereafter, the Bank shall cause the Executive to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank or service in
other capacities at the request of the Bank. The coverage provided to the
Executive pursuant to this section 6 shall be of the same scope and on the same
terms and conditions as the coverage (if any) provided to other officers or
directors of the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Bank shall
indemnify the Executive against and hold her harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Bank or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as she may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of her duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of her duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Company on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of her duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
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<PAGE>
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Company, she shall continue to
perform services for the Bank in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Company in a manner inconsistent with the terms of such discharge or suspension
or any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Bank's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Bank shall maintain its principal executive
offices, or at such other location as the Bank and the Executive may mutually
agree upon. The Bank shall provide the Executive at her principal place of
employment with a private office, secretarial services and other support
services and facilities suitable to her position with the Bank and necessary or
appropriate in connection with the performance of her assigned duties under this
Agreement. The Bank shall reimburse the Executive for her ordinary and necessary
business expenses, including, without limitation, the Executive's travel and
entertainment expenses incurred in connection with the performance of her duties
under this Agreement, in each case upon presentation to the Bank of an itemized
account of such expenses in such form as the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in
section 9(b) in the event that:
(i) her employment with the Bank terminates during the Employment
Period as a result of the Executive's voluntary resignation within 90 days
following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Bank stated in section 3 of
this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Bank to elect or re-elect the Executive to the Board or
the failure of the Board (or the nominating committee thereof) to nominate
the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Bank of its material failure, whether
by amendment of the Bank's Restated Organization Certificate, the Bank's
By-Laws, action of the Board or the Bank's shareholders or otherwise, to
vest in the Executive the functions, duties, or responsibilities prescribed
in section 3 of this Agreement, unless, during such 30-day period, the Bank
cures such failure;
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(D) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Bank of its material breach of any
term, condition or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of base salary in effect
from time to time and any change in the terms and conditions of any
compensation or benefit program in which the Executive participates which,
either individually or together with other changes, has a material adverse
effect on the aggregate value of her total compensation package), unless,
during such 30-day period, the Bank cures such failure; or
(E) a change in the Executive's principal place of employment for a
distance in excess of 50 miles from the Bank's principal office in Hudson,
New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of the
Company, the Bank or any of their respective subsidiaries or affiliates; or
(ii) the Executive's employment with the Bank is terminated by the Bank
during the Employment Period for any reason other than for "cause," as provided
in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a)
of this Agreement, the Bank shall pay and provide to the Executive (or, in the
event of her death, to her estate):
(i) her earned but unpaid salary (including, without limitation, all
items which constitute wages under applicable law and the payment of which is
not otherwise provided for in this section 9(b)) as of the date of the
termination of her employment with the Bank, such payment to be made at the time
and in the manner prescribed by law applicable to the payment of wages but in no
event later than 30 days after termination of employment;
(ii) the benefits, if any, to which she is entitled as a former
employee under the employee benefit plans and programs and compensation plans
and programs maintained for the benefit of the Bank's officers and employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to section 9(b)(ii), and after
taking into account the coverage provided by any subsequent employer, if and to
the extent necessary to provide for the Executive, for the Remaining Unexpired
Employment Period, coverage equivalent to the coverage to which she would have
been entitled under such plans (as in effect on the date of her termination of
employment, or, if her termination of employment occurs after a Change of
Control, on the date of such Change of Control, whichever benefits are greater),
if she had continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during the
Employment Period;
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(iv) within 30 days following the Executive's termination of employment
with the Bank, a lump sum payment, in an amount equal to the present value of
the salary (excluding any additional payments made to the Executive in lieu of
the use of an automobile) that the Executive would have earned if she had
continued working for the Bank during the Remaining Unexpired Employment Period
at the highest annual rate of salary achieved during the Employment Period,
where such present value is to be determined using a discount rate equal to the
applicable short-term federal rate prescribed under section 1274(d) of the
Internal Revenue Code of 1986, as amended (the "Code"), compounded using the
compounding periods corresponding to the Bank's regular payroll periods for its
officers, such lump sum to be paid in lieu of all other payments of salary
provided for under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which she would be
entitled under The Retirement Plan of the Hudson River Bank & Trust Company
(together with the defined benefit portion of the Benefit Restoration Plan of
Hudson River Bank & Trust Company and any other supplemental defined benefit
plan) and any and all other qualified and non-qualified defined benefit pension
plans maintained by, or covering employees of, the Bank if she were 100% vested
thereunder and had continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during the
Employment Period; over
(B) the present value of the benefits to which she is actually entitled
under such defined benefit pension plans as of the date of her termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly equal to the annualized rate of interest prescribed by the
Pension Benefit Guaranty Corporation for the valuation of immediate annuities
payable under terminating single-employer defined benefit plans for the month in
which the Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of employment
with the Bank, a lump sum payment in an amount equal to the present value of the
additional employer contributions to which she would have been entitled under
the Hudson River Bank & Trust Company 401(k) Savings Plan, the Hudson River
Bancorp, Inc. Employee Stock Ownership Plan (together with the defined
contribution portion of the Benefit Restoration Plan of Hudson River Bank &
Trust Company or any other supplemental defined contribution plan) and any and
all other qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Bank as if she were 100% vested thereunder and had
continued working for the Bank during the Remaining Unexpired Employment Period
at the highest annual rate of salary achieved during the Employment Period and
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making the maximum amount of employee contributions, if any, required or
permitted under such plan or plans, such present value to be determined on the
basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of
employment with the Bank, a lump sum payment in an amount equal to the payments
that would have been made (without discounting for early payment) to the
Executive under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank if she had
continued working for the Bank during the Remaining Unexpired Employment Period
and had earned the maximum bonus or incentive award in each calendar year that
ends during the Remaining Unexpired Employment Period, such payments to be equal
to the product of:
(A) the maximum percentage rate at which an award was ever available
to the Executive under such incentive compensation plan; multiplied by
(B) the salary that would have been paid to the Executive during each
such calendar year at the highest annual rate of salary achieved during the
Employment Period.
(viii) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of options
or appreciation rights issued to the Executive under any stock option and
appreciation rights plan or program maintained by, or covering employees of, the
Bank, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a share of stock of the
same class as the stock subject to the option or appreciation right,
determined as of the date of termination of employment, over (II) the
exercise price per share for such option or appreciation right, as
specified in or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which options or appreciation
rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed
fully vested in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering employees of, the
Bank, even if she is not vested under the terms of such plan or program; and
(ix) at the election of the Bank made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of any
shares awarded to the Executive under any restricted stock plan maintained by,
or covering employees of, the Bank, a lump sum payment in an amount equal to the
product of:
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(A) the fair market value of a share of stock of the same class of
stock granted under such plan, determined as of the date of the Executive's
termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed
fully vested in all shares awarded under any restricted stock plan maintained
by, or covering employees of, the Bank, even if she is not vested under the
terms of such plan.
The Bank and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Bank and the Executive further agree that the Bank may
condition the payments and benefits (if any) due under sections 9(b)(iii), (iv),
(v), (vi) and (vii) on the receipt of the Executive's resignation from any and
all positions which she holds as an officer, director or committee member with
respect to the Bank or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Executive's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of
this Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform her assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with her
performance of services for the Bank or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to her
performance of services for the Bank, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Bank
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Bank, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Bank shall have no further obligations
under this Agreement, other than the payment to the Executive of her earned but
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<PAGE>
unpaid salary as of the date of the termination of her employment and the
provision of such other benefits, if any, to which she is entitled as a former
employee under the Bank's employee benefit plans and programs and compensation
plans and programs.
For purposes of this section 10, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Bank. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Bank
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Bank. Prior to the date
on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
her a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by her legal counsel at such presentations to refute the grounds for
the proposed determination.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Bank ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Bank of a transaction that
would result and does result in the reorganization, merger or consolidation of
the Bank, respectively, with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) in substantially the same relative proportions by
persons who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the Bank; and
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<PAGE>
(B) at least 51% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
the securities entitled to vote generally in the election of directors of
the Bank;
(ii) the acquisition of all or substantially all of the assets of the
Bank or beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 25% or more of the outstanding securities of the Bank
entitled to vote generally in the election of directors by any person or by any
persons acting in concert, or approval by the shareholders of the Bank of any
transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Bank, or approval by
the shareholders of the Bank of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board do not belong to any of the following
groups:
(A) individuals who were members of the Board on the date of this
Agreement; or
(B) individuals who first became members of the Board after the date
of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such board, or of
a nominating committee thereof, in office at the time of such first
election; or
(2) upon election by the shareholders of the Board to serve as a
member of the Board, but only if nominated for election by affirmative
vote of three-quarters of the members of the board of directors of the
Board, or of a nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or nomination did not result
from an actual or threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on
behalf of the Board of the Bank; or
(v) any event which would be described in section 11(a)(i), (ii), (iii)
or (iv) if the term "Company" were substituted for the term "Bank" therein and
the term "Company Board" were substituted for the term "Board" therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Bank
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Bank shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or her termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Bank or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive= employment
with the Bank or its predecessor if such period is less than five years). The
Bank shall also continue to provide to the Executive and to her eligible
dependents the benefits described in section 9(b)(iii) hereof for a period of at
least 36 months following the later of the effective time of such Change in
Control or her termination of employment.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is
terminated upon or following (i) a Change in Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Company or the Bank or "in the ownership of a substantial portion of the
assets" of the Company or the Bank within the meaning of section 280G of the
Code. If this section 12 applies, then, if for any taxable year, the Executive
shall be liable for the payment of an excise tax under section 4999 of the Code
with respect to any payment in the nature of compensation made by the Bank or
any direct or indirect subsidiary or affiliate of the Bank to (or for the
benefit of) the Executive, the Bank shall pay to the Executive an amount equal
to X determined under the following formula:
E x P
X= ----------------------------------------------
1 - [FI x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under section
4999 of the Code;
11
<PAGE>
P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable to
the Executive under the Code for the taxable year in
question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Company, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Bank, as the case may be, shall
pay to the other party at the time that the amount of such excise tax is finally
determined, an appropriate amount, plus interest, such that the payment made
under section 12(a), when increased by the amount of the payment made to the
Executive under this section 12(b) by the Bank, or when reduced by the amount of
the payment made to the Bank under this section 12(b) by the Executive, equals
the amount that should have properly been paid to the Executive under section
12(a). The interest paid under this section 12(b) shall be determined at the
rate provided under section 1274(b)(2)(B) of the Code. To confirm that the
proper amount, if any, was paid to the Executive under this section 12, the
Executive shall furnish to the Bank a copy of each tax return which reflects a
liability for an excise tax payment made by the Bank, at least 20 days before
the date on which such return is required to be filed with the Internal Revenue
Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of her
termination of employment with the Bank prior to the expiration of the
Employment Period, for a period of one year following the date of her
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), she shall not, without the written consent of the
Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
12
<PAGE>
of any such entity, that entails working within any county in which the Bank
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless she obtains the prior written consent of the Bank, the Executive
shall keep confidential and shall refrain from using for the benefit of herself,
or any person or entity other than the Bank or any entity which is a subsidiary
of the Bank or of which the Bank is a subsidiary, any material document or
information obtained from the Bank, or from its parent or subsidiaries, in the
course of her employment with any of them concerning their properties,
operations or business (unless such document or information is readily
ascertainable from public or published information or trade sources or has
otherwise been made available to the public through no fault of her own) until
the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Bank's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one
year following her termination of employment with the Bank, she shall not,
without the written consent of the Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Bank or any of its subsidiaries
or affiliates to terminate her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity whatsoever
to, any savings bank, savings and loan bank, bank, bank holding company, savings
and loan holding company, or other institution engaged in the business of
accepting deposits, making loans or doing business within the counties specified
in section 13;
(b) provide any information, advice or recommendation with respect to
any such officer or employee of any savings bank, savings and loan bank, bank,
bank holding company, savings and loan holding company, or other institution
engaged in the business of accepting deposits, making loans or doing business
within the counties specified in section 13, that is intended, or that a
reasonable person acting in like circumstances would expect, to have the effect
of causing any officer or employee of the Bank or any of its subsidiaries or
affiliates to terminate her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity whatsoever
to, any savings bank, savings and loan association, bank, bank holding company,
savings and loan holding company, or other institution engaged in the business
of accepting deposits, making loans or doing business within the counties
specified in section 13;
13
<PAGE>
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of the
Bank to terminate an existing business or commercial relationship with the Bank.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Bank or by the Executive, shall have no
effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank from time to
time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Executive to which the Bank is a party and any duplicative
amount payable under any such agreement, plan or program shall be applied as an
offset to reduce the amounts otherwise payable hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, her legal representatives and testate or intestate distributees, and
the Bank and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank's obligations hereunder at least 60
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
14
<PAGE>
If to the Executive:
----------------------
----------------------
----------------------
If to the Bank:
Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Bank shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by her in
connection with or arising out of any action, suit or proceeding in which she
may be involved, as a result of her efforts, in good faith, to defend or enforce
the terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Bank's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Bank may have against the Executive or others. In no event
shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement, and such amounts shall not be reduced whether
or not the Executive obtains other employment. Unless it is determined that a
claim made by the Executive was either frivolous or made in bad faith, the Bank
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of or in
connection with her consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Bank, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
15
<PAGE>
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
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<PAGE>
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Company
or any other direct or indirect subsidiary or affiliate of the Bank, it is
intended that any compensation or benefits provided to the Executive by such
other employer shall not duplicate the compensation or benefits provided under
this Agreement. The compensation and benefits payable under this Agreement shall
be reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments
to the Executive by the Bank, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and the Executive has hereunto set her hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANK & TRUST COMPANY
By_____________________________ By______________________________________
Secretary Name:
Title:
17
<PAGE>
[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came __________________, to me known, and known to me to be the
individual described in the foregoing instrument, who, being by me duly sworn,
did depose and say that she resides at the address set forth in said instrument,
and that she signed her name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me
personally came ___________, to me known, who, being by me duly sworn, did
depose and say that he resides at _______________________________________, that
he is the _______________________ of HUDSON RIVER BANK & TRUST COMPANY, the New
York State chartered stock savings bank described in and which executed the
foregoing instrument; that he knows the seal of said corporation; that the seal
affixed to said instrument is such seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he or she signed his name
thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
19
Exhibit 10.2
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANCORP, INC., a business
corporation organized and existing under the laws of the State of Delaware, the
("Company"), and Carl A. Florio, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the President and Chief
Executive Officer of the Company and as the President and Chief Executive
Officer of Hudson River Bank & Trust Company (the "Bank"), and effective as of
the date of this Agreement, the Bank has converted from mutual to capital stock
form and has become the wholly owned subsidiary of the Company; and
WHEREAS, the Company desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Company (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Company on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and the Executive hereby agree
as follows:
SECTION 1. EMPLOYMENT.
The Company agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement and ending on the third
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Company or the Executive elects not
to extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the third anniversary of
the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Company for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Company at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Company and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as the President and Chief Executive Officer of
the Company, having such power, authority and responsibility and performing such
duties as are prescribed by or under the By-Laws of the Company and as are
customarily associated with such position. The Executive shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Company and shall use his best efforts to advance
the interests of the Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company shall pay to him a salary equal to the base salary from
the Company and the Bank in effect on the date of this Agreement, less the
amount of base salary actually paid to the Executive by the Bank during the
Employment Period. The Executive's salary shall be payable in approximately
equal installments in accordance with the Company's customary payroll practices
for senior officers. The Board shall review the Executive's annual rate of
salary at such times during the Employment Period as it deems appropriate, but
not less frequently than once every twelve months, and may, in its discretion,
approve an increase therein. In addition to salary, the Executive may receive
other cash compensation from the Company for services hereunder at such times,
in such amounts and on such terms and conditions as the Board may determine from
time to time.
2
<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an employee
of the Company and shall be entitled to participate in and receive benefits
under any and all qualified or non-qualified retirement, pension, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company,
in accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the Company's
customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years thereafter,
the Company shall cause the Executive to be covered by and named as an insured
under any policy or contract of insurance obtained by it to insure its directors
and officers against personal liability for acts or omissions in connection with
service as an officer or director of the Company or service in other capacities
at the request of the Company. The coverage provided to the Executive pursuant
to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Company.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company shall
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Bank on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
3
<PAGE>
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Bank, he shall continue to
perform services for the Company in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Bank in a manner inconsistent with the terms of such discharge or suspension or
any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Company's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Company shall maintain its principal
executive offices, or at such other location as the Company and the Executive
may mutually agree upon. The Company shall provide the Executive at his
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to his position with the Company
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Company shall reimburse the Executive for his
ordinary and necessary business expenses, including, without limitation, the
Executive's travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, in each case upon presentation
to the Company of an itemized account of such expenses in such form as the
Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in section
9(b) in the event that:
(i) his employment with the Company terminates during the Employment Period
as a result of the Executive's voluntary resignation within 90 days following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Company stated in section 3
of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Company to elect or re-elect the Executive to the Board
or the failure of the Board (or the nominating committee thereof) to
nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material failure,
whether by amendment of the Company's Certificate of Incorporation, the
Company's By-Laws, action of the Board or the Company's shareholders or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement, unless, during
such 30-day period, the Company cures such failure;
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(D) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material breach of any
term, condition or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of base salary in effect
from time to time and any change in the terms and conditions of any
compensation or benefit program in which the Executive participates which,
either individually or together with other changes, has a material adverse
effect on the aggregate value of his total compensation package), unless,
during such 30-day period, the Company cures such failure; or
(E) a change in the Executive's principal place of employment for a
distance in excess of 50 miles from the Company's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of the
Company, the Bank or any of their respective subsidiaries or affiliates; or
(ii) the Executive's employment with the Company is terminated by the
Company during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a) of
this Agreement, the Company shall pay and provide to the Executive (or, in the
event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all items
which constitute wages under applicable law and the payment of which is not
otherwise provided for in this section 9(b)) as of the date of the termination
of his employment with the Company, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former employee
under the employee benefit plans and programs and compensation plans and
programs maintained for the benefit of the Company's officers and employees;
(iii) continued group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance benefits, in
addition to that provided pursuant to section 9(b)(ii), and after taking into
account the coverage provided by any subsequent employer, if and to the extent
necessary to provide for the Executive, for the Remaining Unexpired Employment
Period, coverage equivalent to the coverage to which he would have been entitled
under such plans (as in effect on the date of his termination of employment, or,
if his termination of employment occurs after a Change of Control, on the date
of such Change of Control, whichever benefits are greater), if he had continued
working for the Company during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during the Employment Period;
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(iv) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment, in an amount equal to the present value of
the salary (excluding any additional payments made to the Executive in lieu of
the use of an automobile) that the Executive would have earned if he had
continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
Period, where such present value is to be determined using a discount rate equal
to the applicable short-term federal rate prescribed under section 1274(d) of
the Internal Revenue Code of 1986, as amended (the "Code"), compounded using the
compounding periods corresponding to the Company's regular payroll periods for
its officers, such lump sum to be paid in lieu of all other payments of salary
provided for under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment with
the Company, a lump sum payment in an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which he would be
entitled under The Retirement Plan of the Hudson River Bank & Trust Company
(together with the defined benefit portion of the Benefit Restoration Plan of
Hudson River Bank & Trust Company and any other supplemental defined benefit
plan) and any and all other qualified and non-qualified defined benefit pension
plans maintained by, or covering employees of, the Company if he were 100%
vested thereunder and had continued working for the Company during the Remaining
Unexpired Employment Period at the highest annual rate of salary achieved during
the Employment Period; over
(B) the present value of the benefits to which he is actually entitled
under such defined benefit pension plans as of the date of his termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly equal to the annualized rate of interest prescribed by the
Pension Benefit Guaranty Corporation for the valuation of immediate annuities
payable under terminating single-employer defined benefit plans for the month in
which the Executive's termination of employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the present value of
the additional employer contributions to which he would have been entitled under
the Hudson River Bank & Trust Company 401(k) Savings Plan, the Hudson River
Bancorp, Inc. Employee Stock Ownership Plan (together with the defined
contribution portion of the Benefit Restoration Plan of Hudson River Bank &
Trust Company or any other supplemental defined contribution plan) and any and
all other qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Company as if he were 100% vested thereunder and
had continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
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Period and making the maximum amount of employee contributions, if any, required
or permitted under such plan or plans, such present value to be determined on
the basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the payments that
would have been made (without discounting for early payment) to the Executive
under any cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Company if he had continued working
for the Company during the Remaining Unexpired Employment Period and had earned
the maximum bonus or incentive award in each calendar year that ends during the
Remaining Unexpired Employment Period, such payments to be equal to the product
of:
(A) the maximum percentage rate at which an award was ever available
to the Executive under such incentive compensation plan; multiplied by
(B) the salary that would have been paid to the Executive during each
such calendar year at the highest annual rate of salary achieved during the
Employment Period.
(viii) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of options
or appreciation rights issued to the Executive under any stock option and
appreciation rights plan or program maintained by, or covering employees of, the
Company, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a share of stock of the
same class as the stock subject to the option or appreciation right,
determined as of the date of termination of employment, over (II) the
exercise price per share for such option or appreciation right, as
specified in or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which options or appreciation
rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed fully
vested in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering employees of, the
Company, even if he is not vested under the terms of such plan or program; and
(ix) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of any
shares awarded to the Executive under any restricted stock plan maintained by,
or covering employees of, the Company, a lump sum payment in an amount equal to
the product of:
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(A) the fair market value of a share of stock of the same class of
stock granted under such plan, determined as of the date of the Executive's
termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by, or
covering employees of, the Company, even if he is not vested under the terms of
such plan.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive further agree that the Company
may condition the payments and benefits (if any) due under sections 9(b)(iii),
(iv), (v), (vi) and (vii) on the receipt of the Executive's resignation from any
and all positions which he holds as an officer, director or committee member
with respect to the Company or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
In the event that the Executive's employment with the Company shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of this
Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform his assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with his
performance of services for the Company or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to his
performance of services for the Company, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Company
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Company, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Company shall have no further
obligations under this Agreement, other than the payment to the Executive of his
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<PAGE>
earned but unpaid salary as of the date of the termination of his employment and
the provision of such other benefits, if any, to which he is entitled as a
former employee under the Company's employee benefit plans and programs and
compensation plans and programs.
For purposes of this section 10, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. Prior to the
date on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
him a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations to refute the grounds for
the proposed determination;
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Company ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Company of a transaction that would
result and does result in the reorganization, merger or consolidation of the
Company, respectively, with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) in substantially the same relative proportions by
persons who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the Company; and
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(B) at least 51% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
the securities entitled to vote generally in the election of directors of
the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the outstanding securities of the
Company entitled to vote generally in the election of directors by any person or
by any persons acting in concert, or approval by the shareholders of the Company
of any transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or approval by
the shareholders of the Company of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event, at
least 50% of the members of the Board do not belong to any of the following
groups:
(A) individuals who were members of the Board on the date of this
Agreement; or
(B) individuals who first became members of the Board after the date
of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such board, or of
a nominating committee thereof, in office at the time of such first
election; or
(2) upon election by the shareholders of the Board to serve as a
member of the Board, but only if nominated for election by affirmative
vote of three-quarters of the members of the board of directors of the
Board, or of a nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or nomination did not result
from an actual or threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on
behalf of the Board of the Company; or
(v) any event which would be described in section 11(a)(i), (ii), (iii) or
(iv) if the term "Bank" were substituted for the term "Company" therein and the
term "Bank Board" were substituted for the term "Board" therein. In no event,
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however, shall a Change in Control be deemed to have occurred as a result of any
acquisition of securities or assets of the Company, the Bank, or a subsidiary of
either of them, by the Company, the Bank, or any subsidiary of either of them,
or by any employee benefit plan maintained by any of them. For purposes of this
section 11(a), the term "person" shall have the meaning assigned to it under
sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Company
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Company shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or his termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Company or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive=s
employment with the Company or its predecessor if such period is less than five
years). The Company shall also continue to provide to the Executive and to his
eligible dependents the benefits described in section 9(b)(iii) hereof for a
period of at least 36 months following the later of the effective time of such
Change in Control or his termination of employment. In addition, the Company
will guarantee the payment of the severance benefit provided pursuant to section
11(b) of the Executive= employment agreement with the Bank.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is terminated
upon or following (i) a Change in Control (as defined in section 11 of this
Agreement); or (ii) a change "in the ownership or effective control" of the
Company or the Bank or "in the ownership of a substantial portion of the assets"
of the Company or the Bank within the meaning of section 280G of the Code. If
this section 12 applies, then, if for any taxable year, the Executive shall be
liable for the payment of an excise tax under section 4999 of the Code with
respect to any payment in the nature of compensation made by the Company or any
direct or indirect subsidiary or affiliate of the Company to (or for the benefit
of) the Executive, the Company shall pay to the Executive an amount equal to X
determined under the following formula:
E x P
X= ----------------------------------------------
1 - [FI x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under section
4999 of the Code;
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P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to the
Executive under the Code for the taxable year in question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state and
local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable to
the Executive under the Code for the taxable year in
question.
The Company will guarantee the payment of the tax indemnification provided
pursuant to section 12(a) of the Executive's employment agreement with the Bank.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Bank, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Company, as the case may be,
shall pay to the other party at the time that the amount of such excise tax is
finally determined, an appropriate amount, plus interest, such that the payment
made under section 12(a), when increased by the amount of the payment made to
the Executive under this section 12(b) by the Company, or when reduced by the
amount of the payment made to the Company under this section 12(b) by the
Executive, equals the amount that should have properly been paid to the
Executive under section 12(a). The interest paid under this section 12(b) shall
be determined at the rate provided under section 1274(b)(2)(B) of the Code. To
confirm that the proper amount, if any, was paid to the Executive under this
section 12, the Executive shall furnish to the Company a copy of each tax return
which reflects a liability for an excise tax payment made by the Company, at
least 20 days before the date on which such return is required to be filed with
the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event
of his termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Company (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Company, become an officer, employee, consultant, director or trustee of any
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savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Company
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company, the Executive
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Company or any entity which is a
subsidiary of the Company or of which the Company is a subsidiary, any material
document or information obtained from the Company, or from its parent or
subsidiaries, in the course of his employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one year
following his termination of employment with the Company, he shall not, without
the written consent of the Company, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Company or any of its
subsidiaries or affiliates to terminate his employment and accept employment or
become affiliated with, or provide services for compensation in any capacity
whatsoever to, any savings bank, savings and loan bank, bank, bank holding
company, savings and loan holding company, or other institution engaged in the
business of accepting deposits, making loans or doing business within the
counties specified in section 13;
(b) provide any information, advice or recommendation with respect to any
such officer or employee of any savings bank, savings and loan bank, bank, bank
holding company, savings and loan holding company, or other institution engaged
in the business of accepting deposits, making loans or doing business within the
counties specified in section 13, that is intended, or that a reasonable person
acting in like circumstances would expect, to have the effect of causing any
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officer or employee of the Company or any of its subsidiaries or affiliates to
terminate his employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take any
other action intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any customer of the Company to
terminate an existing business or commercial relationship with the Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Company or by the Executive, shall have
no effect on the rights and obligations of the parties hereto under the
Company's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company from time to time; provided, however, that nothing in this Agreement
shall be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Executive to which the Company is a
party and any duplicative amount payable under any such agreement, plan or
program shall be applied as an offset to reduce the amounts otherwise payable
hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Company and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Company may
be sold or otherwise transferred. Failure of the Company to obtain from any
successor its express written assumption of the Company's obligations hereunder
at least 60 days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one such
party may by written notice specify to the other party:
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If to the Executive:
----------------------
----------------------
----------------------
If to the Company:
Hudson River Bancorp, Inc.
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Company's obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement, and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that a claim made by the Executive was either frivolous or made in bad faith,
the Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
or in connection with his consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
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Company, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section. Any reference
to a section number shall refer to a section of this Agreement, unless otherwise
stated.
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SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Bank or any
other direct or indirect subsidiary or affiliate of the Company, it is intended
that any compensation or benefits provided to the Executive by such other
employer shall not duplicate the compensation or benefits provided under this
Agreement. The compensation and benefits payable under this Agreement shall be
reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments to
the Executive by the Company, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and the Executive has hereunto set his hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANCORP, INC.
By_____________________________ By______________________________________
Secretary Name:
Title:
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[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came __________________, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
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STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came ___________, to me known, who, being by me duly sworn, did depose and say
that he resides at _______________________________________, that he is the
_______________________ of HUDSON RIVER BANCORP, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he or she signed his name thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANCORP, INC., a business
corporation organized and existing under the laws of the State of Delaware, the
("Company"), and Timothy E. Blow, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Chief Executive Officer of
the Company and as the Chief Executive Officer of Hudson River Bank & Trust
Company (the "Bank"), and effective as of the date of this Agreement, the Bank
has converted from mutual to capital stock form and has become the wholly owned
subsidiary of the Company; and
WHEREAS, the Company desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Company (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Company on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and the Executive hereby agree
as follows:
SECTION 1. EMPLOYMENT.
The Company agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Company or the Executive elects not
to extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Company for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Company at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Company and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Chief Executive Officer of the Company, having
such power, authority and responsibility and performing such duties as are
prescribed by or under the By-Laws of the Company and as are customarily
associated with such position. The Executive shall devote his full business time
and attention (other than during weekends, holidays, approved vacation periods,
and periods of illness or approved leaves of absence) to the business and
affairs of the Company and shall use his best efforts to advance the interests
of the Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company shall pay to him a salary equal to the base salary from
the Company and the Bank in effect on the date of this Agreement, less the
amount of base salary actually paid to the Executive by the Bank during the
Employment Period. The Executive's salary shall be payable in approximately
equal installments in accordance with the Company's customary payroll practices
for senior officers. The Board shall review the Executive's annual rate of
salary at such times during the Employment Period as it deems appropriate, but
not less frequently than once every twelve months, and may, in its discretion,
approve an increase therein. In addition to salary, the Executive may receive
other cash compensation from the Company for services hereunder at such times,
in such amounts and on such terms and conditions as the Board may determine from
time to time.
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an employee
of the Company and shall be entitled to participate in and receive benefits
under any and all qualified or non-qualified retirement, pension, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company,
in accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the Company's
customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years thereafter,
the Company shall cause the Executive to be covered by and named as an insured
under any policy or contract of insurance obtained by it to insure its directors
and officers against personal liability for acts or omissions in connection with
service as an officer or director of the Company or service in other capacities
at the request of the Company. The coverage provided to the Executive pursuant
to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Company.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company shall
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Bank on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
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interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Bank, he shall continue to
perform services for the Company in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Bank in a manner inconsistent with the terms of such discharge or suspension or
any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Company's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Company shall maintain its principal
executive offices, or at such other location as the Company and the Executive
may mutually agree upon. The Company shall provide the Executive at his
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to his position with the Company
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Company shall reimburse the Executive for his
ordinary and necessary business expenses, including, without limitation, the
Executive's travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, in each case upon presentation
to the Company of an itemized account of such expenses in such form as the
Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in section
9(b) in the event that:
(i) his employment with the Company terminates during the Employment Period
as a result of the Executive's voluntary resignation within 90 days following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Company stated in section 3
of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Company to elect or re-elect the Executive to the Board
or the failure of the Board (or the nominating committee thereof) to
nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material failure,
whether by amendment of the Company's Certificate of Incorporation, the
Company's By-Laws, action of the Board or the Company's shareholders or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement, unless, during
such 30-day period, the Company cures such failure;
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(D) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material breach of any
term, condition or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of base salary in effect
from time to time and any change in the terms and conditions of any
compensation or benefit program in which the Executive participates which,
either individually or together with other changes, has a material adverse
effect on the aggregate value of his total compensation package), unless,
during such 30-day period, the Company cures such failure; or
(E) a change in the Executive's principal place of employment for a
distance in excess of 50 miles from the Company's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of the
Company, the Bank or any of their respective subsidiaries or affiliates; or
(ii) the Executive's employment with the Company is terminated by the
Company during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a) of
this Agreement, the Company shall pay and provide to the Executive (or, in the
event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all items
which constitute wages under applicable law and the payment of which is not
otherwise provided for in this section 9(b)) as of the date of the termination
of his employment with the Company, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former employee
under the employee benefit plans and programs and compensation plans and
programs maintained for the benefit of the Company's officers and employees;
(iii) continued group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance benefits, in
addition to that provided pursuant to section 9(b)(ii), and after taking into
account the coverage provided by any subsequent employer, if and to the extent
necessary to provide for the Executive, for the Remaining Unexpired Employment
Period, coverage equivalent to the coverage to which he would have been entitled
under such plans (as in effect on the date of his termination of employment, or,
if his termination of employment occurs after a Change of Control, on the date
of such Change of Control, whichever benefits are greater), if he had continued
working for the Company during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during the Employment Period;
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(iv) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment, in an amount equal to the present value of
the salary (excluding any additional payments made to the Executive in lieu of
the use of an automobile) that the Executive would have earned if he had
continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
Period, where such present value is to be determined using a discount rate equal
to the applicable short-term federal rate prescribed under section 1274(d) of
the Internal Revenue Code of 1986, as amended (the "Code"), compounded using the
compounding periods corresponding to the Company's regular payroll periods for
its officers, such lump sum to be paid in lieu of all other payments of salary
provided for under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment with
the Company, a lump sum payment in an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which he would be
entitled under The Retirement Plan of the Hudson River Bank & Trust Company
(together with the defined benefit portion of the Benefit Restoration Plan
of Hudson River Bank & Trust Company and any other supplemental defined
benefit plan) and any and all other qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of, the Company
if he were 100% vested thereunder and had continued working for the Company
during the Remaining Unexpired Employment Period at the highest annual rate
of salary achieved during the Employment Period; over
(B) the present value of the benefits to which he is actually entitled
under such defined benefit pension plans as of the date of his termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly equal to the annualized rate of interest prescribed by
the Pension Benefit Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit plans
for the month in which the Executive's termination of employment occurs
("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the present value of
the additional employer contributions to which he would have been entitled under
the Hudson River Bank & Trust Company 401(k) Savings Plan, the Hudson River
Bancorp, Inc. Employee Stock Ownership Plan (together with the defined
contribution portion of the Benefit Restoration Plan of Hudson River Bank &
Trust Company or any other supplemental defined contribution plan) and any and
all other qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Company as if he were 100% vested thereunder and
had continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
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Period and making the maximum amount of employee contributions, if any, required
or permitted under such plan or plans, such present value to be determined on
the basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the payments that
would have been made (without discounting for early payment) to the Executive
under any cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Company if he had continued working
for the Company during the Remaining Unexpired Employment Period and had earned
the maximum bonus or incentive award in each calendar year that ends during the
Remaining Unexpired Employment Period, such payments to be equal to the product
of:
(A) the maximum percentage rate at which an award was ever available
to the Executive under such incentive compensation plan; multiplied by
(B) the salary that would have been paid to the Executive during each
such calendar year at the highest annual rate of salary achieved during the
Employment Period.
(viii) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of options
or appreciation rights issued to the Executive under any stock option and
appreciation rights plan or program maintained by, or covering employees of, the
Company, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a share of stock of the
same class as the stock subject to the option or appreciation right,
determined as of the date of termination of employment, over (II) the
exercise price per share for such option or appreciation right, as
specified in or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which options or appreciation
rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed fully
vested in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering employees of, the
Company, even if he is not vested under the terms of such plan or program; and
(ix) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of any
shares awarded to the Executive under any restricted stock plan maintained by,
or covering employees of, the Company, a lump sum payment in an amount equal to
the product of:
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(A) the fair market value of a share of stock of the same class of
stock granted under such plan, determined as of the date of the Executive's
termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by, or
covering employees of, the Company, even if he is not vested under the terms of
such plan.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive further agree that the Company
may condition the payments and benefits (if any) due under sections 9(b)(iii),
(iv), (v), (vi) and (vii) on the receipt of the Executive's resignation from any
and all positions which he holds as an officer, director or committee member
with respect to the Company or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
In the event that the Executive's employment with the Company shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of this
Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform his assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with his
performance of services for the Company or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to his
performance of services for the Company, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Company
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Company, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Company shall have no further
obligations under this Agreement, other than the payment to the Executive of his
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earned but unpaid salary as of the date of the termination of his employment and
the provision of such other benefits, if any, to which he is entitled as a
former employee under the Company's employee benefit plans and programs and
compensation plans and programs.
For purposes of this section 10, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. Prior to the
date on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
him a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations to refute the grounds for
the proposed determination;
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Company ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Company of a transaction that would
result and does result in the reorganization, merger or consolidation of the
Company, respectively, with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) in substantially the same relative proportions by
persons who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the Company; and
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(B) at least 51% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
the securities entitled to vote generally in the election of directors of
the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the outstanding securities of the
Company entitled to vote generally in the election of directors by any person or
by any persons acting in concert, or approval by the shareholders of the Company
of any transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or approval by
the shareholders of the Company of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event, at
least 50% of the members of the Board do not belong to any of the following
groups:
(A) individuals who were members of the Board on the date of this
Agreement; or
(B) individuals who first became members of the Board after the date
of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such board, or of
a nominating committee thereof, in office at the time of such first
election; or
(2) upon election by the shareholders of the Board to serve as a
member of the Board, but only if nominated for election by affirmative
vote of three-quarters of the members of the board of directors of the
Board, or of a nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or nomination did not result
from an actual or threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on
behalf of the Board of the Company; or
(v) any event which would be described in section 11(a)(i), (ii), (iii) or
(iv) if the term "Bank" were substituted for the term "Company" therein and the
term "Bank Board" were substituted for the term "Board" therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Company
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Company shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or his termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Company or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive=s
employment with the Company or its predecessor if such period is less than five
years). The Company shall also continue to provide to the Executive and to his
eligible dependents the benefits described in section 9(b)(iii) hereof for a
period of at least 36 months following the later of the effective time of such
Change in Control or his termination of employment. In addition, the Company
will guarantee the payment of the severance benefit provided pursuant to section
11(b) of the Executive= employment agreement with the Bank.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is terminated
upon or following (i) a Change in Control (as defined in section 11 of this
Agreement); or (ii) a change "in the ownership or effective control" of the
Company or the Bank or "in the ownership of a substantial portion of the assets"
of the Company or the Bank within the meaning of section 280G of the Code. If
this section 12 applies, then, if for any taxable year, the Executive shall be
liable for the payment of an excise tax under section 4999 of the Code with
respect to any payment in the nature of compensation made by the Company or any
direct or indirect subsidiary or affiliate of the Company to (or for the benefit
of) the Executive, the Company shall pay to the Executive an amount equal to X
determined under the following formula:
E x P
X= ----------------------------------------------
1 - [FI x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under
section 4999 of the Code;
11
<PAGE>
P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to
the Executive under the Code for the taxable year in
question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state
and local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable
to the Executive under the Code for the taxable year in
question.
The Company will guarantee the payment of the tax indemnification provided
pursuant to section 12(a) of the Executive's employment agreement with the Bank.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Bank, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Company, as the case may be,
shall pay to the other party at the time that the amount of such excise tax is
finally determined, an appropriate amount, plus interest, such that the payment
made under section 12(a), when increased by the amount of the payment made to
the Executive under this section 12(b) by the Company, or when reduced by the
amount of the payment made to the Company under this section 12(b) by the
Executive, equals the amount that should have properly been paid to the
Executive under section 12(a). The interest paid under this section 12(b) shall
be determined at the rate provided under section 1274(b)(2)(B) of the Code. To
confirm that the proper amount, if any, was paid to the Executive under this
section 12, the Executive shall furnish to the Company a copy of each tax return
which reflects a liability for an excise tax payment made by the Company, at
least 20 days before the date on which such return is required to be filed with
the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Company (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
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<PAGE>
Company, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Company
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company, the Executive
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Company or any entity which is a
subsidiary of the Company or of which the Company is a subsidiary, any material
document or information obtained from the Company, or from its parent or
subsidiaries, in the course of his employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one year
following his termination of employment with the Company, he shall not, without
the written consent of the Company, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Company or any of its
subsidiaries or affiliates to terminate his employment and accept employment or
become affiliated with, or provide services for compensation in any capacity
whatsoever to, any savings bank, savings and loan bank, bank, bank holding
company, savings and loan holding company, or other institution engaged in the
business of accepting deposits, making loans or doing business within the
counties specified in section 13;
(b) provide any information, advice or recommendation with respect to any
such officer or employee of any savings bank, savings and loan bank, bank, bank
holding company, savings and loan holding company, or other institution engaged
in the business of accepting deposits, making loans or doing business within the
counties specified in section 13, that is intended, or that a reasonable person
acting in like circumstances would expect, to have the effect of causing any
officer or employee of the Company or any of its subsidiaries or affiliates to
terminate his employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any savings
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<PAGE>
bank, savings and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take any
other action intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any customer of the Company to
terminate an existing business or commercial relationship with the Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Company or by the Executive, shall have
no effect on the rights and obligations of the parties hereto under the
Company's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company from time to time; provided, however, that nothing in this Agreement
shall be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Executive to which the Company is a
party and any duplicative amount payable under any such agreement, plan or
program shall be applied as an offset to reduce the amounts otherwise payable
hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Company and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Company may
be sold or otherwise transferred. Failure of the Company to obtain from any
successor its express written assumption of the Company's obligations hereunder
at least 60 days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one such
party may by written notice specify to the other party:
14
<PAGE>
If to the Executive:
----------------------
----------------------
----------------------
If to the Company:
Hudson River Bancorp, Inc.
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Company's obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement, and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that a claim made by the Executive was either frivolous or made in bad faith,
the Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
or in connection with his consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Company, the Executive or others regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
15
<PAGE>
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section. Any reference
to a section number shall refer to a section of this Agreement, unless otherwise
stated.
16
<PAGE>
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Bank or any
other direct or indirect subsidiary or affiliate of the Company, it is intended
that any compensation or benefits provided to the Executive by such other
employer shall not duplicate the compensation or benefits provided under this
Agreement. The compensation and benefits payable under this Agreement shall be
reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments to
the Executive by the Company, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and the Executive has hereunto set his hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANCORP, INC.
By_____________________________ By______________________________________
Secretary Name:
Title:
17
<PAGE>
[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came __________________, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came ___________, to me known, who, being by me duly sworn, did depose and say
that he resides at _______________________________________, that he is the
_______________________ of HUDSON RIVER BANCORP, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he or she signed his name thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
19
<PAGE>
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANCORP, INC., a business
corporation organized and existing under the laws of the State of Delaware, the
("Company"), and Sidney D. Richter, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Senior Vice President of the
Company and as the Senior Vice President of Hudson River Bank & Trust Company
(the "Bank"), and effective as of the date of this Agreement, the Bank has
converted from mutual to capital stock form and has become the wholly owned
subsidiary of the Company; and
WHEREAS, the Company desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Company (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Company on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and the Executive hereby agree
as follows:
SECTION 1. EMPLOYMENT.
The Company agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Company or the Executive elects not
to extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Company for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Company at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Company and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Vice President of the Company, having
such power, authority and responsibility and performing such duties as are
prescribed by or under the By-Laws of the Company and as are customarily
associated with such position. The Executive shall devote his full business time
and attention (other than during weekends, holidays, approved vacation periods,
and periods of illness or approved leaves of absence) to the business and
affairs of the Company and shall use his best efforts to advance the interests
of the Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company shall pay to him a salary equal to the base salary from
the Company and the Bank in effect on the date of this Agreement, less the
amount of base salary actually paid to the Executive by the Bank during the
Employment Period. The Executive's salary shall be payable in approximately
equal installments in accordance with the Company's customary payroll practices
for senior officers. The Board shall review the Executive's annual rate of
salary at such times during the Employment Period as it deems appropriate, but
not less frequently than once every twelve months, and may, in its discretion,
approve an increase therein. In addition to salary, the Executive may receive
other cash compensation from the Company for services hereunder at such times,
in such amounts and on such terms and conditions as the Board may determine from
time to time.
2
<PAGE>
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an employee
of the Company and shall be entitled to participate in and receive benefits
under any and all qualified or non-qualified retirement, pension, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company,
in accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the Company's
customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years thereafter,
the Company shall cause the Executive to be covered by and named as an insured
under any policy or contract of insurance obtained by it to insure its directors
and officers against personal liability for acts or omissions in connection with
service as an officer or director of the Company or service in other capacities
at the request of the Company. The coverage provided to the Executive pursuant
to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Company.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company shall
indemnify the Executive against and hold him harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Bank on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of his duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
3
<PAGE>
suspended, or is subject to any regulatory prohibition or restriction with
respect to participation in the affairs of the Bank, he shall continue to
perform services for the Company in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Bank in a manner inconsistent with the terms of such discharge or suspension or
any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Company's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Company shall maintain its principal
executive offices, or at such other location as the Company and the Executive
may mutually agree upon. The Company shall provide the Executive at his
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to his position with the Company
and necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Company shall reimburse the Executive for his
ordinary and necessary business expenses, including, without limitation, the
Executive's travel and entertainment expenses incurred in connection with the
performance of his duties under this Agreement, in each case upon presentation
to the Company of an itemized account of such expenses in such form as the
Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in section
9(b) in the event that:
(i) his employment with the Company terminates during the Employment Period
as a result of the Executive's voluntary resignation within 90 days following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Company stated in section 3
of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Company to elect or re-elect the Executive to the Board
or the failure of the Board (or the nominating committee thereof) to
nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material failure,
whether by amendment of the Company's Certificate of Incorporation, the
Company's By-Laws, action of the Board or the Company's shareholders or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement, unless, during
such 30-day period, the Company cures such failure;
4
<PAGE>
(D) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material breach of any
term, condition or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of base salary in effect
from time to time and any change in the terms and conditions of any
compensation or benefit program in which the Executive participates which,
either individually or together with other changes, has a material adverse
effect on the aggregate value of his total compensation package), unless,
during such 30-day period, the Company cures such failure; or
(E) a change in the Executive's principal place of employment for a
distance in excess of 50 miles from the Company's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of the
Company, the Bank or any of their respective subsidiaries or affiliates; or
(ii) the Executive's employment with the Company is terminated by the
Company during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a) of
this Agreement, the Company shall pay and provide to the Executive (or, in the
event of his death, to his estate):
(i) his earned but unpaid salary (including, without limitation, all items
which constitute wages under applicable law and the payment of which is not
otherwise provided for in this section 9(b)) as of the date of the termination
of his employment with the Company, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former employee
under the employee benefit plans and programs and compensation plans and
programs maintained for the benefit of the Company's officers and employees;
(iii) continued group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance benefits, in
addition to that provided pursuant to section 9(b)(ii), and after taking into
account the coverage provided by any subsequent employer, if and to the extent
necessary to provide for the Executive, for the Remaining Unexpired Employment
Period, coverage equivalent to the coverage to which he would have been entitled
under such plans (as in effect on the date of his termination of employment, or,
if his termination of employment occurs after a Change of Control, on the date
of such Change of Control, whichever benefits are greater), if he had continued
working for the Company during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during the Employment Period;
5
<PAGE>
(iv) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment, in an amount equal to the present value of
the salary (excluding any additional payments made to the Executive in lieu of
the use of an automobile) that the Executive would have earned if he had
continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
Period, where such present value is to be determined using a discount rate equal
to the applicable short-term federal rate prescribed under section 1274(d) of
the Internal Revenue Code of 1986, as amended (the "Code"), compounded using the
compounding periods corresponding to the Company's regular payroll periods for
its officers, such lump sum to be paid in lieu of all other payments of salary
provided for under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment with
the Company, a lump sum payment in an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which he would be
entitled under The Retirement Plan of the Hudson River Bank & Trust Company
(together with the defined benefit portion of the Benefit Restoration Plan
of Hudson River Bank & Trust Company and any other supplemental defined
benefit plan) and any and all other qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of, the Company
if he were 100% vested thereunder and had continued working for the Company
during the Remaining Unexpired Employment Period at the highest annual rate
of salary achieved during the Employment Period; over
(B) the present value of the benefits to which he is actually entitled
under such defined benefit pension plans as of the date of his termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly equal to the annualized rate of interest prescribed by
the Pension Benefit Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit plans
for the month in which the Executive's termination of employment occurs
("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the present value of
the additional employer contributions to which he would have been entitled under
the Hudson River Bank & Trust Company 401(k) Savings Plan, the Hudson River
Bancorp, Inc. Employee Stock Ownership Plan (together with the defined
contribution portion of the Benefit Restoration Plan of Hudson River Bank &
Trust Company or any other supplemental defined contribution plan) and any and
all other qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Company as if he were 100% vested thereunder and
had continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
6
<PAGE>
Period and making the maximum amount of employee contributions, if any, required
or permitted under such plan or plans, such present value to be determined on
the basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the payments that
would have been made (without discounting for early payment) to the Executive
under any cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Company if he had continued working
for the Company during the Remaining Unexpired Employment Period and had earned
the maximum bonus or incentive award in each calendar year that ends during the
Remaining Unexpired Employment Period, such payments to be equal to the product
of:
(A) the maximum percentage rate at which an award was ever available
to the Executive under such incentive compensation plan; multiplied by
(B) the salary that would have been paid to the Executive during each
such calendar year at the highest annual rate of salary achieved during the
Employment Period.
(viii) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of options
or appreciation rights issued to the Executive under any stock option and
appreciation rights plan or program maintained by, or covering employees of, the
Company, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a share of stock of the
same class as the stock subject to the option or appreciation right,
determined as of the date of termination of employment, over (II) the
exercise price per share for such option or appreciation right, as
specified in or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which options or appreciation
rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed fully
vested in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering employees of, the
Company, even if he is not vested under the terms of such plan or program; and
(ix) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of any
shares awarded to the Executive under any restricted stock plan maintained by,
or covering employees of, the Company, a lump sum payment in an amount equal to
the product of:
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(A) the fair market value of a share of stock of the same class of
stock granted under such plan, determined as of the date of the Executive's
termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by, or
covering employees of, the Company, even if he is not vested under the terms of
such plan.
The Company and the Executive hereby stipulate that the damages which may
be incurred by the Executive following any such termination of employment are
not capable of accurate measurement as of the date first above written and that
the payments and benefits contemplated by this section 9(b) constitute
reasonable damages under the circumstances and shall be payable without any
requirement of proof of actual damage and without regard to the Executive's
efforts, if any, to mitigate damages. The Company and the Executive further
agree that the Company may condition the payments and benefits (if any) due
under sections 9(b)(iii), (iv), (v), (vi) and (vii) on the receipt of the
Executive's resignation from any and all positions which he holds as an officer,
director or committee member with respect to the Company or any of its
subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
In the event that the Executive's employment with the Company shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of this
Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform his assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with his
performance of services for the Company or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to his
performance of services for the Company, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Company
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Company, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Company shall have no further
obligations under this Agreement, other than the payment to the Executive of his
earned but unpaid salary as of the date of the termination of his employment and
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the provision of such other benefits, if any, to which he is entitled as a
former employee under the Company's employee benefit plans and programs and
compensation plans and programs.
For purposes of this section 10, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. Prior to the
date on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
him a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by his legal counsel at such presentations to refute the grounds for
the proposed determination;
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Company ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Company of a transaction that would
result and does result in the reorganization, merger or consolidation of the
Company, respectively, with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) in substantially the same relative proportions by
persons who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the Company; and
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(B) at least 51% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
the securities entitled to vote generally in the election of directors of
the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the outstanding securities of the
Company entitled to vote generally in the election of directors by any person or
by any persons acting in concert, or approval by the shareholders of the Company
of any transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or approval by
the shareholders of the Company of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event, at
least 50% of the members of the Board do not belong to any of the following
groups:
(A) individuals who were members of the Board on the date of this
Agreement; or
(B) individuals who first became members of the Board after the date
of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such board, or of
a nominating committee thereof, in office at the time of such first
election; or
(2) upon election by the shareholders of the Board to serve as a
member of the Board, but only if nominated for election by affirmative
vote of three-quarters of the members of the board of directors of the
Board, or of a nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or nomination did not result
from an actual or threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on
behalf of the Board of the Company; or
(v) any event which would be described in section 11(a)(i), (ii), (iii) or
(iv) if the term "Bank" were substituted for the term "Company" therein and the
term "Bank Board" were substituted for the term "Board" therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Company
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Company shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or his termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Company or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive=s
employment with the Company or its predecessor if such period is less than five
years). The Company shall also continue to provide to the Executive and to his
eligible dependents the benefits described in section 9(b)(iii) hereof for a
period of at least 36 months following the later of the effective time of such
Change in Control or his termination of employment. In addition, the Company
will guarantee the payment of the severance benefit provided pursuant to section
11(b) of the Executive= employment agreement with the Bank.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is terminated
upon or following (i) a Change in Control (as defined in section 11 of this
Agreement); or (ii) a change "in the ownership or effective control" of the
Company or the Bank or "in the ownership of a substantial portion of the assets"
of the Company or the Bank within the meaning of section 280G of the Code. If
this section 12 applies, then, if for any taxable year, the Executive shall be
liable for the payment of an excise tax under section 4999 of the Code with
respect to any payment in the nature of compensation made by the Company or any
direct or indirect subsidiary or affiliate of the Company to (or for the benefit
of) the Executive, the Company shall pay to the Executive an amount equal to X
determined under the following formula:
E x P
X= ----------------------------------------------
1 - [FI x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under
section 4999 of the Code;
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P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to
the Executive under the Code for the taxable year in
question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state
and local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable
to the Executive under the Code for the taxable year in
question.
The Company will guarantee the payment of the tax indemnification provided
pursuant to section 12(a) of the Executive's employment agreement with the Bank.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Bank, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Company, as the case may be,
shall pay to the other party at the time that the amount of such excise tax is
finally determined, an appropriate amount, plus interest, such that the payment
made under section 12(a), when increased by the amount of the payment made to
the Executive under this section 12(b) by the Company, or when reduced by the
amount of the payment made to the Company under this section 12(b) by the
Executive, equals the amount that should have properly been paid to the
Executive under section 12(a). The interest paid under this section 12(b) shall
be determined at the rate provided under section 1274(b)(2)(B) of the Code. To
confirm that the proper amount, if any, was paid to the Executive under this
section 12, the Executive shall furnish to the Company a copy of each tax return
which reflects a liability for an excise tax payment made by the Company, at
least 20 days before the date on which such return is required to be filed with
the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of his
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of his
termination of employment with the Company (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Company, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
12
<PAGE>
of any such entity, that entails working within any county in which the Company
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Company, the Executive
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Company or any entity which is a
subsidiary of the Company or of which the Company is a subsidiary, any material
document or information obtained from the Company, or from its parent or
subsidiaries, in the course of his employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one year
following his termination of employment with the Company, he shall not, without
the written consent of the Company, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Company or any of its
subsidiaries or affiliates to terminate his employment and accept employment or
become affiliated with, or provide services for compensation in any capacity
whatsoever to, any savings bank, savings and loan bank, bank, bank holding
company, savings and loan holding company, or other institution engaged in the
business of accepting deposits, making loans or doing business within the
counties specified in section 13;
(b) provide any information, advice or recommendation with respect to any
such officer or employee of any savings bank, savings and loan bank, bank, bank
holding company, savings and loan holding company, or other institution engaged
in the business of accepting deposits, making loans or doing business within the
counties specified in section 13, that is intended, or that a reasonable person
acting in like circumstances would expect, to have the effect of causing any
officer or employee of the Company or any of its subsidiaries or affiliates to
terminate his employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any savings
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bank, savings and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take any
other action intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any customer of the Company to
terminate an existing business or commercial relationship with the Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Company or by the Executive, shall have
no effect on the rights and obligations of the parties hereto under the
Company's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company from time to time; provided, however, that nothing in this Agreement
shall be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Executive to which the Company is a
party and any duplicative amount payable under any such agreement, plan or
program shall be applied as an offset to reduce the amounts otherwise payable
hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, his legal representatives and testate or intestate distributees, and
the Company and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Company may
be sold or otherwise transferred. Failure of the Company to obtain from any
successor its express written assumption of the Company's obligations hereunder
at least 60 days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one such
party may by written notice specify to the other party:
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If to the Executive:
----------------------
----------------------
----------------------
If to the Company:
Hudson River Bancorp, Inc.
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Company's obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement, and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that a claim made by the Executive was either frivolous or made in bad faith,
the Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
or in connection with his consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Company, the Executive or others regarding the validity or enforceability of, or
15
<PAGE>
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section. Any reference
to a section number shall refer to a section of this Agreement, unless otherwise
stated.
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SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Bank or any
other direct or indirect subsidiary or affiliate of the Company, it is intended
that any compensation or benefits provided to the Executive by such other
employer shall not duplicate the compensation or benefits provided under this
Agreement. The compensation and benefits payable under this Agreement shall be
reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments to
the Executive by the Company, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and the Executive has hereunto set his hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANCORP, INC.
By_____________________________ By______________________________________
Secretary Name:
Title:
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[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came __________________, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that he resides at the address set forth in said instrument, and that he
signed his name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came ___________, to me known, who, being by me duly sworn, did depose and say
that he resides at _______________________________________, that he is the
_______________________ of HUDSON RIVER BANCORP, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he or she signed his name thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
19
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
______________, 1998 by and between HUDSON RIVER BANCORP, INC., a business
corporation organized and existing under the laws of the State of Delaware, the
("Company"), and Pamela M. Wood, an individual residing at
________________________ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive currently serves as the Senior Vice President and
Secretary of the Company and as the Senior Vice President and Secretary of
Hudson River Bank & Trust Company (the "Bank"), and effective as of the date of
this Agreement, the Bank has converted from mutual to capital stock form and has
become the wholly owned subsidiary of the Company; and
WHEREAS, the Company desires to assure for itself the continued
availability of the Executive's services as provided in this Agreement, and the
Board of Directors of the Company (the "Board") recognizes the need for the
Executive to be able to perform such services with a minimum of personal
distraction in the event of a pending or threatened Change in Control (as
hereinafter defined); and
WHEREAS, the Executive is willing to continue to serve the Company on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and conditions hereinafter set forth, the Company and the Executive hereby agree
as follows:
SECTION 1. EMPLOYMENT.
The Company agrees to continue to employ the Executive, and the Executive
hereby agrees to such continued employment, during the period and upon the terms
and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of two
years beginning on the date of this Agreement and ending on the second
anniversary date of this Agreement (each, an "Anniversary Date"), plus such
extensions, if any, as are provided pursuant to section 2(b).
<PAGE>
(b) Except as provided in section 2(c), beginning on the date of this
Agreement, the Employment Period shall automatically be extended for one
additional day each day, unless either the Company or the Executive elects not
to extend the Agreement further by giving written notice thereof to the other
party, in which case the Employment Period shall end on the second anniversary
of the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on the last day of the
Employment Period taking into account any extensions under this section 2(b).
Upon termination of the Executive's employment with the Company for any reason
whatsoever, any daily extensions provided pursuant to this section 2(b), if not
theretofore discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the Company at
any time from terminating the Executive's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Company and the Executive in the event of
any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
The Executive shall serve as Senior Vice President and Secretary of the
Company, having such power, authority and responsibility and performing such
duties as are prescribed by or under the By-Laws of the Company and as are
customarily associated with such position. The Executive shall devote her full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Company and shall use her best efforts to advance
the interests of the Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by the Executive
hereunder, the Company shall pay to her a salary equal to the base salary from
the Company and the Bank in effect on the date of this Agreement, less the
amount of base salary actually paid to the Executive by the Bank during the
Employment Period. The Executive's salary shall be payable in approximately
equal installments in accordance with the Company's customary payroll practices
for senior officers. The Board shall review the Executive's annual rate of
salary at such times during the Employment Period as it deems appropriate, but
not less frequently than once every twelve months, and may, in its discretion,
approve an increase therein. In addition to salary, the Executive may receive
other cash compensation from the Company for services hereunder at such times,
in such amounts and on such terms and conditions as the Board may determine from
time to time.
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, the Executive shall be treated as an employee
of the Company and shall be entitled to participate in and receive benefits
under any and all qualified or non-qualified retirement, pension, savings,
profit-sharing or stock bonus plans, any and all group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans, and any other employee benefit and compensation
plans (including, but not limited to, any incentive compensation plans or
programs, stock option and appreciation rights plans and restricted stock plans)
as may from time to time be maintained by, or cover employees of, the Company,
in accordance with the terms and conditions of such employee benefit plans and
programs and compensation plans and programs and consistent with the Company's
customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six years thereafter,
the Company shall cause the Executive to be covered by and named as an insured
under any policy or contract of insurance obtained by it to insure its directors
and officers against personal liability for acts or omissions in connection with
service as an officer or director of the Company or service in other capacities
at the request of the Company. The coverage provided to the Executive pursuant
to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Company.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period of six years thereafter, the Company shall
indemnify the Executive against and hold her harmless from any costs,
liabilities, losses and exposures to the fullest extent and on the most
favorable terms and conditions that similar indemnification is offered to any
director or officer of the Company or any subsidiary or affiliate thereof.
SECTION 7. OUTSIDE ACTIVITIES.
The Executive may serve as a member of the boards of directors of such
business, community and charitable organizations as she may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of her duties under this Agreement. The Executive may also
engage in personal business and investment activities which do not materially
interfere with the performance of her duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Company and generally applicable to
all similarly situated Executives. The Executive may also serve as an officer or
director of the Bank on such terms and conditions as the Company and the Bank
may mutually agree upon, and such service shall not be deemed to materially
interfere with the Executive's performance of her duties hereunder or otherwise
result in a material breach of this Agreement. If the Executive is discharged or
suspended, or is subject to any regulatory prohibition or restriction with
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respect to participation in the affairs of the Bank, she shall continue to
perform services for the Company in accordance with this Agreement but shall not
directly or indirectly provide services to or participate in the affairs of the
Bank in a manner inconsistent with the terms of such discharge or suspension or
any applicable regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
The Executive's principal place of employment shall be at the Company's
executive offices located in Hudson, New York, or at such other location within
50 miles of the address at which the Company shall maintain its principal
executive offices, or at such other location as the Company and the executive
may mutually agree upon. The Company shall provide the Executive at her
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to her position with the Company
and necessary or appropriate in connection with the performance of her assigned
duties under this Agreement. The Company shall reimburse the Executive for her
ordinary and necessary business expenses, including, without limitation, the
Executive's travel and entertainment expenses incurred in connection with the
performance of her duties under this Agreement, in each case upon presentation
to the Company of an itemized account of such expenses in such form as the
Company may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH BENEFITS.
(a) The Executive shall be entitled to the benefits described in section
9(b) in the event that:
(i) her employment with the Company terminates during the Employment Period
as a result of the Executive's voluntary resignation within 90 days following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect the Executive to the position with the Company stated in section 3
of this Agreement (or a more senior office);
(B) if the Executive is a member of the Board, the failure of the
shareholders of the Company to elect or re-elect the Executive to the Board
or the failure of the Board (or the nominating committee thereof) to
nominate the Executive for such election or re-election;
(C) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material failure,
whether by amendment of the Company's Certificate of Incorporation, the
Company's By-Laws, action of the Board or the Company's shareholders or
otherwise, to vest in the Executive the functions, duties, or
responsibilities prescribed in section 3 of this Agreement, unless, during
such 30-day period, the Company cures such failure;
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(D) the expiration of a 30-day period following the date on which the
Executive gives written notice to the Company of its material breach of any
term, condition or covenant contained in this Agreement (including, without
limitation, any reduction of the Executive's rate of base salary in effect
from time to time and any change in the terms and conditions of any
compensation or benefit program in which the Executive participates which,
either individually or together with other changes, has a material adverse
effect on the aggregate value of her total compensation package), unless,
during such 30-day period, the Company cures such failure; or
(E) a change in the Executive's principal place of employment for a
distance in excess of 50 miles from the Company's principal office in
Hudson, New York; or
(F) the liquidation, dissolution, bankruptcy, or insolvency of the
Company, the Bank or any of their respective subsidiaries or affiliates; or
(ii) the Executive's employment with the Company is terminated by the
Company during the Employment Period for any reason other than for "cause," as
provided in section 10(a).
(b) Upon the occurrence of any of the events described in section 9(a) of
this Agreement, the Company shall pay and provide to the Executive (or, in the
event of her death, to her estate):
(i) her earned but unpaid salary (including, without limitation, all items
which constitute wages under applicable law and the payment of which is not
otherwise provided for in this section 9(b)) as of the date of the termination
of her employment with the Company, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in no event
later than 30 days after termination of employment;
(ii) the benefits, if any, to which she is entitled as a former employee
under the employee benefit plans and programs and compensation plans and
programs maintained for the benefit of the Company's officers and employees;
(iii) continued group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance benefits, in
addition to that provided pursuant to section 9(b)(ii), and after taking into
account the coverage provided by any subsequent employer, if and to the extent
necessary to provide for the Executive, for the Remaining Unexpired Employment
Period, coverage equivalent to the coverage to which she would have been
entitled under such plans (as in effect on the date of her termination of
employment, or, if her termination of employment occurs after a Change of
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Control, on the date of such Change of Control, whichever benefits are greater),
if she had continued working for the Company during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during the
Employment Period;
(iv) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment, in an amount equal to the present value of
the salary (excluding any additional payments made to the Executive in lieu of
the use of an automobile) that the Executive would have earned if she had
continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
Period, where such present value is to be determined using a discount rate equal
to the applicable short-term federal rate prescribed under section 1274(d) of
the Internal Revenue Code of 1986, as amended (the "Code"), compounded using the
compounding periods corresponding to the Company's regular payroll periods for
its officers, such lump sum to be paid in lieu of all other payments of salary
provided for under this Agreement in respect of the period following any such
termination;
(v) within 30 days following the Executive's termination of employment with
the Company, a lump sum payment in an amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to which she would be
entitled under The Retirement Plan of the Hudson River Bank & Trust Company
(together with the defined benefit portion of the Benefit Restoration Plan
of Hudson River Bank & Trust Company and any other supplemental defined
benefit plan) and any and all other qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of, the Company
if she were 100% vested thereunder and had continued working for the
Company during the Remaining Unexpired Employment Period at the highest
annual rate of salary achieved during the Employment Period; over
(B) the present value of the benefits to which she is actually
entitled under such defined benefit pension plans as of the date of her
termination; where such present values are to be determined using the
mortality tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of interest
prescribed by the Pension Benefit Guaranty Corporation for the valuation of
immediate annuities payable under terminating single-employer defined
benefit plans for the month in which the Executive's termination of
employment occurs ("Applicable PBGC Rate");
(vi) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the present value of
the additional employer contributions to which she would have been entitled
under the Hudson River Bank & Trust Company 401(k) Savings Plan, the Hudson
River Bancorp, Inc. Employee Stock Ownership Plan (together with the defined
contribution portion of the Benefit Restoration Plan of Hudson River Bank &
Trust Company or any other supplemental defined contribution plan) and any and
all other qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Company as if she were 100% vested thereunder and
had continued working for the Company during the Remaining Unexpired Employment
Period at the highest annual rate of salary achieved during the Employment
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Period and making the maximum amount of employee contributions, if any, required
or permitted under such plan or plans, such present value to be determined on
the basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made to the
relevant plan, equal to the Applicable PBGC Rate;
(vii) within 30 days following the Executive's termination of employment
with the Company, a lump sum payment in an amount equal to the payments that
would have been made (without discounting for early payment) to the Executive
under any cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Company if she had continued
working for the Company during the Remaining Unexpired Employment Period and had
earned the maximum bonus or incentive award in each calendar year that ends
during the Remaining Unexpired Employment Period, such payments to be equal to
the product of:
(A) the maximum percentage rate at which an award was ever available
to the Executive under such incentive compensation plan; multiplied by
(B) the salary that would have been paid to the Executive during each
such calendar year at the highest annual rate of salary achieved during the
Employment Period.
(viii) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of options
or appreciation rights issued to the Executive under any stock option and
appreciation rights plan or program maintained by, or covering employees of, the
Company, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a share of stock of the
same class as the stock subject to the option or appreciation right,
determined as of the date of termination of employment, over (II) the
exercise price per share for such option or appreciation right, as
specified in or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which options or appreciation
rights are being surrendered.
For purposes of this section 9(b)(viii), the Executive shall be deemed fully
vested in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering employees of, the
Company, even if she is not vested under the terms of such plan or program; and
(ix) at the election of the Company made within 30 days following the
occurrence of the event described in section 9(a), upon the surrender of any
shares awarded to the Executive under any restricted stock plan maintained by,
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or covering employees of, the Company, a lump sum payment in an amount equal to
the product of:
(A) the fair market value of a share of stock of the same class of
stock granted under such plan, determined as of the date of the Executive's
termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix), the Executive shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by, or
covering employees of, the Company, even if she is not vested under the terms of
such plan.
The Company and the Executive hereby stipulate that the damages which may be
incurred by the Executive following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to the Executive's efforts, if any, to
mitigate damages. The Company and the Executive further agree that the Company
may condition the payments and benefits (if any) due under sections 9(b)(iii),
(iv), (v), (vi) and (vii) on the receipt of the Executive's resignation from any
and all positions which she holds as an officer, director or committee member
with respect to the Company or any of its subsidiaries or affiliates.
SECTION 10. TERMINATION WITHOUT ADDITIONAL COMPANY LIABILITY.
In the event that the Executive's employment with the Company shall
terminate during the Employment Period on account of:
(a) the discharge of the Executive for "cause," which, for purposes of this
Agreement, shall mean a discharge because the Board determines that the
Executive: (i) has intentionally failed to perform her assigned duties under
this Agreement (including, for these purposes, the Executive's inability to
perform such duties as a result of drug or alcohol dependency); (ii) has
intentionally engaged in dishonest or illegal conduct in connection with her
performance of services for the Company or has been convicted of a felony; (iii)
has willfully violated, in any material respect, any law, rule, regulation,
written agreement or final cease-and-desist order with respect to her
performance of services for the Company, as determined by the Board; or (iv) has
intentionally breached the material terms of this Agreement;
(b) the Executive's voluntary resignation from employment with the Company
for reasons other than those specified in section 9(a)(i); or
(c) the death of the Executive while employed by the Company, or the
termination of the Executive's employment because of "total and permanent
disability" within the meaning of the Company's or the Bank's long-term
disability plan for employees; then the Company shall have no further
obligations under this Agreement, other than the payment to the Executive of her
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earned but unpaid salary as of the date of the termination of her employment and
the provision of such other benefits, if any, to which she is entitled as a
former employee under the Company's employee benefit plans and programs and
compensation plans and programs.
For purposes of this section 10, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the written advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. Prior to the
date on which a Change in Control occurs, the cessation of employment of the
Executive shall not be deemed to be for "cause" within the meaning of section
10(a) unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
members of the Board at a meeting of the Board called and held for such purpose
(after reasonable notice is provided to the Executive and the Executive is given
an opportunity, together with counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive is guilty of the
conduct described in section 10(a) above, and specifying the particulars thereof
in detail. On and after the date that a Change in Control occurs, a
determination under this section 10 shall require the affirmative vote of at
least three-fourths of the members of the Board acting in good faith, and such
vote shall not be made prior to the expiration of a 60-day period following the
date on which the Board shall, by written notice to the Executive, furnish to
her a statement of its grounds for proposing to make such determination, during
which period the Executive shall be afforded a reasonable opportunity to make
oral and written presentations to the members of the Board, and to be
represented by her legal counsel at such presentations to refute the grounds for
the proposed determination;
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE IN CONTROL.
(a) A Change in Control of the Company ("Change in Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the shareholders of the Company of a transaction that would
result and does result in the reorganization, merger or consolidation of the
Company, respectively, with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) in substantially the same relative proportions by
persons who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the outstanding equity ownership interests in the Company; and
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(B) at least 51% of the securities entitled to vote generally in the
election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) at least 51% of
the securities entitled to vote generally in the election of directors of
the Company;
(ii) the acquisition of all or substantially all of the assets of the
Company or beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the outstanding securities of the
Company entitled to vote generally in the election of directors by any person or
by any persons acting in concert, or approval by the shareholders of the Company
of any transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Company, or approval by
the shareholders of the Company of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event, at
least 50% of the members of the Board do not belong to any of the following
groups:
(A) individuals who were members of the Board on the date of this
Agreement; or
(B) individuals who first became members of the Board after the date
of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters of the members of such board, or of
a nominating committee thereof, in office at the time of such first
election; or
(2) upon election by the shareholders of the Board to serve as a
member of the Board, but only if nominated for election by affirmative
vote of three-quarters of the members of the board of directors of the
Board, or of a nominating committee thereof, in office at the time of
such first nomination;
provided, however, that such individual's election or nomination did not result
from an actual or threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents (within the meaning of Rule
14a-11 of Regulation 14A promulgated under the Exchange Act) other than by or on
behalf of the Board of the Company; or
(v) any event which would be described in section 11(a)(i), (ii), (iii) or
(iv) if the term "Bank" were substituted for the term "Company" therein and the
term "Bank Board" were substituted for the term "Board" therein.
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In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Company, the Bank, or a
subsidiary of either of them, by the Company, the Bank, or any subsidiary of
either of them, or by any employee benefit plan maintained by any of them. For
purposes of this section 11(a), the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event that the Executive=s employment with the Company
terminates within eighteen months following a Change in Control for any reason
other than for "cause," as described in section 10, the Company shall pay to the
Executive, in addition to the amounts payable pursuant to section 9, a severance
benefit in a lump sum payment, within 25 days after the later of the effective
time of such Change in Control or her termination of employment, equal to the
greater of (i) the sum of the amounts payable as salary pursuant to section 4
hereof during the Remaining Unexpired Employment Period and as additional cash
compensation pursuant to the terms of section 9(b)(vii) hereof, or (ii) three
times the annual average of the amount paid or payable to the Executive under
section 4 of this Agreement or the corresponding section of any prior employment
agreement with the Company or its predecessor during the five preceding taxable
years of the Executive (or during the entire period of the Executive=s
employment with the Company or its predecessor if such period is less than five
years). The Company shall also continue to provide to the Executive and to her
eligible dependents the benefits described in section 9(b)(iii) hereof for a
period of at least 36 months following the later of the effective time of such
Change in Control or her termination of employment. In addition, the Company
will guarantee the payment of the severance benefit provided pursuant to section
11(b) of the Executive= employment agreement with the Bank.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if the Executive's employment is terminated
upon or following (i) a Change in Control (as defined in section 11 of this
Agreement); or (ii) a change "in the ownership or effective control" of the
Company or the Bank or "in the ownership of a substantial portion of the assets"
of the Company or the Bank within the meaning of section 280G of the Code. If
this section 12 applies, then, if for any taxable year, the Executive shall be
liable for the payment of an excise tax under section 4999 of the Code with
respect to any payment in the nature of compensation made by the Company or any
direct or indirect subsidiary or affiliate of the Company to (or for the benefit
of) the Executive, the Company shall pay to the Executive an amount equal to X
determined under the following formula:
E x P
X= ----------------------------------------------
1 - [FI x (1-SLI)) + SLI + E + M]
where
E= the rate at which the excise tax is assessed under
section 4999 of the Code;
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P= the amount with respect to which such excise tax is
assessed, determined without regard to this section 12;
FI= the highest marginal rate of income tax applicable to
the Executive under the Code for the taxable year in
question;
SLI= the sum of the highest marginal rates of income tax
applicable to the Executive under all applicable state
and local laws for the taxable year in question; and
M= the highest marginal rate of Medicare tax applicable
to the Executive under the Code for the taxable year in
question.
The Company will guarantee the payment of the tax indemnification provided
pursuant to section 12(a) of the Executive's employment agreement with the Bank.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) the Executive under the terms of this Agreement, the
Executive's employment agreement with the Bank, or otherwise, and on which an
excise tax under section 4999 of the Code will be assessed, the payment
determined under this section 12(a) shall be made to the Executive on the
earlier of (i) the date the Company, the Bank or any direct or indirect
subsidiary or affiliate of the Company or the Bank is required to withhold such
tax, or (ii) the date the tax is required to be paid by the Executive.
(b) Notwithstanding anything in this section 12 to the contrary, in the
event that the Executive's liability for the excise tax under section 4999 of
the Code for a taxable year is subsequently determined to be different than the
amount determined by the formula (X + P) x E, where X, P and E have the meanings
provided in section 12(a), the Executive or the Company, as the case may be,
shall pay to the other party at the time that the amount of such excise tax is
finally determined, an appropriate amount, plus interest, such that the payment
made under section 12(a), when increased by the amount of the payment made to
the Executive under this section 12(b) by the Company, or when reduced by the
amount of the payment made to the Company under this section 12(b) by the
Executive, equals the amount that should have properly been paid to the
Executive under section 12(a). The interest paid under this section 12(b) shall
be determined at the rate provided under section 1274(b)(2)(B) of the Code. To
confirm that the proper amount, if any, was paid to the Executive under this
section 12, the Executive shall furnish to the Company a copy of each tax return
which reflects a liability for an excise tax payment made by the Company, at
least 20 days before the date on which such return is required to be filed with
the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
The Executive hereby covenants and agrees that, in the event of her
termination of employment with the Company prior to the expiration of the
Employment Period, for a period of one year following the date of her
termination of employment with the Company (or, if less, for the Remaining
Unexpired Employment Period), she shall not, without the written consent of the
Company, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
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bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within any county in which the Company
maintains an office; provided, however, that this section 13 shall not apply if
the Executive's employment is terminated for the reasons set forth in section
9(a).
SECTION 14. CONFIDENTIALITY.
Unless she obtains the prior written consent of the Company, the Executive
shall keep confidential and shall refrain from using for the benefit of herself,
or any person or entity other than the Company or any entity which is a
subsidiary of the Company or of which the Company is a subsidiary, any material
document or information obtained from the Company, or from its parent or
subsidiaries, in the course of her employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of her own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent the Executive,
with or without the Company's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
SECTION 15. SOLICITATION.
The Executive hereby covenants and agrees that, for a period of one year
following her termination of employment with the Company, she shall not, without
the written consent of the Company, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Company or any of its
subsidiaries or affiliates to terminate her employment and accept employment or
become affiliated with, or provide services for compensation in any capacity
whatsoever to, any savings bank, savings and loan bank, bank, bank holding
company, savings and loan holding company, or other institution engaged in the
business of accepting deposits, making loans or doing business within the
counties specified in section 13;
(b) provide any information, advice or recommendation with respect to any
such officer or employee of any savings bank, savings and loan bank, bank, bank
holding company, savings and loan holding company, or other institution engaged
in the business of accepting deposits, making loans or doing business within the
counties specified in section 13, that is intended, or that a reasonable person
acting in like circumstances would expect, to have the effect of causing any
officer or employee of the Company or any of its subsidiaries or affiliates to
terminate her employment and accept employment or become affiliated with, or
provide services for compensation in any capacity whatsoever to, any savings
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bank, savings and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of accepting
deposits, making loans or doing business within the counties specified in
section 13;
(c) solicit, provide any information, advice or recommendation or take any
other action intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any customer of the Company to
terminate an existing business or commercial relationship with the Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Executive's employment during the term of this
Agreement or thereafter, whether by the Company or by the Executive, shall have
no effect on the rights and obligations of the parties hereto under the
Company's qualified or non-qualified retirement, pension, savings, thrift,
profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Company from time to time; provided, however, that nothing in this Agreement
shall be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Executive to which the Company is a
party and any duplicative amount payable under any such agreement, plan or
program shall be applied as an offset to reduce the amounts otherwise payable
hereunder.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Executive, her legal representatives and testate or intestate distributees, and
the Company and its successors and assigns, including any successor by merger or
consolidation or a statutory receiver or any other person or firm or corporation
to which all or substantially all of the assets and business of the Company may
be sold or otherwise transferred. Failure of the Company to obtain from any
successor its express written assumption of the Company's obligations hereunder
at least 60 days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this Agreement,
including any notice, direction, designation, consent, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally, or five days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below or at such other address as one such
party may by written notice specify to the other party:
14
<PAGE>
If to the Executive:
----------------------
----------------------
----------------------
If to the Company:
Hudson River Bancorp, Inc.
1 Hudson City Center
Hudson, New York 12534
Attention: President
with a copy to:
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue
Washington, D.C. 20005-3934
Attention: Robert J. Freedman, P.C.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
(a) The Company shall indemnify, hold harmless and defend the Executive
against reasonable costs, including legal fees and expenses, incurred by her in
connection with or arising out of any action, suit or proceeding in which she
may be involved, as a result of her efforts, in good faith, to defend or enforce
the terms of this Agreement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the
Company's obligations hereunder shall be conclusive evidence of the Executive's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
(b) The Company's obligation to make the payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement, and such amounts shall not be reduced
whether or not the Executive obtains other employment. Unless it is determined
that a claim made by the Executive was either frivolous or made in bad faith,
the Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
or in connection with her consultation with legal counsel or arising out of any
action, suit, proceeding or contest (regardless of the outcome thereof) by the
Company, the Executive or others regarding the validity or enforceability of, or
15
<PAGE>
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in section
7872(f)(2)(A) of the Code. This section 19(b) shall apply whether such
consultation, action, suit, proceeding or contest arises before, on, after or as
a result of a Change in Control.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions hereof shall not be deemed a waiver of such term, covenant, or
condition. A waiver of any provision of this Agreement must be made in writing,
designated as a waiver, and signed by the party against whom its enforcement is
sought. Any waiver or relinquishment of any right or power hereunder at any one
or more times shall not be deemed a waiver or relinquishment of such right or
power at any other time or times.
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, and all of which shall constitute one and the same
Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of reference
only and are not intended to qualify the meaning of any section. Any reference
to a section number shall refer to a section of this Agreement, unless otherwise
stated.
16
<PAGE>
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 26. NON-DUPLICATION.
In the event that the Executive shall perform services for the Bank or any
other direct or indirect subsidiary or affiliate of the Company, it is intended
that any compensation or benefits provided to the Executive by such other
employer shall not duplicate the compensation or benefits provided under this
Agreement. The compensation and benefits payable under this Agreement shall be
reduced to the extent necessary to effectuate this intention.
SECTION 27. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any payments to
the Executive by the Company, whether pursuant to this Agreement or otherwise,
are subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1828(k), and any regulations
promulgated thereunder.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and the Executive has hereunto set her hand, all as of the day and year first
above written.
----------------------------------------
EXECUTIVE
ATTEST: HUDSON RIVER BANCORP, INC.
By_____________________________ By______________________________________
Secretary Name:
Title:
17
<PAGE>
[Seal]
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came __________________, to me known, and known to me to be the individual
described in the foregoing instrument, who, being by me duly sworn, did depose
and say that she resides at the address set forth in said instrument, and that
she signed her name to the foregoing instrument.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
18
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF __________ )
On this ________ day of ____________________, 1998, before me personally
came ___________, to me known, who, being by me duly sworn, did depose and say
that he resides at _______________________________________, that he is the
_______________________ of HUDSON RIVER BANCORP, INC., the Delaware corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such seal; that
it was so affixed by order of the Board of Directors of said corporation; and
that he or she signed his name thereto by like order.
-----------------------------------
Notary Public
My commission expires:
- --------------------------
19
Exhibit 10.3
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of __________, 1998 (the "Commencement
Date"), by and between Hudson River Bank & Trust Company (which, together with
any successor thereto which executes and delivers the assumption agreement
provided for in Section 5(a) hereof or which otherwise becomes bound by all of
the terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and William Fisher (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of
Compliance and Collections of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Hudson River Bancorp,
Inc. (the "Company"), 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 management personnel to the detriment of the Bank, the Company
and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who is
temporarily holding securities in connection with such offering, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) individuals who are members of the Board on the
<PAGE>
Commencement Date (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the Commencement Date whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board or whose
nomination for election by the Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be considered a
member of the Incumbent Board; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar effect).
(b) The term "Commencement Date" means __________ __, 1998.
(c) The term "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company that are part of the affiliated group (as defined
in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to subsection (b) thereof) that includes the Bank, including but
not limited to the Company.
(d) The term "Date of Termination" means the date specified in
the Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given, and
in the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
2
<PAGE>
(i) a requirement that the Executive be based at any
location not within 50 miles of Hudson, New York, or
that substantially increase travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive 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 Executive, other than as part of a
Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material
adverse change in the Executive's perquisites,
benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and
with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours
of work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory
agreement from any successor to assume the obligations
and liabilities under this Agreement, as contemplated
in Section 5(a) hereof; or
(vii) any purported termination of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 4
hereof (and, if applicable, the requirements of Section
1(g) hereof), which purported termination shall not be
effective for purposes of this Agreement.
(f) The term "Notice of Termination" means a notice of
termination of the Executive's employment pursuant to Section 7 of this
Agreement.
(g) The term "Termination for Cause" means 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. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that action or failure to act was in the
best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
3
<PAGE>
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2. Term.
(a) The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the term of this Agreement shall automatically be extended
for one additional day each day, unless either the Bank or the Executive elects
not to extend the Agreement further by giving written notice thereof to the
other party, in which case the term of this Agreement shall end on the second
anniversary of the date on which such written notice is given. Upon termination
of the Executive's employment with the Bank for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not theretofore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating the Executive's employment during the term of
this Agreement with or without notice for any reason; provided, however, that
the relative rights and obligations of the Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
employment for Good Reason, within 24 months following a Change in Control, the
Bank shall (i) pay the Executive salary through the Date of Termination at the
rate in effect at the time the Notice of Termination is given, at the time such
payments are due; and (ii) pay to the Executive in a lump sum in cash, within 25
days after the later of the date of such Change in Control or the Date of
Termination, an amount equal to 299% of the Executive's "base amount" as
determined under Section 280G of the Code, less the aggregate present value of
the payments or benefits, if any, in the nature of compensation for the benefit
of the Executive, arising under any other plans or arrangements (i.e., not this
Agreement) between the Company or any of the Consolidated Subsidiaries and the
Executive, which constitute "parachute payments" under Section 280G of the Code.
While it is not contemplated that the Executive will receive any
amounts or benefits that will constitute "excess parachute payments" under
Section 280G of the Code, in the event that any payments or benefits provided or
to be provided to the Executive pursuant to this Agreement, in combination with
payments or benefits, if any, from other plans or arrangements maintained by the
Company or any of the Consolidated Subsidiaries, constitute "excess parachute
payments" under Section 280G of the Code that are subject to the excise tax
under Section 4999 of the Code, the Bank shall pay to the Executive in cash an
additional amount equal to the amount of the Gross Up Payment (as hereinafter
defined). The "Gross Up Payment" shall be the amount needed to ensure that the
amount of such payments and the value of such benefits received by the Executive
(net of such excise tax and any federal, state and local tax on the Bank's
4
<PAGE>
payment to attributable to such excise tax) equals the amount of such payments
and value of such benefits as would receive in the absence of such excise tax
and any federal, state and local tax on the Bank's payment to attributable to
such excise tax. The Bank shall pay the Gross Up Payment within 30 days after
the Date of Termination. For purposes of determining the amount of the Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
shall be determined by the Bank's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. In the event that, after
the Gross Up Payment is made, the amount of the excise tax is determined to be
less than the amount calculated in the determination of the actual Gross Up
Payment made by the Bank, the Executive shall repay to the Bank, at the time
that such reduction in the amount of excise tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction, plus interest on
the amount of such repayment at the applicable federal rate under Section 1274
of the Code from the date of the Gross Up Payment to the date of the repayment.
The amount of the reduction of the Gross Up Payment shall reflect any subsequent
reduction in excise taxes resulting from such repayment. In the event that,
after the Gross Up Payment is made, the amount of the excise tax is determined
to exceed the amount anticipated at the time the Gross Up Payment was made, the
Bank shall pay to the Executive, in immediately available funds, at the time
that such additional amount of excise tax is finally determined, an additional
payment ("Additional Gross Up Payment") equal to such additional amount of
excise tax and any federal, state and local taxes thereon, plus all interest and
penalties, if any, owed by the Executive with respect to such additional amount
of excise and other tax. The Bank shall have the right to challenge, on the
Executive's behalf, any excise tax assessment against as to which the Executive
is entitled to (or would be entitled if such assessment is finally determined to
be proper) a Gross Up Payment or Additional Gross Up Payment, provided that all
costs and expenses incurred in such a challenge shall be borne by the Bank and
the Bank shall indemnify the Executive and hold harmless, on an after-tax basis,
from any excise or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment of costs and expenses by the Bank.
(b) The Executive shall not be required to mitigate the amount
of any 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 Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate employment and determines in good
faith that has experienced Good Reason to terminate employment, shall send a
written notice to the Bank stating the circumstances that constitute Good Reason
and the Date of Termination.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason under this
Agreement.
5
<PAGE>
5. 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 Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation, operation of law or
otherwise) to all or substantially all of the business and/or assets of the
Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank 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
Executive to compensation and benefits from the Bank in the same amount and on
the same terms that would be entitled to hereunder if terminated employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(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 Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the Executive,
unless otherwise provided herein, all amounts payable hereunder shall be paid to
the Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 7.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: [name]
At the address last appearing
on the personnel records of
the Executive
6
<PAGE>
If to the Bank: Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. 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.
10. 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.
11. Governing Law. This Agreement shall be governed by the laws of the
State of New York to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators= award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
7
<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: HUDSON RIVER BANK & TRUST
COMPANY
- ------------------------------- ---------------------------------------
By:
Its:
EXECUTIVE
--------------------------------------
[name]
8
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of __________, 1998 (the "Commencement
Date"), by and between Hudson River Bank & Trust Company (which, together with
any successor thereto which executes and delivers the assumption agreement
provided for in Section 5(a) hereof or which otherwise becomes bound by all of
the terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and Susan Hollister (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of Human
Resources of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Hudson River Bancorp,
Inc. (the "Company"), 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 management personnel to the detriment of the Bank, the Company
and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who is
temporarily holding securities in connection with such offering, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) individuals who are members of the Board on the
<PAGE>
Commencement Date (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the Commencement Date whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board or whose
nomination for election by the Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be considered a
member of the Incumbent Board; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar effect).
(b) The term "Commencement Date" means __________ __, 1998.
(c) The term "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company that are part of the affiliated group (as defined
in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to subsection (b) thereof) that includes the Bank, including but
not limited to the Company.
(d) The term "Date of Termination" means the date specified in
the Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given, and
in the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
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(i) a requirement that the Executive be based at any
location not within 50 miles of Hudson, New York, or
that substantially increase travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive 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 Executive, other than as part of a
Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material
adverse change in the Executive's perquisites,
benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and
with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours
of work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory
agreement from any successor to assume the obligations
and liabilities under this Agreement, as contemplated
in Section 5(a) hereof; or
(vii) any purported termination of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 4
hereof (and, if applicable, the requirements of Section
1(g) hereof), which purported termination shall not be
effective for purposes of this Agreement.
(f) The term "Notice of Termination" means a notice of
termination of the Executive's employment pursuant to Section 7 of this
Agreement.
(g) The term "Termination for Cause" means 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. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that action or failure to act was in the
best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
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<PAGE>
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2. Term.
(a) The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the term of this Agreement shall automatically be extended
for one additional day each day, unless either the Bank or the Executive elects
not to extend the Agreement further by giving written notice thereof to the
other party, in which case the term of this Agreement shall end on the second
anniversary of the date on which such written notice is given. Upon termination
of the Executive's employment with the Bank for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not theretofore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating the Executive's employment during the term of
this Agreement with or without notice for any reason; provided, however, that
the relative rights and obligations of the Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
employment for Good Reason, within 24 months following a Change in Control, the
Bank shall (i) pay the Executive salary through the Date of Termination at the
rate in effect at the time the Notice of Termination is given, at the time such
payments are due; and (ii) pay to the Executive in a lump sum in cash, within 25
days after the later of the date of such Change in Control or the Date of
Termination, an amount equal to 299% of the Executive's "base amount" as
determined under Section 280G of the Code, less the aggregate present value of
the payments or benefits, if any, in the nature of compensation for the benefit
of the Executive, arising under any other plans or arrangements (i.e., not this
Agreement) between the Company or any of the Consolidated Subsidiaries and the
Executive, which constitute "parachute payments" under Section 280G of the Code.
While it is not contemplated that the Executive will receive any
amounts or benefits that will constitute "excess parachute payments" under
Section 280G of the Code, in the event that any payments or benefits provided or
to be provided to the Executive pursuant to this Agreement, in combination with
payments or benefits, if any, from other plans or arrangements maintained by the
Company or any of the Consolidated Subsidiaries, constitute "excess parachute
payments" under Section 280G of the Code that are subject to the excise tax
under Section 4999 of the Code, the Bank shall pay to the Executive in cash an
additional amount equal to the amount of the Gross Up Payment (as hereinafter
defined). The "Gross Up Payment" shall be the amount needed to ensure that the
amount of such payments and the value of such benefits received by the Executive
(net of such excise tax and any federal, state and local tax on the Bank's
4
<PAGE>
payment to attributable to such excise tax) equals the amount of such payments
and value of such benefits as would receive in the absence of such excise tax
and any federal, state and local tax on the Bank's payment to attributable to
such excise tax. The Bank shall pay the Gross Up Payment within 30 days after
the Date of Termination. For purposes of determining the amount of the Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
shall be determined by the Bank's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. In the event that, after
the Gross Up Payment is made, the amount of the excise tax is determined to be
less than the amount calculated in the determination of the actual Gross Up
Payment made by the Bank, the Executive shall repay to the Bank, at the time
that such reduction in the amount of excise tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction, plus interest on
the amount of such repayment at the applicable federal rate under Section 1274
of the Code from the date of the Gross Up Payment to the date of the repayment.
The amount of the reduction of the Gross Up Payment shall reflect any subsequent
reduction in excise taxes resulting from such repayment. In the event that,
after the Gross Up Payment is made, the amount of the excise tax is determined
to exceed the amount anticipated at the time the Gross Up Payment was made, the
Bank shall pay to the Executive, in immediately available funds, at the time
that such additional amount of excise tax is finally determined, an additional
payment ("Additional Gross Up Payment") equal to such additional amount of
excise tax and any federal, state and local taxes thereon, plus all interest and
penalties, if any, owed by the Executive with respect to such additional amount
of excise and other tax. The Bank shall have the right to challenge, on the
Executive's behalf, any excise tax assessment against as to which the Executive
is entitled to (or would be entitled if such assessment is finally determined to
be proper) a Gross Up Payment or Additional Gross Up Payment, provided that all
costs and expenses incurred in such a challenge shall be borne by the Bank and
the Bank shall indemnify the Executive and hold harmless, on an after-tax basis,
from any excise or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment of costs and expenses by the Bank.
(b) The Executive shall not be required to mitigate the amount
of any 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 Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate employment and determines in good
faith that has experienced Good Reason to terminate employment, shall send a
written notice to the Bank stating the circumstances that constitute Good Reason
and the Date of Termination.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason under this
Agreement.
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<PAGE>
5. 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 Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation, operation of law or
otherwise) to all or substantially all of the business and/or assets of the
Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank 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
Executive to compensation and benefits from the Bank in the same amount and on
the same terms that would be entitled to hereunder if terminated employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(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 Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the Executive,
unless otherwise provided herein, all amounts payable hereunder shall be paid to
the Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 7.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: [name]
At the address last appearing
on the personnel records of
the Executive
6
<PAGE>
If to the Bank: Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. 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.
10. 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.
11. Governing Law. This Agreement shall be governed by the laws of the
State of New York to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators= award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
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<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: HUDSON RIVER BANK & TRUST
COMPANY
- ------------------------------- ---------------------------------------
By:
Its:
EXECUTIVE
--------------------------------------
[name]
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<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of __________, 1998 (the "Commencement
Date"), by and between Hudson River Bank & Trust Company (which, together with
any successor thereto which executes and delivers the assumption agreement
provided for in Section 5(a) hereof or which otherwise becomes bound by all of
the terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and James Mackerer (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of
Commerical Lending of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Hudson River Bancorp,
Inc. (the "Company"), 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 management personnel to the detriment of the Bank, the Company
and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who is
temporarily holding securities in connection with such offering, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) individuals who are members of the Board on the
<PAGE>
Commencement Date (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the Commencement Date whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board or whose
nomination for election by the Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be considered a
member of the Incumbent Board; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar effect).
(b) The term "Commencement Date" means __________ __, 1998.
(c) The term "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company that are part of the affiliated group (as defined
in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to subsection (b) thereof) that includes the Bank, including but
not limited to the Company.
(d) The term "Date of Termination" means the date specified in
the Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given, and
in the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
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(i) a requirement that the Executive be based at any
location not within 50 miles of Hudson, New York, or
that substantially increase travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive 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 Executive, other than as part of a
Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material
adverse change in the Executive's perquisites,
benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and
with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours
of work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory
agreement from any successor to assume the obligations
and liabilities under this Agreement, as contemplated
in Section 5(a) hereof; or
(vii) any purported termination of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 4
hereof (and, if applicable, the requirements of Section
1(g) hereof), which purported termination shall not be
effective for purposes of this Agreement.
(f) The term "Notice of Termination" means a notice of
termination of the Executive's employment pursuant to Section 7 of this
Agreement.
(g) The term "Termination for Cause" means 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. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that action or failure to act was in the
best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
3
<PAGE>
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2. Term.
(a) The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the term of this Agreement shall automatically be extended
for one additional day each day, unless either the Bank or the Executive elects
not to extend the Agreement further by giving written notice thereof to the
other party, in which case the term of this Agreement shall end on the second
anniversary of the date on which such written notice is given. Upon termination
of the Executive's employment with the Bank for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not theretofore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating the Executive's employment during the term of
this Agreement with or without notice for any reason; provided, however, that
the relative rights and obligations of the Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
employment for Good Reason, within 24 months following a Change in Control, the
Bank shall (i) pay the Executive salary through the Date of Termination at the
rate in effect at the time the Notice of Termination is given, at the time such
payments are due; and (ii) pay to the Executive in a lump sum in cash, within 25
days after the later of the date of such Change in Control or the Date of
Termination, an amount equal to 299% of the Executive's "base amount" as
determined under Section 280G of the Code, less the aggregate present value of
the payments or benefits, if any, in the nature of compensation for the benefit
of the Executive, arising under any other plans or arrangements (i.e., not this
Agreement) between the Company or any of the Consolidated Subsidiaries and the
Executive, which constitute "parachute payments" under Section 280G of the Code.
While it is not contemplated that the Executive will receive any
amounts or benefits that will constitute "excess parachute payments" under
Section 280G of the Code, in the event that any payments or benefits provided or
to be provided to the Executive pursuant to this Agreement, in combination with
payments or benefits, if any, from other plans or arrangements maintained by the
Company or any of the Consolidated Subsidiaries, constitute "excess parachute
payments" under Section 280G of the Code that are subject to the excise tax
under Section 4999 of the Code, the Bank shall pay to the Executive in cash an
additional amount equal to the amount of the Gross Up Payment (as hereinafter
defined). The "Gross Up Payment" shall be the amount needed to ensure that the
amount of such payments and the value of such benefits received by the Executive
(net of such excise tax and any federal, state and local tax on the Bank's
4
<PAGE>
payment to attributable to such excise tax) equals the amount of such payments
and value of such benefits as would receive in the absence of such excise tax
and any federal, state and local tax on the Bank's payment to attributable to
such excise tax. The Bank shall pay the Gross Up Payment within 30 days after
the Date of Termination. For purposes of determining the amount of the Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
shall be determined by the Bank's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. In the event that, after
the Gross Up Payment is made, the amount of the excise tax is determined to be
less than the amount calculated in the determination of the actual Gross Up
Payment made by the Bank, the Executive shall repay to the Bank, at the time
that such reduction in the amount of excise tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction, plus interest on
the amount of such repayment at the applicable federal rate under Section 1274
of the Code from the date of the Gross Up Payment to the date of the repayment.
The amount of the reduction of the Gross Up Payment shall reflect any subsequent
reduction in excise taxes resulting from such repayment. In the event that,
after the Gross Up Payment is made, the amount of the excise tax is determined
to exceed the amount anticipated at the time the Gross Up Payment was made, the
Bank shall pay to the Executive, in immediately available funds, at the time
that such additional amount of excise tax is finally determined, an additional
payment ("Additional Gross Up Payment") equal to such additional amount of
excise tax and any federal, state and local taxes thereon, plus all interest and
penalties, if any, owed by the Executive with respect to such additional amount
of excise and other tax. The Bank shall have the right to challenge, on the
Executive's behalf, any excise tax assessment against as to which the Executive
is entitled to (or would be entitled if such assessment is finally determined to
be proper) a Gross Up Payment or Additional Gross Up Payment, provided that all
costs and expenses incurred in such a challenge shall be borne by the Bank and
the Bank shall indemnify the Executive and hold harmless, on an after-tax basis,
from any excise or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment of costs and expenses by the Bank.
(b) The Executive shall not be required to mitigate the amount
of any 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 Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate employment and determines in good
faith that has experienced Good Reason to terminate employment, shall send a
written notice to the Bank stating the circumstances that constitute Good Reason
and the Date of Termination.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason under this
Agreement.
5
<PAGE>
5. 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 Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation, operation of law or
otherwise) to all or substantially all of the business and/or assets of the
Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank 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
Executive to compensation and benefits from the Bank in the same amount and on
the same terms that would be entitled to hereunder if terminated employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(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 Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the Executive,
unless otherwise provided herein, all amounts payable hereunder shall be paid to
the Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 7.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: [name]
At the address last appearing
on the personnel records of
the Executive
6
<PAGE>
If to the Bank: Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. 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.
10. 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.
11. Governing Law. This Agreement shall be governed by the laws of the
State of New York to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators= award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
7
<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: HUDSON RIVER BANK & TRUST
COMPANY
- ------------------------------- ---------------------------------------
By:
Its:
EXECUTIVE
--------------------------------------
[name]
8
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of __________, 1998 (the "Commencement
Date"), by and between Hudson River Bank & Trust Company (which, together with
any successor thereto which executes and delivers the assumption agreement
provided for in Section 5(a) hereof or which otherwise becomes bound by all of
the terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and Lawrence Lango (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of
Mortgage Originations of the Bank; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Hudson River Bancorp,
Inc. (the "Company"), 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 management personnel to the detriment of the Bank, the Company
and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who is
temporarily holding securities in connection with such offering, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) individuals who are members of the Board on the
<PAGE>
Commencement Date (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the Commencement Date whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board or whose
nomination for election by the Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be considered a
member of the Incumbent Board; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar effect).
(b) The term "Commencement Date" means __________ __, 1998.
(c) The term "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company that are part of the affiliated group (as defined
in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to subsection (b) thereof) that includes the Bank, including but
not limited to the Company.
(d) The term "Date of Termination" means the date specified in
the Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given, and
in the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
2
<PAGE>
(i) a requirement that the Executive be based at any
location not within 50 miles of Hudson, New York, or
that substantially increase travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive 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 Executive, other than as part of a
Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material
adverse change in the Executive's perquisites,
benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and
with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours
of work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory
agreement from any successor to assume the obligations
and liabilities under this Agreement, as contemplated
in Section 5(a) hereof; or
(vii) any purported termination of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 4
hereof (and, if applicable, the requirements of Section
1(g) hereof), which purported termination shall not be
effective for purposes of this Agreement.
(f) The term "Notice of Termination" means a notice of
termination of the Executive's employment pursuant to Section 7 of this
Agreement.
(g) The term "Termination for Cause" means 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. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that action or failure to act was in the
best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
3
<PAGE>
Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2. Term.
(a) The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the term of this Agreement shall automatically be extended
for one additional day each day, unless either the Bank or the Executive elects
not to extend the Agreement further by giving written notice thereof to the
other party, in which case the term of this Agreement shall end on the second
anniversary of the date on which such written notice is given. Upon termination
of the Executive's employment with the Bank for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not theretofore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating the Executive's employment during the term of
this Agreement with or without notice for any reason; provided, however, that
the relative rights and obligations of the Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
employment for Good Reason, within 24 months following a Change in Control, the
Bank shall (i) pay the Executive salary through the Date of Termination at the
rate in effect at the time the Notice of Termination is given, at the time such
payments are due; and (ii) pay to the Executive in a lump sum in cash, within 25
days after the later of the date of such Change in Control or the Date of
Termination, an amount equal to 299% of the Executive's "base amount" as
determined under Section 280G of the Code, less the aggregate present value of
the payments or benefits, if any, in the nature of compensation for the benefit
of the Executive, arising under any other plans or arrangements (i.e., not this
Agreement) between the Company or any of the Consolidated Subsidiaries and the
Executive, which constitute "parachute payments" under Section 280G of the Code.
While it is not contemplated that the Executive will receive any
amounts or benefits that will constitute "excess parachute payments" under
Section 280G of the Code, in the event that any payments or benefits provided or
to be provided to the Executive pursuant to this Agreement, in combination with
payments or benefits, if any, from other plans or arrangements maintained by the
Company or any of the Consolidated Subsidiaries, constitute "excess parachute
payments" under Section 280G of the Code that are subject to the excise tax
under Section 4999 of the Code, the Bank shall pay to the Executive in cash an
additional amount equal to the amount of the Gross Up Payment (as hereinafter
defined). The "Gross Up Payment" shall be the amount needed to ensure that the
amount of such payments and the value of such benefits received by the Executive
(net of such excise tax and any federal, state and local tax on the Bank's
4
<PAGE>
payment to attributable to such excise tax) equals the amount of such payments
and value of such benefits as would receive in the absence of such excise tax
and any federal, state and local tax on the Bank's payment to attributable to
such excise tax. The Bank shall pay the Gross Up Payment within 30 days after
the Date of Termination. For purposes of determining the amount of the Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
shall be determined by the Bank's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. In the event that, after
the Gross Up Payment is made, the amount of the excise tax is determined to be
less than the amount calculated in the determination of the actual Gross Up
Payment made by the Bank, the Executive shall repay to the Bank, at the time
that such reduction in the amount of excise tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction, plus interest on
the amount of such repayment at the applicable federal rate under Section 1274
of the Code from the date of the Gross Up Payment to the date of the repayment.
The amount of the reduction of the Gross Up Payment shall reflect any subsequent
reduction in excise taxes resulting from such repayment. In the event that,
after the Gross Up Payment is made, the amount of the excise tax is determined
to exceed the amount anticipated at the time the Gross Up Payment was made, the
Bank shall pay to the Executive, in immediately available funds, at the time
that such additional amount of excise tax is finally determined, an additional
payment ("Additional Gross Up Payment") equal to such additional amount of
excise tax and any federal, state and local taxes thereon, plus all interest and
penalties, if any, owed by the Executive with respect to such additional amount
of excise and other tax. The Bank shall have the right to challenge, on the
Executive's behalf, any excise tax assessment against as to which the Executive
is entitled to (or would be entitled if such assessment is finally determined to
be proper) a Gross Up Payment or Additional Gross Up Payment, provided that all
costs and expenses incurred in such a challenge shall be borne by the Bank and
the Bank shall indemnify the Executive and hold harmless, on an after-tax basis,
from any excise or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment of costs and expenses by the Bank.
(b) The Executive shall not be required to mitigate the amount
of any 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 Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate employment and determines in good
faith that has experienced Good Reason to terminate employment, shall send a
written notice to the Bank stating the circumstances that constitute Good Reason
and the Date of Termination.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason under this
Agreement.
5
<PAGE>
5. 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 Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation, operation of law or
otherwise) to all or substantially all of the business and/or assets of the
Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank 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
Executive to compensation and benefits from the Bank in the same amount and on
the same terms that would be entitled to hereunder if terminated employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(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 Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the Executive,
unless otherwise provided herein, all amounts payable hereunder shall be paid to
the Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 7.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: [name]
At the address last appearing
on the personnel records of
the Executive
6
<PAGE>
If to the Bank: Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. 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.
10. 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.
11. Governing Law. This Agreement shall be governed by the laws of the
State of New York to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators= award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
7
<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: HUDSON RIVER BANK & TRUST
COMPANY
- ------------------------------- ---------------------------------------
By:
Its:
EXECUTIVE
--------------------------------------
[name]
8
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the "Agreement") is made
and entered into as of this ___ day of __________, 1998 (the "Commencement
Date"), by and between Hudson River Bank & Trust Company (which, together with
any successor thereto which executes and delivers the assumption agreement
provided for in Section 5(a) hereof or which otherwise becomes bound by all of
the terms and provisions of this Agreement by operation of law, is hereinafter
referred to as the "Bank"), and JoAnn Gamello (the "Executive").
WHEREAS, the Executive is currently serving as Vice President of
Finance; and
WHEREAS, the Board of Directors of the Bank (the "Board") recognizes
that, as is the case with many publicly held corporations, the possibility of a
change in control of the Bank or of its holding company, Hudson River Bancorp,
Inc. (the "Company"), 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 management personnel to the detriment of the Bank, the Company
and its stockholders; and
WHEREAS, the Board believes it is in the best interests of the Bank to
enter into this Agreement with the Executive in order to assure continuity of
management of the Bank and to reinforce and encourage the continued attention
and dedication of the Executive to the Executive's assigned duties without
distraction in the face of potentially disruptive circumstances arising from the
possibility of a change in control of the Company and/or the Bank, although no
such change is now contemplated; and
WHEREAS, the Board has approved and authorized the execution of this
Agreement with the Executive;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Certain Definitions.
(a) The term "Change in Control" means (i) any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than the Company, any Consolidated
Subsidiaries (as hereinafter defined), any person (as hereinabove defined)
acting on behalf of the Company as underwriter pursuant to an offering who is
temporarily holding securities in connection with such offering, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities; (ii) individuals who are members of the Board on the
<PAGE>
Commencement Date (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the Commencement Date whose election was approved by a vote of at
least three-quarters of the directors comprising the Incumbent Board or whose
nomination for election by the Company's stockholders was approved by the
nominating committee serving under an Incumbent Board, shall be considered a
member of the Incumbent Board; (iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than
(1) a merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person (as hereinabove defined) acquires more than 25% of the combined voting
power of the Company's then outstanding securities; or (iv) the stockholders of
the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar effect).
(b) The term "Commencement Date" means __________ __, 1998.
(c) The term "Consolidated Subsidiaries" means any subsidiary
or subsidiaries of the Company that are part of the affiliated group (as defined
in Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to subsection (b) thereof) that includes the Bank, including but
not limited to the Company.
(d) The term "Date of Termination" means the date specified in
the Notice of Termination (which, in the case of a Termination for Cause shall
not be less than 30 days from the date such Notice of Termination is given, and
in the case of a termination for Good Reason shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given); provided,
however, that if within 15 days after any Notice of Termination is given, or, if
later, prior to the Date of Termination (as determined without regard to this
proviso), the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, then the Date of
Termination shall be the date on which the dispute is finally determined,
whether by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); and provided,
further, that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Bank will continue to pay
the Executive the Executive's full salary at the rate in effect when the notice
giving rise to the dispute was given and continue the Executive as a participant
in all benefit and fringe benefit plans in which the Executive was participating
when the notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Section 1(d).
(e) The term "Good Reason" means the occurrence, without the
Executive's express written consent, of a material diminution of or interference
with the Executive's duties, responsibilities or benefits, including (without
limitation) any of the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination given by the Executive in respect thereof:
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(i) a requirement that the Executive be based at any
location not within 50 miles of Hudson, New York, or
that substantially increase travel on Company or Bank
business;
(ii) a material demotion of the Executive;
(iii) a material reduction in the number or seniority of
personnel reporting to the Executive 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 Executive, other than as part of a
Company-wide or Bank-wide reduction in staff;
(iv) a reduction in the Executive's salary or a material
adverse change in the Executive's perquisites,
benefits, contingent benefits or vacation, other than
as part of an overall program applied uniformly and
with equitable effect to all members of the senior
management of the Company or the Bank;
(v) a material and extended increase in the required hours
of work or the workload of the Executive;
(vi) the failure of the Bank to obtain a satisfactory
agreement from any successor to assume the obligations
and liabilities under this Agreement, as contemplated
in Section 5(a) hereof; or
(vii) any purported termination of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 4
hereof (and, if applicable, the requirements of Section
1(g) hereof), which purported termination shall not be
effective for purposes of this Agreement.
(f) The term "Notice of Termination" means a notice of
termination of the Executive's employment pursuant to Section 7 of this
Agreement.
(g) The term "Termination for Cause" means 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. No act or failure to act by the Executive shall be considered
intentional unless the Executive acted or failed to act with an absence of good
faith and without a reasonable belief that action or failure to act was in the
best interest of the Bank. Notwithstanding the foregoing, no Termination for
Cause shall be deemed to have occurred unless and until there shall have been
delivered to the Executive a copy of a resolution, duly adopted by the
affirmative vote of not less than three-quarters of the entire membership of the
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Board at a meeting of the Board duly called and held for such purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), stating
that in the good faith opinion of the Board the Executive has engaged in conduct
described in the preceding sentence and specifying the particulars thereof in
detail.
2. Term.
(a) The term of this Agreement shall be a period of two years
commencing on the Commencement Date, subject to extension or earlier termination
as provided herein.
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the term of this Agreement shall automatically be extended
for one additional day each day, unless either the Bank or the Executive elects
not to extend the Agreement further by giving written notice thereof to the
other party, in which case the term of this Agreement shall end on the second
anniversary of the date on which such written notice is given. Upon termination
of the Executive's employment with the Bank for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not theretofore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating the Executive's employment during the term of
this Agreement with or without notice for any reason; provided, however, that
the relative rights and obligations of the Bank and the Executive in the event
of any such termination shall be determined under this Agreement.
3. Severance Benefits.
(a) In the event that the Bank shall terminate the Executive's
employment other than Termination for Cause, or the Executive shall terminate
employment for Good Reason, within 24 months following a Change in Control, the
Bank shall (i) pay the Executive salary through the Date of Termination at the
rate in effect at the time the Notice of Termination is given, at the time such
payments are due; and (ii) pay to the Executive in a lump sum in cash, within 25
days after the later of the date of such Change in Control or the Date of
Termination, an amount equal to 299% of the Executive's "base amount" as
determined under Section 280G of the Code, less the aggregate present value of
the payments or benefits, if any, in the nature of compensation for the benefit
of the Executive, arising under any other plans or arrangements (i.e., not this
Agreement) between the Company or any of the Consolidated Subsidiaries and the
Executive, which constitute "parachute payments" under Section 280G of the Code.
While it is not contemplated that the Executive will receive any
amounts or benefits that will constitute "excess parachute payments" under
Section 280G of the Code, in the event that any payments or benefits provided or
to be provided to the Executive pursuant to this Agreement, in combination with
payments or benefits, if any, from other plans or arrangements maintained by the
Company or any of the Consolidated Subsidiaries, constitute "excess parachute
payments" under Section 280G of the Code that are subject to the excise tax
under Section 4999 of the Code, the Bank shall pay to the Executive in cash an
additional amount equal to the amount of the Gross Up Payment (as hereinafter
defined). The "Gross Up Payment" shall be the amount needed to ensure that the
amount of such payments and the value of such benefits received by the Executive
(net of such excise tax and any federal, state and local tax on the Bank's
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payment to attributable to such excise tax) equals the amount of such payments
and value of such benefits as would receive in the absence of such excise tax
and any federal, state and local tax on the Bank's payment to attributable to
such excise tax. The Bank shall pay the Gross Up Payment within 30 days after
the Date of Termination. For purposes of determining the amount of the Gross Up
Payment, the value of any non-cash benefits and deferred payments or benefits
shall be determined by the Bank's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code. In the event that, after
the Gross Up Payment is made, the amount of the excise tax is determined to be
less than the amount calculated in the determination of the actual Gross Up
Payment made by the Bank, the Executive shall repay to the Bank, at the time
that such reduction in the amount of excise tax is finally determined, the
portion of the Gross Up Payment attributable to such reduction, plus interest on
the amount of such repayment at the applicable federal rate under Section 1274
of the Code from the date of the Gross Up Payment to the date of the repayment.
The amount of the reduction of the Gross Up Payment shall reflect any subsequent
reduction in excise taxes resulting from such repayment. In the event that,
after the Gross Up Payment is made, the amount of the excise tax is determined
to exceed the amount anticipated at the time the Gross Up Payment was made, the
Bank shall pay to the Executive, in immediately available funds, at the time
that such additional amount of excise tax is finally determined, an additional
payment ("Additional Gross Up Payment") equal to such additional amount of
excise tax and any federal, state and local taxes thereon, plus all interest and
penalties, if any, owed by the Executive with respect to such additional amount
of excise and other tax. The Bank shall have the right to challenge, on the
Executive's behalf, any excise tax assessment against as to which the Executive
is entitled to (or would be entitled if such assessment is finally determined to
be proper) a Gross Up Payment or Additional Gross Up Payment, provided that all
costs and expenses incurred in such a challenge shall be borne by the Bank and
the Bank shall indemnify the Executive and hold harmless, on an after-tax basis,
from any excise or other tax (including interest and penalties with respect
thereto) imposed as a result of such payment of costs and expenses by the Bank.
(b) The Executive shall not be required to mitigate the amount
of any 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 Executive as
the result of employment by another employer, by retirement benefits after the
Date of Termination or otherwise. This Agreement shall not be construed as
providing the Executive any right to be retained in the employ of the Bank or
any affiliate of the Bank.
4. Notice of Termination. In the event that the Bank desires to
terminate the employment of the Executive during the term of this Agreement, the
Bank shall deliver to the Executive a written notice of termination, stating (i)
whether such termination constitutes Termination for Cause, and, if so, setting
forth in reasonable detail the facts and circumstances that are the basis for
the Termination for Cause, and (ii) specifying the Date of Termination. In the
event that the Executive desires to terminate employment and determines in good
faith that has experienced Good Reason to terminate employment, shall send a
written notice to the Bank stating the circumstances that constitute Good Reason
and the Date of Termination.
The Executive's right to terminate employment for Good Reason shall not
be affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason under this
Agreement.
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5. 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 Bank shall require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation, operation of law or
otherwise) to all or substantially all of the business and/or assets of the
Bank, by an assumption agreement in form and substance satisfactory to the
Executive, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Bank would be required to perform it if
no such succession or assignment had taken place. Failure of the Bank 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
Executive to compensation and benefits from the Bank in the same amount and on
the same terms that would be entitled to hereunder if terminated employment for
Good Reason, in addition to any payments and benefits to which the Executive is
entitled under Section 3 hereof. For purposes of implementing the provisions of
this Section 5(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 Executive hereunder
shall inure to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. In the event of the death of the Executive,
unless otherwise provided herein, all amounts payable hereunder shall be paid to
the Executive's devisee, legatee, or other designee or, if there be no such
designee, to the Executive's estate.
6. Deferred Payments. If following a termination of the Executive, the
aggregate payments to be made by the Bank under this Agreement and all other
plans or arrangements maintained by the Company or any of the Consolidated
Subsidiaries would exceed the limitation on deductible compensation contained in
Section 162(m) of the Code in any calendar year, any such amounts in excess of
such limitation shall be mandatorily deferred with interest thereon at 7.0% per
annum to a calendar year such that the amount to be paid to the Executive in
such calendar year, including deferred amounts, does not exceed such limitation.
7. Delivery of Notices. For the purposes of this Agreement, all notices
and other communications to any party hereto shall be in writing and shall be
deemed to have been duly given when delivered or sent by certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: [name]
At the address last appearing
on the personnel records of
the Executive
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If to the Bank: Hudson River Bank & Trust Company
1 Hudson City Center
Hudson, New York 12534
Attention: Secretary
or to such other address as such party may have furnished to the other in
writing in accordance herewith, except that a notice of change of address shall
be effective only upon receipt.
8. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
9. 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.
10. 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.
11. Governing Law. This Agreement shall be governed by the laws of the
State of New York to the extent that federal law does not govern.
12. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by binding
arbitration, conducted before a panel of three arbitrators in a location
selected by the Executive within 100 miles of such Executive's job location with
the Bank, in accordance with the rules of the American Arbitration Association
then in effect; provided, however, that the Executive shall be entitled to seek
specific performance of rights under Section 1(d) during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
Judgment may be entered on the arbitrators= award in any court having
jurisdiction.
13. Reimbursement of Expenses. In the event any dispute shall arise
between the Executive and the Bank as to the terms or interpretation of this
Agreement, including this Section 13, whether instituted by formal legal
proceedings or otherwise, including any action taken by the Executive to enforce
the terms of this Section 13, or in defending against any action taken by the
Bank, the Bank shall reimburse the Executive for all costs and expenses incurred
by the Executive, including reasonable attorney's fees, arising from such
dispute, proceedings or actions, unless a court of competent jurisdiction
renders a final and nonappealable judgment against the Executive as to the
matter in dispute. Reimbursement of the Executive's expenses shall be paid
within ten days of the Executive furnishing to the Bank written evidence, which
may be in the form, among other things, of a canceled check or receipt, of any
costs or expenses incurred by the Executive.
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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: HUDSON RIVER BANK & TRUST
COMPANY
- ------------------------------- ---------------------------------------
By:
Its:
EXECUTIVE
--------------------------------------
[name]
8
Exhibit 10.4
HUDSON RIVER BANK & TRUST COMPANY
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of Hudson River Bank & Trust Company Employee Severance
Compensation Plan (the "Plan") is to assure for Hudson River Bank & Trust
Company (the "Bank") the services of the Employees in the event of a Change in
Control of Hudson River Bancorp, Inc. (the "Holding Company") or the Bank. The
benefits contemplated by the Plan recognize the value to the Bank of the
services and contributions of the Employees and the effect upon the Bank
resulting from uncertainties relating to continued employment, reduced employee
benefits, management changes and employee relations that may arise if a Change
in Control occurs or is threatened. The Bank's and the Holding Company's Boards
of Directors believe that it is in the best interests of the Bank and the
Holding Company to provide Employees with such benefits in order to defray the
costs and changes in employee status that could follow a Change in Control. The
Boards of Directors believe that the Plan will also aid the Bank in attracting
and retaining highly qualified individuals who are essential to its success and
that the Plan's assurance of fair treatment of the Bank's employees will reduce
the distractions and other adverse effects on Employees' performance if a Change
in Control occurs or is threatened.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
As of the Effective Date, the Bank hereby establishes a severance
compensation plan to be known as the "Hudson River Bank & Trust Company Employee
Severance Compensation Plan." The purposes of the Plan are as set forth above.
1.2 Applicability of Plan
The benefits provided by this Plan shall be available to all Employees,
who, at or after the Effective Date, meet the eligibility requirements of
Article III. The Plan shall not apply to any Employee whose employment was
terminated prior to the Effective Date.
1.3 Contractual Right to Benefits
This Plan establishes and vests in each Participant a contractual right
to the benefits to which each Participant is entitled hereunder, enforceable by
the Participant against the Employer.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
Whenever used in the Plan, the following terms shall have the meanings
set forth below.
(a) "Annual Compensation" of a Participant means and includes all
wages, salary, bonus, and incentive compensation (other than stock based
compensation), paid (including accrued amounts) by an Employer as consideration
for the Participant's services during the 12 months ended the date as of which
Annual Compensation is to be determined, which are or would be includable in the
gross income of the Participant receiving the same for federal income tax
purposes.
(b) "Bank" means Hudson River Bank & Trust Company or any successor as
provided for in Article VII hereof.
(c) "Change in Control," for purposes of determining under the Plan
whether there has been a change in control of the Bank or the Holding Company,
means the definition of change in control set forth in 12 C.F.R. ' 574 et. seq.
as interpreted by the Board of Directors of the Bank, as it is constituted prior
to the Change in Control.
(d) "Continuous Employment" means the absence of any interruption or
termination of service as an Employee of the Bank 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 Bank or in the case of transfers between
payroll locations of the Bank or between the Bank, its Parent, its Subsidiary or
its successor.
(e) "Effective Date," as to Employees of an Employer, means the date
the Plan is approved by the Board of Directors of the Bank, or such other date
as the Board shall designate in its resolution approving the Plan.
(f) "Employee" means an employee employed by the Employer on a
full-time basis, excluding any executive officer of the Employer who is covered
by an employment contract or a change in control severance agreement with the
Employer.
(g) "Employer" means the Bank or a Subsidiary or a Parent which has
adopted the Plan pursuant to Article VI hereof.
(h) "Expiration Date" means the date fifteen (15) years from the
Effective Date unless earlier terminated pursuant to Section 8.2 or extended
pursuant to Section 8.1.
(i) "Holding Company" means Hudson River Bancorp, Inc., the Parent of
the Bank.
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(j) "Just Cause," with respect to termination of employment, means an
act or acts of personal dishonesty, incompetence, willful misconduct, breach of
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. In determining
incompetence, acts or omissions shall be measured against standards generally
prevailing in the savings institution industry.
(k) "Parent" means any corporation which holds a majority of the voting
power of the outstanding shares of the Bank's common stock.
(l) "Participant" means an Employee who meets the eligibility
requirements of Article III.
(m) "Payment" means the payment of severance compensation as provided
in Article IV hereof.
(n) "Plan" means the Hudson River Bank & Trust Company Employee
Severance Compensation Plan.
(o) "Subsidiary" means any corporation in which the Bank, directly or
indirectly, holds a majority of the voting power of its outstanding shares of
capital stock.
2.2 Applicable Law
To the extent not preempted by the laws of the United States as now or
hereafter in effect, the laws of the State of New York shall be the controlling
law in all matters relating to the Plan.
The Plan neither requires nor establishes an ongoing administrative
system for its effect or operation. Payments under the Plan are precipitated by
a single event, a Change in Control, which event is the sole focus of the Plan.
Consequently, it is intended that the Plan shall not be covered by or subject to
the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
2.3 Severability
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan, and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
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ARTICLE III
ELIGIBILITY
3.1 Participation
Each Employee who is an assistant vice president of the Employer as of
the Effective Date shall become a Participant on the Effective Date. Thereafter,
each Employee who becomes an assistant vice president of the Employer shall
become a Participant on the day that he or she becomes an assistant vice
president of the Employer. Notwithstanding the foregoing, persons who have
entered into and continue to be covered by an employment or change in control
severance agreement with the Employer shall not be entitled to participate in
the Plan.
3.2 Duration of Participation
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. Furthermore, an Employee shall
cease to be a Participant upon entering into an employment or change in control
severance agreement with the Employer. A Participant entitled to receipt of a
Payment shall remain a Participant in this Plan until the full amount of such
Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
A Participant shall be entitled to receive from his respective Employer
a Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Bank or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, total and permanent disability, or
for Just Cause.
4.2 Reasons for Termination
Following a Change in Control, a Participant shall be entitled to a
Payment if his employment with an Employer is terminated, voluntarily or
involuntarily, for any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control, or as the
same may have been increased thereafter.
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(b) The Employer requires the Participant to change the location of the
Participant's job or office, so that such Participant will be based at a
location more than fifteen miles from the location of the Participant's job or
office immediately prior to the Change in Control, provided that such new
location is not closer to Participant's home.
(c) The Employer materially reduces the benefits and perquisites, taken
as a whole, available to the Participant immediately prior to the Change in
Control; provided, however, that a material reduction on a nondiscriminatory
basis in the benefits and perquisites generally provided to all employees of the
Bank that does not reduce a Participant's Annual Compensation shall not trigger
a Payment.
(d) A successor bank or company fails or refuses to assume the Bank's
obligations under this Plan, as required by Article VII.
(e) The Bank or any successor company breaches any other provisions of
the Plan.
(f) The Employer terminates the employment of a Participant at or after
a Change in Control other than for Just Cause.
4.3 Amount of Payment
Each Participant entitled to a Payment under the Plan shall receive
from the Bank a lump sum cash payment, in an amount determined as follows:
(a) The Participant's cash payment shall equal the product of his or
her Annual Compensation paid or accrued during the two week period immediately
prior to the Change in Control times the number of full or substantially
completed (nine months or more) years of employment with the Employer, provided
that each Participant shall be deemed for this purpose to have completed a
minimum of two years of employment with the Employer, and provided further that
no Participant shall receive a cash payment hereunder in an aggregate amount of
more than his or her Annual Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section of similar import.
The Participant shall not be required to mitigate damages on the amount
of the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment with an Employer.
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4.4 Time of Payment
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
employment but before all amounts have been paid, such unpaid amounts shall be
paid to the Participant's surviving spouse, or if none, to the Participant's
named beneficiary, if living, otherwise to the personal representative on behalf
of or for the benefit of the Participant's estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
Neither the provisions of the Plan nor the Payment provided for
hereunder shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
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ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Bank, this Plan may
be adopted by any Subsidiary or Parent of the Bank. Upon such adoption, the
Subsidiary or Parent shall become an Employer hereunder and the provisions of
the Plan shall be fully applicable to the Employees of that Subsidiary or
Parent.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor to or assignee of, whether
direct or indirect, by purchase, merger, consolidation or otherwise, all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under the
Plan.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
If a Change in Control has not occurred, the Plan shall expire fifteen
(15) years from the Effective Date, unless sooner terminated as provided in
Section 8.2, or unless extended for an additional period or periods by
resolution adopted by the Board of Directors of the Bank.
Notwithstanding the foregoing, if a Change in Control occurs, the Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
The Plan may be terminated or amended in any respect by resolution
adopted by a majority of the Board of Directors of the Bank, unless (i) a Change
in Control has previously occurred, (ii) the Bank shall have in the previous
year received an offer, which was not subsequently withdrawn, from a third party
to engage in a transaction which would involve a Change in Control or (iii) a
third party shall have disclosed in a filing with the Securities and Exchange
Commission ("SEC") its intent to engage in a transaction which would result in a
Change in Control and has not subsequently indicated in another SEC filing that
it no longer had such intention. For so long as any of the events listed in
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<PAGE>
paragraphs (i), (ii) and (iii) persist, the Plan shall not be subject to
amendment, change, substitution, deletion, revocation or termination in any
respect whatsoever unless any acquiror of the Bank shall agree in writing to
provide benefits to covered employees which are at least as substantial as those
set forth herein if such employees are terminated without cause within one year
of a Change in Control of the Bank.
8.3 Form of Amendment
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by the duly authorized officer or officers of the
Bank, certifying that the amendment or termination has been approved by the
Board of Directors. A proper amendment of the Plan automatically shall effect a
corresponding amendment to all Participant's rights hereunder, regardless of
whether the Participants receive notice of such action. A proper termination of
the Plan automatically shall effect a termination of all Participants' rights
and benefits hereunder, regardless of whether the Participants receive notice of
such action.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 Subject to the notice provision in section 9.2 hereof, the Bank
shall pay all legal fees, costs of litigation, and other expenses incurred by
each Participant as a result of the Bank's refusal to make the Payment to which
the Participant becomes entitled under this Plan, or as a result of the Bank's
unsuccessfully contesting the validity, enforceability or interpretation of the
Plan.
9.2 A Participant must provide the Bank with 10 (ten) business days
notice of a complaint of entitlement under the Plan before the Bank shall be
liable for the payment of any legal fees, costs of litigation or other expenses
referred to in section 9.1 hereof.
ARTICLE X
ARBITRATION
10.1 Any dispute or controversy arising under or in connection with the
Plan shall be settled exclusively by arbitration, conducted before a panel of
three arbitrators sitting in a location selected by the Participant within fifty
(50) miles from the location of the Bank, in accordance with rules of the
American Arbitration Association then in effect. Judgment may be entered on the
award of the arbitrator in any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of the counsel for the Participant,
shall be borne by the Bank.
8
<PAGE>
Having been adopted by its Board of Directors on __________, 1998, the
Plan is executed by its duly authorized officers as of the ___ day of
____________, 1998.
Attest HUDSON RIVER BANK & TRUST COMPANY
__________________________ By ______________________________
- ---------------------- -----------------------------
Secretary President and Chief Executive
Officer
Having been adopted by its Board of Directors on ___________, 1998, the
Plan is executed by its duly authorized officers this ____ day of _____________,
1998.
Attest HUDSON RIVER BANCORP, INC.
- ----------------------------- --------------------------------
- --------------------- --------------------------------
Secretary President and Chief Executive
Officer
9
Exhibit 10.5
HUDSON RIVER BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective as of January 1, 1998
<PAGE>
HUDSON RIVER BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
Page
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PREAMBLE 1
ARTICLE I DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions
(a) "Act" 2
(b) "Administrator" 2
(c) "Annual Additions" 2
(d) "Authorized Leave of Absence" 2
(e) "Beneficiary" 2
(f) "Board of Directors" 2
(g) "Break" 3
(h) "Code" 3
(i) "Compensation" 3
(j) "Date of Hire" 3
(k) "Disability" 3
(l) "Disability Retirement Date" 3
(m) "Early Retirement Date" 3
(n) "Effective Date" 3
(o) "Eligibility Period" 3
(p) "Employee" 4
(q) "Employer" 4
(r) "Employer Securities" 4
(s) "Entry Date" 4
(t) "Exempt Loan" 4
(u) "Former Participant" 4
(v) "Fund" 4
(w) "Hour of Service" 4
(x) "Investment Adjustments" 5
(y) "Limitation Year" 5
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Page
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(z) "Normal Retirement Date" 5
(aa) "Participant" 5
(bb) "Plan" 5
(cc) "Plan Year" 5
(dd) "Qualified Domestic Relations Order" 5
(ee) "Retirement" 6
(ff) "Service" 6
(gg) "Sponsor" 6
(hh) "Trust Agreement" 6
(ii) "Trustee" 6
(jj) "Valuation Date" 6
(kk) "Year of Service" 6
1.2 Plurals and Gender 7
1.3 Incorporation of Trust Agreement 7
1.4 Headings 7
1.5 Severability 7
1.6 References to Governmental Regulations 7
ARTICLE II PARTICIPATION
2.1 Commencement of Participation 8
2.2 Termination of Participation 8
2.3 Resumption of Participation 8
2.4 Determination of Eligibility 9
ARTICLE III CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes 10
3.2 Service Counted for Vesting Purposes 10
3.3 Credit for Pre-Break Service 10
3.4 Service Credit During Authorized Leaves 10
3.5 Service Credit During Maternity or
Paternity Leave 11
3.6 Ineligible Employees 11
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Page
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ARTICLE IV CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions 12
4.2 Time and Manner of Employee Stock Ownership
Contributions 12
4.3 Records of Contributions 13
4.4 Erroneous Contributions 13
ARTICLE V ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant
Accounts 14
5.2 Establishment of Suspense Account 14
5.3 Allocation of Earnings, Losses and Expenses 15
5.4 Allocation of Forfeitures 15
5.5 Allocation of Annual Employee Stock
Ownership Contributions 15
5.6 Limitation on Annual Additions 16
5.7 Erroneous Allocations 19
5.8 Value of Participant's Interest in Fund 19
5.9 Investment of Account Balances 19
ARTICLE VI RETIREMENT, DEATH AND DESIGNATION
OF BENEFICIARY
6.1 Normal Retirement 20
6.2 Early Retirement 20
6.3 Disability Retirement 20
6.4 Death Benefits 20
6.5 Designation of Death Beneficiary and
Manner of Payment 21
ARTICLE VII VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Normal Retirement 22
7.2 Vesting on Termination of Participation 22
7.3 Disposition of Forfeitures 22
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Page
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ARTICLE VIII EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities 24
8.2 Voting Rights 24
8.3 Nondiscrimination in Employee Stock Owner-
ship Contributions 24
8.4 Dividends 25
8.5 Exempt Loans 25
8.6 Exempt Loan Payments 26
8.7 Put Option 27
8.8 Diversification Requirements 28
8.9 Independent Appraiser 28
ARTICLE IX PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service
- In General 29
9.2 Commencement of Payments 29
9.3 Mandatory Commencement of Benefits 30
9.4 Required Beginning Dates 32
9.5 Form of Payment 32
9.6 Payments Upon Termination of Plan 33
9.7 Distribution Pursuant to Qualified
Domestic Relations Orders 33
9.8 Cash-Out Distributions 33
9.9 ESOP Distribution Rules 34
9.10 Direct Rollover 34
9.11 Waiver of 30-day Notice 35
9.12 Re-employed Veterans 35
ARTICLE X PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control 37
10.2 Top-Heavy Plan Definitions 37
10.3 Calculation of Accrued Benefits 39
10.4 Determination of Top-Heavy Status 40
10.5 Determination of Super Top-Heavy Status 40
10.6 Minimum Contribution 41
10.7 Vesting 42
10.8 Maximum Benefit Limitation 42
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<PAGE>
Page
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ARTICLE XI ADMINISTRATION
11.1 Appointment of Administrator 43
11.2 Resignation or Removal of Administrator 43
11.3 Appointment of Successors: Terms of
Office, Etc. 43
11.4 Powers and Duties of Administrator 43
11.5 Action by Administrator 45
11.6 Participation by Administrators 45
11.7 Agents 45
11.8 Allocation of Duties 45
11.9 Delegation of Duties 45
11.10 Administrator's Action Conclusive 46
11.11 Compensation and Expenses of
Administrator 46
11.12 Records and Reports 46
11.13 Reports of Fund Open to Participants 46
11.14 Named Fiduciary 46
11.15 Information from Employer 47
11.16 Reservation of Rights by Employer 47
11.17 Liability and Indemnification 47
11.18 Service as Trustee and Administrator 47
ARTICLE XII CLAIMS PROCEDURE
12.1 Notice of Denial 48
12.2 Right to Reconsideration 48
12.3 Review of Documents 48
12.4 Decision by Administrator 48
12.5 Notice by Administrator 49
ARTICLE XIII AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments 50
13.2 Consolidation, Merger or Other
Transactions of Employer 50
13.3 Consolidation or Merger of Trust 51
13.4 Bankruptcy or Insolvency of Employer 51
13.5 Voluntary Termination 52
13.6 Partial Termination of Plan or Permanent
Discontinuance of Contributions 52
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Page
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ARTICLE XIV MISCELLANEOUS
14.1 No Diversion of Funds 53
14.2 Liability Limited 53
14.3 Incapacity 53
14.4 Spendthrift Clause 53
14.5 Benefits Limited to Fund 54
14.6 Cooperation of Parties 54
14.7 Payments Due Missing Persons 54
14.8 Governing Law 54
14.9 Nonguarantee of Employment 55
14.10 Counsel 55
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<PAGE>
HUDSON RIVER BANCORP, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1998, Hudson River Bancorp, Inc., a
Delaware corporation (the "Sponsor"), has adopted the Hudson River Bancorp, Inc.
Employee Stock Ownership Plan in order to enable Participants to share in the
growth and prosperity of the Sponsor and its wholly owned subsidiary, Hudson
River Bank & Trust Company, and to provide Participants with an opportunity to
accumulate capital for their future economic security by accumulating funds to
provide retirement, death and disability benefits. The Plan is a stock bonus
plan 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 ERISA. The
employee stock ownership plan is intended to invest primarily in employer
securities. The Sponsor intends that the Plan will qualify under Sections 401(a)
and 501(a) of the Code and will comply with the provisions of ERISA. The Plan
has been drafted to comply with all applicable provisions of law, including the
Tax Reform Act of 1986, the Omnibus Budget Reconciliation Act of 1986, the
Omnibus Budget Reconciliation Act of 1987, the Technical and Miscellaneous
Revenue Act of 1988, the Revenue Reconciliation Act of 1989, the Omnibus Budget
Reconciliation Act of 1993, the Small Business Job Protection Act of 1996, and
the Taxpayer Relief Act of 1997.
The terms of this Plan shall apply only with respect to Employees
of the Employer on and after January 1, 1998.
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<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee
provided for in Article XI.
(c) "Annual Additions" shall mean, with respect to each
Participant, the sum of those amounts allocated to the Participant's accounts
under this Plan and under any other qualified defined contribution plan to which
the Employer contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Employee contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from
Service with respect to which the Employee may or may not be entitled to
Compensation and which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States
for up to 36 months, provided that the Employee resumes
Service within 90 days after discharge, or such longer
period of time during which such Employee's employment
rights are protected by law; or
(2) Any other absence or leave expressly approved and
granted by the Employer which does not exceed 24
months, provided that the Employee resumes Service at
or before the end of such approved leave period. In
approving such leaves of absence, the Employer shall
treat all Employees on a uniform and nondiscriminatory
basis.
(e) "Beneficiary" shall mean such persons as may be designated by
the Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
(f) "Board of Directors" shall mean the Board of Directors of the
Sponsor.
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<PAGE>
(g) "Break" shall mean a Plan Year during which an Employee fails
to complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year. Notwithstanding anything herein to the contrary, the annual
Compensation of each Participant taken into account under the Plan for any Plan
Year shall not exceed $150,000, as adjusted from time to time in accordance with
Section 415(d) of the Code.
(j) "Date of Hire" shall mean the date on which a person shall
perform his first Hour of Service. Notwithstanding the foregoing, in the event a
person incurs one or more consecutive Breaks after his initial Date of Hire
which results in the forfeiture of his pre-Break Service pursuant to Section
3.3, his "Date of Hire" shall thereafter be the date on which he completes his
first Hour of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which
prohibits a Participant from engaging in any occupation for wages or profit and
which either has caused the Social Security Administration to classify the
individual as "disabled" for purposes of Social Security or has been determined
by a qualified physician selected by the Administrator.
(l) "Disability Retirement Date" shall mean the first day of the
month after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes 5 Years of Service.
(n) "Effective Date" shall mean January 1, 1998.
(o) "Eligibility Period" shall mean the period of 12 consecutive
months commencing on an Employee's Date of Hire. Succeeding eligibility
computation periods after the initial eligibility computation period shall be
based on Plan Years, the first of which shall include the first anniversary of
an Employee's Date of Hire.
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<PAGE>
(p) "Employee" shall mean any person employed by the Employer,
including officers but excluding directors in their capacity as such.
(q) "Employer" shall mean Hudson River Bancorp, Inc., a Delaware
corporation, and its wholly owned subsidiary, Hudson River Bank & Trust Company,
or any successors to the aforesaid corporations by merger, consolidation or
otherwise, which may agree to continue this Plan, or any affiliated or
subsidiary corporation or business organization of any Employer which, with the
consent of the Sponsor, shall agree to become a party to this Plan.
(r) "Employer Securities" shall mean the common stock issued by
Hudson River Bancorp, Inc., a Delaware corporation.
(s) "Entry Date" shall mean each January 1 and July 1, so long as
this Plan shall remain in effect.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1)
of the Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which has
not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant
to the Trust Agreement in order to provide for the payment of the benefits
specified in the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons. In computing
and crediting Hours of Service for an Employee under this Plan, the rules set
forth in Sections 2530.200b-2(b) and (c) of the Department of Labor Regulations
shall apply, said Sections being herein incorporated by reference. Hours of
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<PAGE>
Service shall be credited to the Plan Year or other relevant period during which
the services were performed or the nonworking time occurred, regardless of the
time when Compensation therefor may be paid. Any Employee for whom no hourly
employment records are kept by the Employer shall be credited with 45 Hours of
Service for each calendar week in which he would have been credited with a least
one Hour or Service under the foregoing provisions, if hourly records were
available. Effective January 1, 1985, for absences commencing on or after that
date, solely for purposes of determining whether a Break for participation and
vesting purposes has occurred in an Eligibility Period or Plan Year, an
individual who is absent from work for maternity or paternity reasons shall
receive credit for the Hours of Service which would otherwise have been credited
to such individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For purposes
of this Section 1.1(w), an absence from work for maternity or paternity reasons
means an absence (1) by reason of the pregnancy of the individual, (2) by reason
of the birth of a child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of Service credited
under this provision shall be credited (1) in the computation period in which
the absence begins if the crediting is necessary to prevent a Break in that
period, or (2) in all other cases, in the following computation period.
(x) "Investment Adjustments" shall mean the increases and/or
decreases in the value of a Participant's accounts attributable to earnings,
gains, losses and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65 and completes the
fifth anniversary of his participation in the Plan.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof; provided, however, that the term "Participant"
shall not include leased Employees, Employees regularly employed outside the
Employer's own offices in connection with the operation and maintenance of
buildings or other properties acquired through foreclosure or deed, any Employee
who is a non-resident alien individual and who has no earned income from sources
within the United States, or any Employee included in a unit of Employees
covered by a collective-bargaining agreement with the Employer that does not
expressly provide for participation of such Employees in this Plan, where there
has been good-faith bargaining between the Employer and Employees'
representatives on the subject of retirement benefits.
(bb) "Plan" shall mean the Hudson River Bancorp, Inc. Employee
Stock Ownership Plan, as described herein or as hereafter amended from time to
time.
(cc) "Plan Year" shall mean any 12 consecutive month period
commencing on January 1 and ending on December 31.
(dd) "Qualified Domestic Relations Order" shall mean any judgment,
decree or order (including approval of a property settlement agreement) that
relates to the provision of child support, alimony, marital property rights to a
spouse, former spouse, child or other dependent of the Participant (all such
persons hereinafter termed "alternate payee") and is made pursuant to a State
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<PAGE>
domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to receive all or a portion of the benefits
payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available)
of the Participant and the name and mailing address of each alternate payee to
which the order relates;
(2) the amount or percentage of the Participant's benefits
to be paid to an alternate payee or the manner in which the amount is to be
determined; and
(3) the number of payments or period for which payments are
required.
A domestic relations order is not a Qualified Domestic
Relations Order if it:
(1) requires the Plan to provide any type or form of
benefit or any option not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits, or
(3) requires payment of benefits to an alternate payee that
is required to be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which
qualifies as early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Hudson River Bancorp, Inc., a Delaware
corporation.
(hh) "Trust Agreement" shall mean the agreement, dated ________,
1998 by and between Hudson River Bancorp, Inc., a Delaware corporation, and
____________________, of ___________, __________.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the
assets of the Plan are held, as provided in the Trust Agreement, or his or their
successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year.
The Trustee may make additional valuations, at the instruction of the
Administrator, but in no event may the Administrator request additional
valuations by the Trustee more frequently than quarterly. Whenever such date
falls on a Saturday, Sunday or holiday, the preceding business day shall be the
Valuation Date.
(kk) "Year of Service" shall mean any Plan Year during which an
Employee is credited with at least 1,000 Hours of Service, except as otherwise
specified in Article III. In the determination of Years of Service for
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<PAGE>
eligibility and vesting purposes under this Plan, the term "Year of Service"
shall also mean any Plan Year during which an Employee is credited with at least
1,000 Hours of Service with an entity that is:
(1) a member of a controlled group including the
Employer, while it is a member of such controlled group
(within the meaning of Section 414(b) of the Code);
(2) a member of a group of trades or businesses under
common control with the Employer, while it is under common
control (within the meaning of Section 414(c) of the Code);
(3) a member of an affiliated service group including
the Employer, while it is a member of such affiliated
service group (within the meaning of Section 414(m) of the
Code); or
(4) a leasing or other organization, under the
circumstances described in Section 414(n) or 414(o) of the
Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine
gender shall include the feminine and neuter genders, and the singular shall
include the plural, and vice versa, unless the context clearly indicates a
different meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time,
is intended to be and hereby is incorporated by reference into this Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the
convenience of reference only and are to be ignored in any construction of the
provisions hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void,
such illegality or invalidity shall not affect the remaining provisions of this
Plan, but shall be fully severable, and the Plan shall be construed and enforced
as if said illegal or invalid provisions had never been inserted herein.
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal
Revenue Service, the Department of Labor, or other governmental agencies shall
include all regulations, rulings, procedures, releases and other position
statements issued by any such agency.
-7-
<PAGE>
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who is credited with at least 1,000 Hours of
Service during his Eligibility Period or during any Plan Year beginning after
his Date of Hire shall initially become a Participant on the Entry Date
coincident with or next following the later of the following dates, provided he
is employed by the Employer on that Entry Date:
(1) The date which is 12 months after his Date of Hire;
and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in
Section 2.1(a) during the 12-month period prior to the Effective Date shall
become a Participant on the Effective Date, provided he is still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee
shall remain a Participant during each consecutive Plan Year thereafter until
the earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation.
(a) Any Participant whose employment terminates and who resumes
Service before he incurs a Break shall resume participation immediately on the
date he is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant
who incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes
Service, but whose pre-Break Service is not reinstated to his credit pursuant to
Section 3.3, shall be treated as a new Employee and shall again be required to
satisfy the eligibility requirements contained in Section 2.1 before resuming
participation on the appropriate Entry Date, as specified in Section 2.1.
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<PAGE>
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
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<PAGE>
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed
by an Employee shall be counted in determining his eligibility to become a
Participant on and after the Effective Date, whether such Service was completed
before or after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of
Service completed prior to the Effective Date) shall be counted in determining
his vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section
3.3;
(b) Service prior to the Effective Date of this Plan if such
Service would have been disregarded under the "break in service" rules (within
the meaning of Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time
the Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed
the greater of 5 or the number of his Years of Service credited to him before
the Breaks began.
Except as provided in the foregoing, none of an Employee's Service
prior to one or a series of consecutive Breaks shall be counted for any purpose
in connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or
3.2 during any Authorized Leave of Absence. However, solely for the purpose of
determining whether he has incurred a Break during any Plan Year in which he is
absent from Service for one or more Authorized Leaves of Absence, he shall be
credited with 45 Hours of Service for each week during any such leave period.
Notwithstanding the foregoing, if an Employee fails to return to Service on or
before the end of a leave period, he shall be deemed to have terminated Service
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as of the first day of such leave period and his credit for Hours of Service,
determined under this Section 3.4, shall be revoked. Notwithstanding anything
contained herein to the contrary, an Employee who is absent by reason of
military service as set forth in Section 1.1(d)(1) shall be given Service credit
under this Plan for such military leave period to the extent, and for all
purposes, required by law.
3.5 Service Credit During Maternity or Paternity Leave.
Effective for absences beginning on or after January 1, 1985, for
purposes of determining whether a Break has occurred for participation and
vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Adminis trator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the
maternity or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than for
determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any
person who is employed by the Employer, but who is ineligible to participate in
this Plan, either because of his failure
(a) To meet the eligibility requirements contained in Article II;
or
(b) To be an Employee, as defined in Section 1.1(p), shall,
nevertheless, earn Years of Service for eligibility and vesting purposes
pursuant to the rules contained in this Article III. However, such a person
shall not be entitled to receive any contributions hereunder unless and until he
becomes a Participant in this Plan, and then, only during his period of
participation.
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ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each
Plan Year commencing on or after the Effective Date, the Employer shall make an
Employee Stock Ownership contribution to the Fund, in such amount as may be
determined by the Board of Directors in its discretion. Such contribution shall
be in the form of cash or Employer Securities. In determining the value of
Employer Securities transferred to the Fund as an Employee Stock Ownership
contribution, the Administrator may determine the average of closing prices of
such securities for a period of up to 90 consecutive days immediately preceding
the date on which the securities are contributed to the Fund. In the event that
the Employer Securities are not readily tradable on an established securities
market, the value of the Employer Securities transferred to the Fund shall be
determined by an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for
any Plan Year the maximum amount that may be deducted by the Employer under
Section 404 of the Code, nor shall such contribution cause the Employer to
violate its regulatory capital requirements. Each Employee Stock Ownership
contribution by the Employer shall be deemed to be made on the express condition
that the Plan, as then in effect, shall be qualified under Sections 401 and 501
of the Code and that the amount of such contribution shall be deductible from
the Employer's income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each
Plan Year shall be paid to the Trustee in one lump sum or installments at any
time on or before the expiration of the time prescribed by law (including any
extensions) for filing of the Employer's federal income tax return for its
fiscal year ending concurrent with or during such Plan Year. Any portion of the
Employee Stock Ownership contribution for each Plan Year that may be made prior
to the last day of the Plan Year shall be maintained by the Trustee in the
Employee Stock Ownership suspense account described in Section 5.2 until the
last day of such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is
paid after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer, which specifies that the Employee
Stock Ownership contribution is made with respect to the Plan Year in which it
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is received by the Trustee. Any Employee Stock Ownership contribution paid by
the Employer during any Plan Year but after the due date (including any
extensions) for filing of its federal income tax return for the fiscal year of
the Employer ending on or before the last day of the preceding Plan Year shall
be treated, for allocation purposes, as an Employee Stock Ownership contribution
to the Fund for the Plan Year in which the contribution is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no
Employee Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with
respect to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for
such Plan Year;
(b) The names, Internal Revenue Service identifying numbers and
current residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to
each such Participant; and
(d) Any other information reasonably required for the proper
operation of the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the
Employer's request, a contribution which was made by a mistake of fact, or
conditioned upon the initial qualification of the Plan, under Code Section 401,
or upon the deductibility of the contribution under Section 404 of the Code,
shall be returned to the Employer by the Trustee within one year after the
payment of the contribution, the denial of the qualification or the disallowance
of the deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
(b) In no event shall voluntary Employee contributions be accepted.
Any such voluntary Employee contributions (and any earnings attributable
thereto) mistakenly received by the Trustee shall promptly be returned to the
Participant.
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ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual
accounts for Participants in the Plan and for each Former Participant in
accordance with the provisions of this Article V. Such separate accounts shall
be for accounting purposes only and shall not require a segregation of the Fund,
and no Participant, Former Participant or Beneficiary shall acquire any right to
or interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock
Ownership Account in the Fund for each Participant. The account shall be
credited as of the last day of each Plan Year with the amounts allocated to the
Participant under Sections 5.4 and 5.5. The Administrator may establish
subaccounts hereunder, an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for
each Participant as may be necessary or desirable for the convenient
administration of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account shall be added to the Employee Stock Ownership
contribution and allocated to the Employee Stock Ownership Accounts of
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Participants as provided in Section 5.5, except as provided herein. In the event
that the Plan takes an Exempt Loan, the Employer Securities purchased thereby
shall be allocated to a separate Exempt Loan Suspense Account, from which
allocations shall be made in accordance with Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net
worth of the aggregate Employee Stock Ownership Accounts held in the Fund
attributable to earnings, losses, expenses and unrealized appreciation or
depreciation in each such aggregate Account, as determined by the Trustee
pursuant to the Trust Agreement, shall be credited to or deducted from the
appropriate suspense accounts and all Participants' Employee Stock Ownership
Accounts (except segregated distribution accounts described in Section 5.1(b)
and the "limitations account" described in Section 5.6(c)(4)) in the proportion
that the value of each such Account (determined immediately prior to such
allocation and before crediting any Employee Stock Ownership contributions and
forfeitures for the current Plan Year but after adjustment for any transfer to
or from such Accounts and for the time such funds were in such Accounts) bears
to the value of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable
to the Employee Stock Ownership Accounts which are then available for
reallocation shall be, as appropriate, added to the Employee Stock Ownership
contribution (if any) for such year and allocated among the Participants'
Employee Stock Ownership Accounts, as appropriate, in the manner provided in
Sections 5.5 and 5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall
make an Employee Stock Ownership contribution, the Administrator shall allocate
the Employee Stock Ownership contribution (including reallocable forfeitures)
for such Plan Year to the Employee Stock Ownership account of each Participant
who completed at least 1,000 Hours of Service during that Plan Year, provided
that he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6. Notwithstanding the
foregoing, if a Participant attains his Normal Retirement Date and terminates
Service prior to the last day of the Plan Year but after completing 1,000 Hours
of Service, he shall be entitled to an allocation based on his Compensation
earned prior to his termination and during the Plan Year. Furthermore, if a
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Participant completes 1,000 Hours of Service and is on a Leave of Absence on the
last day of the Plan Year because of pregnancy or other medical reason, such a
Participant shall be entitled to an allocation based on his Compensation earned
during such Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary,
the total Annual Additions credited to a Participant's accounts under this Plan
(and under any other defined contribution plan to which the Employer
contributes) for any Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such
Limitation Year; or
(2) $30,000 (or, if greater, one-fourth of the defined
benefit dollar limitation set forth in Section 415(b)(1)(A)
of the Code). Whenever otherwise allowed by law, the maximum
amount of $30,000 shall be automatically adjusted annually
for cost-of-living increases in accordance with Section
415(d) of the Code and the highest such increase effective
at any time during the Limitation Year shall be effective
for the entire Limitation Year, without any amendment to
this Plan.
(b) Solely for the purpose of this Section 5.6, the term
"compensation" is defined as wages, salaries, and fees for professional
services, pre-tax elective deferrals under a plan described in Section 401(k) or
125 of the Code, and other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually rendered in the course of
employment with the Employer maintaining the Plan to the extent that the amounts
are includable in gross income (including, but not limited to, commissions paid
to salesmen, compensation for services on the basis of a percentage of profits,
commissions on insurance premiums, tips, bonuses, fringe benefits, and
reimbursements or other expense allowances under a nonaccountable plan (as
described in Treas. Regs. Section 1.62-2(c)), and excluding the following:
(1) Employer contributions to a plan of deferred
compensation (other than elective deferrals under a plan
described in Section 401(k) of the Code) which are not
includible in the Employee's gross income for the taxable
year in which contributed, or Employer contributions under a
simplified employee pension plan to the extent such
contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or
property) held by the employee either becomes freely
transferable or is no longer subject to a substantial risk
of forfeiture;
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(4) Other amounts which received special tax benefits
(other than pre-tax deferrals under a plan described in
Section 125 of the Code), or contributions made by the
employer (whether or not under a salary reduction agreement)
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towards the purchase of an annuity contract described in
section 403(b) of the Code (whether or not the contributions
are actually excludable from the gross income of the
Employee).
(c) In the event that the limitations on Annual Additions described
in this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions
and forfeitures allocated during such Limitation Year to the
Participant's Employee Stock Ownership Account shall be
reduced. The amount of any such reductions in the Employee
Stock Ownership contributions and forfeitures shall be
reallocated to all other Participants in the same manner as
set forth under Sections 5.4 and 5.5.
(2) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance with
Section 5.6(c)(1) above because of the limitations contained
in Sections 5.6(a) and (d) shall be credited to an account
designated as the "limitations account" and carried forward
to the next and subsequent Limitation Years until it can be
reallocated to all Participants as set forth in Sections
5.4, and 5.5, as appropriate. No Investment Adjustments
shall be allocated to this limitations account. In the next
and subsequent Limitation Years, all amounts in the
limitations account must be allocated in the manner
described in Sections 5.4 and 5.5, as appropriate, before
any Employee Stock Ownership contributions may be made to
this Plan for that Limitation Year.
(3) The Administrator shall determine to what extent
the Annual Additions to any Participant's Employee Stock
Ownership Account must be reduced in each Limitation Year.
The Administrator shall reduce the Annual Additions to all
other qualified, tax-exempt retirement plans maintained by
the Employer in accordance with the terms contained therein
for required reductions or reallocations mandated by Section
415 of the Code before reducing any Annual Additions in this
Plan.
(4) In the event this Plan is voluntarily terminated by
the Employer under Section 13.5, any amounts credited to the
limitations account described in Section 5.6(c)(2) above
which have not be reallocated as set forth herein shall be
distributed to the Participants who are still employed by
the Employer on the date of termination, in the proportion
that each Participant's Compensation bears to the
Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for
each Limitation Year are further limited so that in the case of an Employee who
is a Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
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(1) (A) The projected annual normal retirement benefit of a
Participant under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year; plus
(2) (A) The sum of Annual Additions credited to the Participant
under this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts
determined for such Limitation Year and for each prior year
of service with the Employer:
(i) The product of 1.25 multiplied by the dollar
limitation in effect under Section 415(b)(1)(A) of the Code
for such Limitation Year, or
(ii) The product of 1.4 multiplied by the amount of
compensation which may be taken into account under Section
415(b)(1)(B) of the Code for the Participant for such
Limitation Year.
The Administrator may, in calculating the defined contribution plan
fraction described in Section 5.6(d)(2), elect to use the transitional rule
pursuant to Section 415(e)(6) of the Code, if applicable. If the sum of the
fractions produced above will exceed 1.0, even after the use of the "fresh
start" rule contained in Section 235 of the Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA"), if applicable, then the same provisions as stated in
Section 5.6(c) above shall apply. If, even after the reductions provided for in
Section 5.6(c), the sum of the fractions still exceed 1.0, then the benefits of
the Participant provided under the pension plan shall be reduced to the extent
necessary, in accordance with Treasury Regulations issued under the Code. Solely
for the purposes of this Section 5.6(d), the term "years of service" shall mean
all years of service defined by Treasury Regulations issued under Section 415 of
the Code.
(e) In the event that the Employer is a member of (1) a controlled
group of corporations or a group of trades or businesses under common control
(as described in Section 414(b) or (c) of the Code, as modified by Section
415(h) thereof), or (2) an affiliated service group (as described in Section
414(m) of the Code), the Annual Additions credited to any Participant's accounts
in any such Limitation Year shall be further limited by reason of the existence
of all other qualified retirement plans maintained by such affiliated
corporations, other entities under common control or other members of the
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affiliated service group, to the extent such reduction is required by Section
415 of the Code and the regulations promulgated thereunder. The Administrator
shall determine if any such reduction in the Annual Additions to a Participant's
accounts is required for this reason, and if so, the same provisions as stated
in 5.6(c) and (d) above shall apply.
(f) Annual Additions shall not include any Employer contributions
which are used by the Trust to pay interest on an Exempt Loan nor any
forfeitures of Employer Securities purchased with the proceeds of an Exempt
Loan, provided that not more than one-third of the Employer contributions are
allocated to Participants who are among the group of employees deemed "highly
compensated employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustees have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all Participants
may be revised, if necessary, in order to correct such error.
5.8 Value of Participant's Interest in Fund.
At any time, the value of a Participant's interest in the Fund
shall consist of the aggregate value of his Employee Stock Ownership Account and
his distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employee Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily
in Employer Securities. Employer Securities shall constitute at least 51% of the
assets of all Employee Stock Ownership Accounts. All sales of Employer
Securities by the Trustee attributable to the Employee Stock Ownership Accounts
of all Participants shall be charged pro rata to the Employee Stock Ownership
Accounts of all Participants.
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ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall
retire at that time shall thereupon be entitled to retirement benefits based on
the value of his interest in the Fund, payable pursuant to the provisions of
Section 9.1. A Participant who remains in Service after his Normal Retirement
Date shall not be entitled to any retirement benefits until his actual
termination of Service thereafter (except as provided in Section 9.3(g)) and he
shall meanwhile continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at
such time (or, at his election, as of the first day of any month thereafter
prior to his Normal Retirement Date) and shall thereupon be entitled to
retirement benefits based on the value of his interest in the Fund, payable
pursuant to the provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on
his Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall
direct the Trustee to distribute any undistributed balance of his interest in
the Fund to any surviving Beneficiary designated by him or, if none, to such
persons designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive the interest in the Fund of
a deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
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6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a
Beneficiary or Beneficiaries to receive the sum or sums to which he may be
entitled upon his death. The Participant may also designate the manner in which
any death benefits under this Plan shall be payable to his Beneficiary, provided
that such designation is in accordance with Section 9.5. Such designation of
Beneficiary and manner of payment shall be in writing and delivered to the
Administrator, and shall be effective when received by the Administrator. The
Participant shall have the right to change such designation by notice in writing
to the Administrator. Such change of Beneficiary or the manner of payment shall
become effective upon its receipt by the Administrator. Any such change shall be
deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary
or if no designated Beneficiary survives the Participant, his interest in the
Fund shall be paid to the person or persons in the first of the following
classes of successive preference Beneficiaries surviving at the death of the
Participant: the Participant's (1) widow or widower, (2) children, (3) parents,
and (4) estate. The Administrator shall decide what Beneficiaries, if any, shall
have been validly designated, and its decision shall be binding and conclusive
on all persons.
(c) Notwithstanding the foregoing, if a Participant has been
married throughout the 12 month period preceding the date of his death, the sum
or sums to which he may be entitled under this Plan upon his death shall be paid
to his spouse, unless the Participant's spouse shall have consented to the
election of another Beneficiary. Such a spousal consent shall be in writing and
shall be witnessed either by a representative of the Plan or a notary public. If
it is established to the satisfaction of the Administrator that such spousal
consent cannot be obtained because there is no spouse, because the spouse cannot
be located, or other reasons prescribed by governmental regulations, the consent
of the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
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ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability and Normal Retirement.
Unless his participation in this Plan shall have terminated prior
thereto, upon a Participant's death, Disability or upon his attainment of Normal
Retirement Date (whether or not he actually retires at that time) while he is
still employed by the Employer, the Participant's entire interest in the Fund
shall be fully vested and nonforfeitable.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason
other than death, Disability, or Normal Retirement, a Participant shall be
vested in a percentage of his Employee Stock Ownership Account, such vested
percentages to be determined under the following table, based on the Years of
Service (including Years of Service prior to the Effective Date) credited to him
for vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 5 0%
5 or more 100%
Any portion of the Participant's Employee Stock Ownership Account
which is not vested at the time he incurs a Break shall thereupon be forfeited
and disposed of pursuant to Section 7.3. Distribution of the vested portion of a
terminated Participant's interest in the Plan may be authorized by the
Administrator in any manner permitted under Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently
resumes both his Service and his participation in the Plan prior to incurring at
least 5 Breaks, the forfeitable portion of his Employee Stock Ownership Account
shall be reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently
incurs a Break and receives a distribution, or in the event a Participant does
not terminate Service, but incurs at least 5 Breaks, or in the event that a
Participant terminates Service and incurs at least 5 Breaks but has not received
a distribution, then the forfeitable portion of his Employer Account, including
Investment Adjustments, shall be reallocated to other Participants, pursuant to
Section 5.4 as of the date the Participant incurs such Break or Breaks, as the
case may be.
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(c) In the event a former Participant who had received a
distribution from the Plan is rehired, he shall repay the amount of his
distribution before the earlier of 5 years after the date of his rehire by the
Employer, or the close of the first period of 5 consecutive Breaks commencing
after the withdrawal in order for any forfeited amounts to be restored to him.
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ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock
Ownership Account shall be entitled to demand that his interest in the Account
be distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be
entitled to direct the Trustee as to the manner in which the Employer Securities
in such Account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of his allocated Employer Securities, the Trustee shall be
entitled to vote such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership
contributions that would be required in any Plan Year to make the scheduled
payments on an Exempt Loan would exceed the amount that would otherwise be
deductible by the Employer for such Plan Year under Code Section 404, then no
more than one-third of the Employee Stock Ownership contributions for the Plan
Year, which is also the Employer's taxable year, shall be allocated to the group
of Employees who:
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(a) Was at any time during the Plan Year or the preceding Plan Year
a 5 percent owner of the Employer; or
(b) Received compensation from the Employer for the preceding Plan
Year in excess of $80,000, as adjusted under Code Section 414(q), and, if the
Employer so elects, was in the "top-paid group" of Employees (as defined below)
for such year.
An Employee shall be deemed a member of the "top-paid group" of Employees for a
given Plan Year if such Employee is in the group of the top 20% of the Employees
of the Employer when ranked on the basis of compensation.
8.4 Dividends.
Dividends paid with respect to Employer Securities credited to a
Participant's Employee Stock Ownership account as of the record date for the
dividend payment may be paid in cash to the Participants, pursuant to the
directions of the Board of Directors of the Sponsor. If the Board of Directors
shall direct that the aforesaid dividends shall be paid directly to
Participants, the quarterly dividends paid with respect to such Employer
Securities shall be paid to the Plan, from which dividend distributions in cash
shall be made to the Participants with respect to the Employer Securities in
their Employee Stock Ownership Accounts within 90 days of the close of the Plan
Year in which the dividends were paid. Dividends on Employer Securities obtained
pursuant to an Exempt Loan and still held in the Suspense Account may be used to
make payments on an Exempt Loan, as described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The
Exempt Loan may take the form of (i) a loan from a bank or other commercial
lender to purchase Employer Securities (ii) a loan from the Employer to the
Plan; or (iii) an installment sale of Employer Securities to the Plan. The
proceeds of any such Exempt Loan shall be used, within a reasonable time after
the Exempt Loan is obtained, only to purchase Employer Securities, repay the
Exempt Loan, or repay any prior Exempt Loan. Any such Exempt Loan shall provide
for no more than a reasonable rate of interest and shall be without recourse
against the Plan. The number of years to maturity under the Exempt Loan must be
definitely ascertainable at all times. The only assets of the Plan that may be
given as collateral for an Exempt Loan are Employer Securities acquired with the
proceeds of the Exempt Loan and Employer Securities that were used as collateral
for a prior Exempt Loan repaid with the proceeds of the current Exempt Loan.
Such Employer Securities so pledged shall be placed in an Exempt Loan Suspense
Account. No person or institution entitled to payment under an Exempt Loan shall
have recourse against Trust assets other than the aforesaid collateral, Employer
Stock Ownership contributions (other than contributions of Employer Securities)
that are available under the Plan to meet obligations under the Exempt Loan and
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earnings attributable to such collateral and the investment of such
contributions. All Employee Stock Ownership contributions paid during the Plan
Year in which an Exempt Loan is made (whether before or after the date the
proceeds of the Exempt Loan are received), all Employee Stock Ownership
contributions paid thereafter until the Exempt Loan has been repaid in full, and
all earnings from investment of such Employee Stock Ownership contributions,
without regard to whether any such Employee Stock Ownership contributions and
earnings have been allocated to Participants' Employee Stock Ownership Accounts,
shall be available to meet obligations under the Exempt Loan as such obligations
accrue, or prior to the time such obligations accrue, unless otherwise provided
by the Employer at the time any such contribution is made. Any pledge of
Employer Securities shall provide for the release of shares so pledged upon the
payment of any portion of the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the
number of shares of Employer Securities released from such pledge shall equal
the number of encumbered shares held immediately before release for the current
Plan Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt
Loan pursuant to the terms of which the number of Employer Securities to be
released from encumbrance shall be determined solely with reference to principal
payments. In the event that such an Exempt Loan is obtained, annual payments of
principal and interest shall be at a cumulative rate that is not less rapid at
any time than level payments of such amounts for not more than 10 years. The
amount of interest in any such annual loan repayment shall be disregarded only
to the extent that it would be determined to be interest under standard loan
amortization tables. The requirement set forth in the preceding sentence shall
not be applicable from the time that, by reason of a renewal, extension, or
refinancing, the sum of the expired duration of the Exempt Loan, the renewal
period, the extension period, and the duration of a new Exempt Loan exceeds 10
years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a
Plan Year shall be made by the Trustee (as directed by the Administrator) only
from (1) Employee Stock Ownership contributions to the Trust made to meet the
Plan's obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
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(b) Employer Securities released by reason of the payment of
principal or interest on an Exempt Loan from amounts allocated to Participants'
Employee Stock Ownership Accounts shall immediately upon payment be allocated as
set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts
to enable the Trust to pay principal and interest on any such Exempt Loans as
they are due, provided however that no such contribution shall exceed the
limitations in Section 5.6. In the event that such contributions by reason of
the limitations in Section 5.6 are insufficient to enable the Trust to pay
principal and interest on such Exempt Loan as it is due, then upon the Trustee's
request the Employer shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts
to meet such principal and interest payments. Such new Exempt
Loan shall be subordinated to the prior Exempt Loan. Securities
released from the pledge of the prior Exempt Loan shall be
pledged as collateral to secure the new Exempt Loan. Such
Employer Securities will be released from this new pledge and
allocated to the Employee Stock Ownership Accounts of the
Participants in accordance with applicable provisions of the
Plan;
(2) Purchase any Employer Securities pledged as collateral
in an amount necessary to provide the Trustee with sufficient
funds to meet the principal and interest repayments. Any such
sale by the Plan shall meet the requirements of Section 408(e) of
ERISA; or
(3) Any combination of the foregoing. However, the Employer
shall not, pursuant to the provisions of this subsection, do,
fail to do or cause to be done any act or thing which would
result in a disqualification of the Plan as an employee stock
ownership plan under the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section
8.1) with respect to Employer Securities that were distributed as part of a
total distribution pursuant to which a Participant's Employee Stock Ownership
Account is distributed to him in a single taxable year, the Employer or the Plan
may elect to pay the purchase price of the Employer Securities over a period not
to exceed 5 years. Such payments shall be made in substantially equal
installments not less frequently than annually over a period beginning not later
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than 30 days after the exercise of the put option. Reasonable interest shall be
paid to the Participant with respect to the unpaid balance of the purchase price
and adequate security shall be provided with respect thereto. In the event that
a Participant exercises a put option with respect to Employer Securities that
are distributed as part of an installment distribution, the amount to be paid
for such securities shall be paid not later than 30 days after the exercise of
the put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of
participation in the Plan and has attained age 55 may elect within 90 days after
the close of each Plan Year during his "qualified election period" to direct the
Plan as to the investment of at least 25 percent of his Employee Stock Ownership
Account (to the extent such percentage exceeds the amount to which a prior
election under this Section 8.8 had been made). For purposes of this Section
8.8, the term "qualified election period" shall mean the 5-Plan-Year period
beginning with the Plan Year after the Plan Year in which the Participant
attains age 55 (or, if later, beginning with the Plan Year after the first Plan
Year in which the Employee first completes at least 10 years of participation in
the Plan). In the case of the Employee who has attained age 60 and completed 10
years of participation in the prior Plan Year and in the case of the election
year in which any other Participant who has met the minimum age and service
requirements for diversification can make his last election hereunder, he shall
be entitled to direct the Plan as to the investment of at least 50 percent of
his Employee Stock Ownership Account (to the extent such percentage exceeds the
amount to which a prior election under this Section 8.8 had been made). The Plan
shall make available at least 3 investment options (not inconsistent with
regulations prescribed by the Department of Treasury) to each Participant making
an election hereunder. The Plan shall be deemed to have met the requirements of
this Section if the portion of the Participant's Employee Stock Ownership
Account covered by the election hereunder is distributed to the Participant or
his designated Beneficiary within 90 days after the period during which the
election may be made. In the absence of such a distribution, the Trustee shall
implement the Participant's election within 90 days following the expiration of
the qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code Section
170(a)(1) shall value the Employer Securities in those Plan Years when such
securities are not readily tradable on an established securities market.
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ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service - In General.
All benefits provided under this Plan shall be funded by the value
of a Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement, Disability or Death. Upon a
Participant's Retirement, Disability or death, payment of benefits under this
Plan shall, unless the Participant otherwise elects (in accordance with Section
9.3), commence no later than 6 months after the close of the Plan Year in which
occurs the date of the Participant's Retirement, Disability or death.
(b) Distribution following Termination of Service. Unless a
Participant elects otherwise, if a Participant terminates Service prior to
Retirement, Disability or death, he shall be accorded an opportunity to commence
receipt of distributions from his Accounts within six (6) months after the
Valuation Date next following the date of his termination of Service. A
Participant who terminates Service with a deferred vested benefit shall be
entitled to receive from the Administrator a statement of his benefits. In the
event that a Participant elects not to commence receipt of distributions from
his Accounts in accordance with this Section 9.2(b), after the Participant
incurs a Break, the Administrator shall transfer his deferred vested interest to
a distribution account. If a Participant's vested Employer Account does not
exceed (or at the time of any prior distribution did not exceed) $5,000, the
Plan Administrator may distribute the vested portion of his Employer Account as
soon as administratively feasible without the consent of the Participant or his
spouse.
(c) Distribution of Accounts Greater Than $5,000. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $5,000, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code ss401(a)(9) or
Code ss415.
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9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution
of benefits will begin no later than the 60th day after the latest of the close
of the Plan Year in which (i) the Participant attains age 65, (ii) occurs the
tenth anniversary of the year in which the Participant commenced participation
in the Plan Year, or (iii) the Participant terminates Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to
provide for a form of distribution other than a lump sum, as of the first
distribution calendar year, distributions, if not made in a lump sum, may be
made only over one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii)a period certain not extending beyond the life expectancy
of the Participant, or
(iv) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
(c) In the event that the Plan shall be subsequently amended to
provide for a form of distribution other than a lump sum, if the participant's
interest is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy
of the Participant and the Participant's designated
beneficiary or (2) a period not extending beyond the life
expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year, beginning
with distributions for the first distribution calendar year,
must at least equal the quotient obtained by dividing the
Participant's benefit by the applicable life expectancy.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with
distributions for the first distribution calendar year shall
not be less than the quotient obtained by dividing the
Participant's benefit by the lesser of (1) the applicable
life expectancy or (2) if the Participant's spouse is not
the designated beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of section
1.401(a)(9)-2 of the Proposed Regulations. Distributions
after the death of the Participant shall be distributed
using the applicable life expectancy in sub-section (iii)
above as the relevant divisor without regard to Proposed
Regulations 1.401(a)(9)-2.
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(iii) The minimum distribution required for the Participant's
first distribution calendar year must be made on or before
the Participant's required beginning date. The minimum
distribution for other calendar years, including the minimum
distribution for the distribution calendar year in which the
employee's required beginning date occurs, must be made on
or before December 31 of the distribution calendar year.
(d) If a Participant dies after a distribution has commenced in
accordance with Section 8.3(b) but before his entire interest has been
distributed to him, the remaining portion of such interest shall be distributed
to his Beneficiary at least as rapidly as under the method of distribution in
effect as of the date of his death.
(e) If a Participant shall die before the distribution of his
interest in the Plan has begun, the entire interest of the Participant shall be
distributed by December 31 of the calendar year containing the fifth anniversary
of the death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to
(or for the benefit of) a designated beneficiary over a
period not extending beyond the life expectancy of such
beneficiary and such distributions begin not later than
December 31 of the calendar year immediately following the
calendar year in which the Participant died.
(ii) If any portion of the Participant's interest is payable to
(or for the benefit of) the Participant's spouse over a
period not extending beyond the life expectancy of such
spouse and such distributions begin no later than December
31 of the calendar year in which the Participant would have
attained age 70-1/2.
If the Participant has not made a distribution election by the time
of his death, the Participant's designated beneficiary shall elect the method of
distribution no later than the earlier of (1) December 31 of the calendar year
in which distributions would be required to begin under this Article or (2)
December 31 of the calendar year which contains the fifth anniversary of the
date of death of the Participant. If the Participant has no designated
beneficiary, or if the designated beneficiary does not elect a method of
distribution, distribution of the Participant's entire interest shall be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a
Participant and his spouse may be redetermined but not more frequently than
annually. The life expectancy (or joint and last survivor expectancy) shall be
calculated using the attained age of the Participant (or designated beneficiary)
as of the Participant's (or designated beneficiary's) birthday in the applicable
calendar year reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is being
recalculated, the applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first distribution
calendar year, and if life expectancy is being recalculated, such succeeding
calendar year. Unless otherwise elected by the Participant (or his spouse, if
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applicable) by the time distributions are required to begin, life expectancies
shall be recalculated annually. Any such election not to recalculate shall be
irrevocable and shall apply to all subsequent years. The life expectancy of a
nonspouse beneficiary may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a
child shall be treated as if it had been paid to a surviving spouse if such
amount will become payable to the surviving spouse upon such child reaching
majority (or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the
first distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
(a) General Rule. The required beginning date of a Participant who
is a 5-percent owner of the Employer is the first day of April of the calendar
year following the calendar year in which the Participant attains age 70-1/2.
The required beginning date of a Participant who is not a 5-percent owner shall
be April 1 of the calendar year following the later of either: (i) the calendar
year in which the Participant attains age 70-1/2, or (ii) the calendar year in
which the Participant retires.
(b) 5-percent owner. A Participant is treated as a 5-percent owner
for purposes of this section if such Participant is a 5-percent owner as defined
in section 416(i) of the Code (determined in accordance with section 416 but
without regard to whether the plan is top-heavy) at any time during the Plan
Year ending with or within the calendar year in which such owner attains age
66-1/2 or any subsequent Plan Year. Once distributions have begun to a 5-percent
owner under this section, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump
sum payment. Notwithstanding the preceding sentence, but subject to Section 9.3,
the Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $5,000 without the
Participant's consent. This form of payment shall be the normal form of
distribution. Furthermore, however, in the event that the Administrator must
commence distributions, as required by Section 9.4 herein, with respect to an
Employee who has attained age 70-1/2 and is still employed by the Employer, if
the Employee does not elect a lump sum distribution, payments shall be made in
installments in such amounts as shall satisfy the minimum distribution rules of
Section 9.3.
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9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5
or 13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
interests of Participants shall immediately become fully vested; the value of
the interests of all Participants shall be determined within 60 days after such
termination, and the Administrator shall have the same powers to direct the
Trustee in making payments as contained in Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall
notify promptly the Participant and any alternate payee of receipt of the order
and the Plan's procedure for determining whether the order is a Qualified
Domestic Relations Order. While the issue of whether a domestic relations order
is a Qualified Domestic Relations Order is being determined, if the benefits
would otherwise be paid, the Administrator shall segregate in a separate account
in the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present
value of his vested Account balances under this Plan because of the termination
of his participation in the Plan, the Plan shall disregard a Participant's
Service with respect to which such cash-out distribution shall have been made,
in computing his accrued benefit under the Plan in the event that a Former
Participant shall again become an Employee and become eligible to participate in
the Plan. Such a distribution shall be deemed to be made on termination of
participation in the Plan if it is made not later than the close of the second
Plan Year following the Plan Year in which such termination occurs. The
forfeitable portion of a Participant's accrued benefit shall be restored upon
repayment to the Plan by such former Participant of the full amount of the
cash-out distribution, provided that the former Participant again becomes an
Employee. Such repayment must be made by the Employee not later than the end of
the 5-year period beginning with the date of the distribution. Forfeitures
required to be restored by virtue of such repayment shall be restored from the
following sources in the following order of preference: (i) current forfeitures;
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(ii) additional employee stock ownership contributions, as appropriate and as
subject to Section 5.6; and (iii) investment earnings of the Fund. In the event
that a Participant's interest in the Plan is totally forfeitable, a Participant
shall be deemed to have received a distribution of zero upon his termination of
Service. In the event of a return to Service within 5 years of the date of his
deemed distribution, the Participant shall be deemed to have repaid his
distribution in accordance with the rules of this Section 9.8.
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary,
the distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than 1
year after the close of the Plan Year in which the Participant separates from
Service by reason of the attainment of his Normal Retirement Date, disability,
death or separation from Service. In addition, all distributions hereunder
shall, to the extent that the Participant's Account is invested in Employer
Securities, be made in the form of Employer Securities. Fractional shares,
however, may be distributed in the form of cash.
9.10 Direct Rollover.
(a) Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article IX, a
distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an "eligible rollover distribution" paid
directly to an "eligible retirement plan" specified by the distributee in a
"direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover
distribution" is any distribution of all or any portion of the balance to the
credit of the distributee, except that an "eligible rollover distribution" does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement
plan" is an individual retirement account described in section 408(a) of the
Code, an individual retirement annuity described in section 408(b) of the Code,
an annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
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(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are "distributees"
with regard to the interest of the spouse or former spouse.
(e) For purposes of this Section 9.10, a "direct rollover" is a
payment by the Plan to the "eligible retirement plan" specified by the
distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of
the Code do not apply, such distribution may commence less than 30 days after
the notice required under section 1.411(a)-11(c) of the Income Tax Regulations
is given, provided that: (1) the Plan Administrator clearly informs the
Participant that the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and (2) the
Participant, after receiving the notice, affirmatively elects a distribution.
9.12 Re-employed Veterans.
Notwithstanding anything to the contrary set forth in the Plan, if
an Employee has been rehired by the Employer and is eligible for the benefits
provided by the Uniformed Services Employment and Reemployment Rights Act by
virtue of his prior military service and by virtue of his having met all the
requirements of that Act for being accorded the benefits provided thereunder, he
shall not be deemed to have incurred a Break because of his period of military
service. The Employee's military service shall be treated as Service hereunder
for eligibility, vesting and benefit accrual purposes. Such Employee shall be
entitled to all Employer contributions to which he otherwise would have been
entitled had he been employed by the Employer during the period of his military
service. In computing contribution amounts dependent upon or limited by the
amount of Compensation the Employee earned or would have earned, the Employee
shall be treated as receiving Compensation from the Employer during the period
of military service equal to the Compensation that the Employee otherwise would
have received from the Employer during that period, or, if the Compensation the
Employee otherwise would have received is not reasonably certain, the Employee's
average Compensation from the Employer during the period immediately preceding
the period of military service. Such Employee shall not, however, be credited
with any earnings on any such additional Employer or Employee contributions
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described in this Section before the contribution is actually made. Furthermore,
no forfeitures shall be allocated to such Employee's Accounts hereunder for the
period of military service. The rules governing the limitations on all such
contributions that may be required hereunder shall be governed by Section 414(u)
of the Code and any regulations promulgated thereunder.
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ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if
for any Plan Year the Plan is a top-heavy plan, as determined pursuant to
Section 416 of the Code, then the Plan must meet the requirements of this
Article X for such Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the
following terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued
benefits of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular
Plan Year of this Plan, the last day of the preceding Plan Year (or, in the case
of the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section
1.1(q)) and any entity which is (1) a member of a controlled group including
such Employer, while it is a member of such controlled group (within the meaning
of Section 414(b) of the Code), (2) in a group of trades or businesses under
common control with such Employer, while it is under common control (within the
meaning of Section 414(c) of the Code), and (3) a member of an affiliated
service group including such Employer, while it is a member of such affiliated
service group (within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or
any Beneficiary of such Employee or former Employee, as the case may be) who, at
any time during the Plan Year or during the 4 immediately preceding Plan Years
is one of the following:
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(1) An officer of the Employer who has compensation greater
than 50% of the amount in effect under Code 415(b)(1)(A) for the
Plan Year; provided, however, that no more than 50 Employees (or,
if lesser, the greater of 3 or 10% of the Employees) shall be
deemed officers;
(2) One of the 10 Employees having annual compensation (as
defined in Section 415 of the Code) in excess of the limitation
in effect under Section 415(c)(1)(A) of the Code, and owning (or
considered as owning, within the meaning of Section 318 of the
Code) the largest interests in the Employer;
(3) Any Employee owning (or considered as owning, within the
meaning of Section 318 of the Code) more than 5% of the
outstanding stock of the Employer or stock possessing more than
5% of the total combined voting power of all stock of the
Employer; or
(4) Any Employee having annual compensation (as defined in
Section 415 of the Code) of more than $150,000 and who would be
described in Section 10.2(d)(3) if "1%" were substituted for "5%"
wherever the latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions
of this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be applied by
substituting "5%" for "50%" wherever the latter percentage appears. In addition,
for purposes of this Section 10.2(d), the provisions of Section 414(b), (c) and
(m) shall not apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation in excess of
$150,000, or whether an individual is a Key Employee under Section 10.2(d)(1)
and (2), compensation from each entity required to be aggregated under Sections
414(b), (c) and (m) of the Code shall be taken into account. Notwithstanding
anything contained herein to the contrary, all determinations as to whether a
person is or is not a Key Employee shall be resolved by reference to Section 416
of the Code and any rules and regulations promulgated thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee
(or any Beneficiary of such Employee or former Employee, as the case may be) who
is not considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the
Required Aggregation Group and any other plans maintained by the Employer which
satisfy Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including
any terminated plan) of the Employer in which a Key Employee is (or in the case
of a terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years, and each other plan of
the Employer which enables any plan of the Employer in which a Key Employee is a
Participant to meet the requirement of Sections 401(a)(4) and 410 of the Code.
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10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined
contribution plan (other than a defined contribution pension
plan) in a Required Aggregation Group or a Permissive Aggregation
Group, the Employee's account balances under the respective plan,
determined as of the most recent plan valuation date within a
12-month period ending on the Determination Date, including
contributions actually made after the valuation date but before
the Determination Date (and, in the first plan year of a plan,
also including any contributions made after the Determination
Date which are allocated as of a date in the first plan year).
(2) With respect to any defined contribution pension plan in
a Required Aggregation Group or a Permissive Aggregation Group,
the Employee's account balances under the plan, determined as of
the most recent plan valuation date within a 12-month period
ending on the Determination Date, including contributions which
have not actually been made, but which are due to be made as of
the Determination Date.
(3) With respect to any defined benefit plan in a Required
Aggregation Group or a Permissive Aggregation Group, the present
value of the Employee's accrued benefits under the plan,
determined as of the most recent plan valuation date within a
12-month period ending on the Determination Date, pursuant to the
actuarial assumptions used by such plan, and calculated as if the
Employee terminated Service under such plan as of the valuation
date (except that, in the first plan year of a plan, a current
Participant's estimated Accrued Benefit Plan as of the
Determination Date shall be taken into account).
(4) If any individual has not performed services for the
Employer maintaining the Plan at any time during the 5-year
period ending on the Determination Date, any Accrued Benefit for
such individual shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted
as follows:
(1) The Accrued Benefit shall be calculated to include all
amounts attributable to both Employer and Employee contributions,
but shall exclude amounts attributable to voluntary deductible
Employee contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or
plans, as the case may be, during the 5-year period ending on the
Determination Date.
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(3) Rollover and direct plan-to-plan transfers shall be taken into
account as follows:
(A) If the transfer is initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another unrelated employer, the transferring plan shall continue
to count the amount transferred; the receiving plan shall not
count the amount transferred.
(B) If the transfer is not initiated by the Employee or is
made between plans maintained by related employers, the
transferring plan shall no longer count the amount transferred;
the receiving plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer
at any time during the 5-year period ending on the Determination Date, any
accrued benefit for such individual (and the account of such individual) shall
not be taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan
Year if, as of the Determination Date, the value of the Accrued Benefits of Key
Employees exceeds 60% of the value of the Accrued Benefits of all eligible
Employees under the Plan. Notwithstanding the foregoing, if the Employer
maintains any other qualified plan, the determination of whether this Plan is
top-heavy shall be made after aggregating all other plans of the Employer in the
Required Aggregation Group and, if desired by the Employer as a means of
avoiding top-heavy status, after aggregating any other plan of the Employer in
the Permissive Aggregation Group. If the required Aggregation Group is
top-heavy, then each plan contained in such group shall be deemed to be
top-heavy, notwithstanding that any particular plan in such group would not
otherwise be deemed to be top-heavy. Conversely, if the Permissive Aggregation
Group is not top-heavy, then no plan contained in such group shall be deemed to
be top-heavy, notwithstanding that any particular plan in such group would
otherwise be deemed to be top-heavy. In no event shall a plan included in a
top-heavy Permissive Aggregation Group be deemed a top-heavy plan unless such
plan is also included in a top-heavy Required Aggregation Group.
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of
the Determination Date, the Plan would meet the test specified in Section 10.4
above for classification as a top-heavy plan, except that "90%" shall be
substituted for "60%" whenever the latter percentage appears.
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10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key
Employee who has met the age and service requirements, if any, contained in the
Plan, shall be entitled to a minimum contribution (which may include forfeitures
otherwise allocable) equal to a percentage of such Non-Key Employee's
compensation (as defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined
benefit plan maintained by the Employer, then the minimum
contribution under this Plan shall be 3% of such Non-Key
Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit
plan maintained by the Employer, then the minimum contribution
under this Plan shall be 5% of such Non-Key Employee's
compensation.
(b) Notwithstanding the foregoing, the minimum contribution
otherwise allocable to a Non-Key Employee under this Plan shall be reduced in
the following circumstances:
(1) The percentage minimum contribution required under this
Plan shall in no event exceed the percentage contribution made
for the Key Employee for whom such percentage is the highest for
the Plan Year after taking into account contributions under other
defined contribution plans in this Plan's Required Aggregation
Group; provided, however, that this Section 10.7(b)(1) shall not
apply if this Plan is included in a Required Aggregation Group
and this Plan enables a defined benefit plan in such Required
Aggregation Group to meet the requirements of Section 401(a)(4)
or 410 of the Code.
(2) No minimum contribution shall be required (or the
minimum contribution shall be reduced, as the case may be) for a
Non-Key Employee under this Plan for any Plan Year if the
Employer maintains another qualified plan under which a minimum
benefit or contribution is being accrued or made on account of
such Plan Year, in whole or in part, on behalf of the Non-Key
Employee, in accordance with Section 416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded
(1) any Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer contributions to or any benefits under Chapter
21 of the Code (relating to the Federal Insurance Contributions Act), Title II
of the Social Security Act, or any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall
be required to be made on behalf of only those Non-Key Employees, as described
in Section 10.7(a), who have not terminated Service as of the last day of the
Plan Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
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Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Vesting.
(a) For any Plan Year in which the Plan is a top-heavy plan, a
Participant's Employer account shall continue to vest according to the following
schedule:
Years of Service Completed Percentage Vested
-------------------------- -----------------
Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
(b) For purposes of Section 10.7(a), the term "year of service"
shall have the same meaning as set forth in Section 1.1(kk), as modified by
Section 3.2
(c) If for any Plan Year the Plan becomes top-heavy and the vesting
schedule set forth in Section 10.7(a) becomes effective, then, even if the Plan
ceases to be top-heavy in any subsequent Plan Year, the vesting schedule set
forth in Section 10.7(a) shall remain applicable with respect to any Participant
who has completed 3 Years of Service.
10.8 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i) shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
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ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to
5 persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor may
require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator" as
used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by
giving notice in writing, mailed or delivered to the Employer and to the
Trustee. Any Administrator who was an employee of the Employer at the time of
his appointment shall be deemed to have resigned as an Administrator upon his
termination of Service. The Board of Directors may, in its discretion, remove
any Administrator with or without cause, by giving notice in writing, mailed or
delivered to the Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the
Employer may appoint, by Board of Directors' resolution, a successor or
successors. Notice of termination of an Administrator and notice of appointment
of a successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and
responsibilities in connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and
procedures as shall be proper for the efficient administration of
the Plan, such rules, regulations and procedures to apply
uniformly to all Employees, Participants and Beneficiaries;
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(b) To determine all questions arising in the
administration, interpretation and application of the Plan,
including questions of eligibility and of the status and rights
of Participants, Beneficiaries and any other persons hereunder;
(c) To decide any dispute arising hereunder strictly in
accordance with the terms of the Plan; provided, however, that no
Administrator shall participate in any matter involving any
questions relating solely to his own participation or benefits
under this Plan;
(d) To advise the Employer and the Trustee regarding the
known future needs for funds to be available for distribution in
order that the Trustee may establish investments accordingly;
(e) To correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible
contribution to the Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which
shall be made out of the Fund pursuant to the provisions of this
Plan;
(h) To advise the Trustee on all terminations of Service by
Participants, unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims
against the Fund;
(j) To make recommendations to the Board of Directors with
respect to proposed amendments to the Plan and the Trust
Agreement;
(k) To file all reports with government agencies, Employees
and other parties as may be required by law, whether such reports
are initially the obligation of the Employer, the Plan or the
Trustee; and
(l) To have all such other powers as may be necessary to
discharge its duties hereunder.
Reasonable discretion is granted to the Administrator to interpret
the Plan and to determine the benefits, rights and privileges of Participants,
Beneficiaries or other persons affected by this Plan. The Administrator shall
exercise reasonable discretion under the terms of this Plan and shall administer
the Plan strictly in accordance with its terms, such administration to be
exercised uniformly so that all persons similarly situated shall be similarly
treated.
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11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its
members and may adopt rules for the conduct of its business. A majority of the
members then serving shall constitute a quorum for the transaction of business.
All resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority of the members. All documents, instruments, orders,
requests, directions, instructions and other papers shall be executed on behalf
of the Administrator by either the Chairman or the Secretary of the
Administrator, if any, or by any member or agent of the Administrator duly
authorized to act on the Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in
the Plan if he would be otherwise eligible, but he shall not be entitled to vote
or act upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical,
legal, actuarial, accounting, medical, advisory or other services as it deems
necessary to perform its duties under this Plan. The cost of such services and
all other expenses incurred by the Administrator in connection with the
administration of the Plan shall be paid from the Fund, unless paid by the
Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the
Administrator may be allocated among its members so long as such allocation is
pursuant to written procedures adopted by the Administrator, in which case,
except as may be required by the Act, no Administrator shall have any liability,
with respect to any duties, powers or responsibilities not allocated to him, for
the acts of omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees
of the Employer, to the Trustee with its consent, or to any other person or
firm, provided that the Administrator shall prudently choose such agents and
rely in good faith on their actions.
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11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator
shall be final and conclusive except as provided in Article XII.
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as
a full-time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions
and proceedings in administering this Plan and shall file all reports and take
all other actions as it deems appropriate in order to comply with the Act, the
Code and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act
and shall be the designated agent for receipt of service of process on behalf of
the Plan. It shall use ordinary care and diligence in the performance of its
duties under this Plan. Nothing in this Plan shall preclude the Employer from
indemnifying the Administrator for all actions under this Plan, or from
purchasing liability insurance to protect it with respect to its duties under
this Plan.
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11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to
the Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights
shall be exercised only by action of the Board of Directors, except where the
Board of Directors, by written resolution, delegates any such rights to one or
more officers of the Employer or to the Administrator. Subject to the rights
reserved to the Board of Directors acting on behalf of the Employer as set forth
in this Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under
this Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To the
extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from
serving as Administrator under this Plan.
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ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under
this Plan, either in whole or in part, the Administrator shall advise the
claimant in writing of the amount of his benefit, if any, and the specific
reasons for the denial. The Administrator shall also furnish the claimant at
that time with a written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information
necessary for the claimant to perfect his claim, if possible, and an explanation
of why such material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1
above, the claimant shall, if he desires further review, file a written request
for reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including
the 60-day period described in Section 12.2 above), the claimant or his duly
authorized representative may review pertinent Plan documents and the Trust
Agreement (and any pertinent related documents) and may submit issues and
comments in writing to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator
within 60 days of the filing by the claimant of his request for reconsideration;
provided, however, that if the Administrator feels that a hearing with the
claimant or his representative present is necessary or desirable, this period
shall be extended an additional 60 days.
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12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in
writing and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
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ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time,
and retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to
be used for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested
portion of any Participant's interest as of the effective date of the amendment
or change the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with 3 or more Years
of Service with the Employer is permitted to elect to have the vesting schedule
in effect before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit; and.
(d) No amendment may increase the duties of the Trustee without its
consent.
Amendments may be made in the form of Board of Directors'
resolutions or separate written document. Copies of all amendments shall be
delivered to the Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by the
Employer of any or all of its property. Any successor corporation or other
entity formed and resulting from any such transaction shall have the right to
become a party to this Plan by adopting the same by resolution and by appointing
a new Trustee as though the Trustee had resigned in accordance with the Trust
Agreement, and by executing a proper supplemental agreement with the Trustee.
If, within 180 days from the effective date of such transaction, such new entity
does not become a party to this Plan as above provided, this Plan shall
automatically be terminated and the Trustee shall make payments to the persons
entitled thereto in accordance with Section 9.5.
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13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or
transfer in whole or in part of the assets and liabilities of the Fund to,
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants of this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would receive a benefit under such successor
trust fund immediately after the merger, consolidation or transfer which is
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (determined as if this
Plan and such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of
any new or successor employer of the affected Participants, shall authorize such
transfer of assets, and, in the case of the new or successor employer of the
affected Participants, its resolutions shall include an assumption of
liabilities with respect to such Participants' inclusion in the new employer's
plan; and
(c) Such other plan and trust are qualified under Sections 401(a)
and 501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation
by any procedure other than a consolidation or merger, (b) the Employer's
receivership, insolvency, or cessation of its business as a going concern, or
(c) the commencement of any proceeding by or against the Employer under the
federal bankruptcy laws, and similar federal or state statute, or any federal or
state statute or rule providing for the relief of debtors, compensation of
creditors, arrangement, receivership, liquidation or any similar event which is
not dismissed within 30 days, this Plan shall terminate automatically on such
date (provided, however, that if a proceeding is brought against the Employer
for reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
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13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at
any time by giving to the Trustee and the Administrator notice in writing of
such desire to terminate. The Plan shall terminate upon the date of receipt of
such notice, the interests of all Participants shall become fully vested, and
the Trustee shall make payments to each Participant or Beneficiary in accordance
with Section 9.5. Alternatively, the Employer, in its discretion, may determine
to continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions.
In the event that a partial termination of the Plan shall be deemed
to have occurred, or if the Employer shall discontinue completely its
contributions hereunder, the right of each affected Participant to his interest
in the Fund shall be fully vested. The Employer, in its discretion, shall decide
whether to direct the Trustee to make immediate distribution of such portion of
the Fund assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
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ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for
any part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to the extent that a return of the Employer's contribution
is permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents,
employees, officers, directors or shareholders of any of them, nor the Trustee,
nor any other person shall have any liability or responsibility with respect to
this Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that
a Participant or Beneficiary entitled to receive any benefit under the Plan is,
at the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, including in the case
of certain judgments and settlements described in subparagraph (C) of Section
401(a)(13) of the Code, no benefits or other amounts payable under the Plan
shall be subject in any manner to anticipation, sale, transfer, assignment,
pledge, encumbrance, charge or alienation. If the Administrator determines that
any person entitled to any payments under the Plan has become insolvent or
bankrupt or has attempted to anticipate, sell, transfer, assign, pledge,
encumber, charge or otherwise in any manner alienate any benefit or other amount
payable to him under the Plan or that there is any danger of any levy or
attachment or other court process or encumbrance on the part of any creditor of
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<PAGE>
such person entitled to payments under the Plan against any benefit or other
accounts payable to such person, the Administrator may, at any time, in its
discretion, and in accordance with applicable law, direct the Trustee to
withhold any or all payments to such person under the Plan and apply the same
for the benefit of such person, in such manner and in such proportion as the
Administrator may deem proper.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary,
and the Employer shall be under no legal liability to make any such
contributions. The benefits of this Plan shall be provided solely by the assets
of the Fund, and no liability for the payment of benefits under the Plan or for
any loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder
agree to perform any and all acts and execute any and all documents and papers
which are necessary and desirable for carrying out this Plan or any of its
provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable
effort to locate all persons entitled to benefits under the Plan; however,
notwithstanding any provision in the Plan to the contrary, if, after a period of
5 years from the date such benefit shall be due, any such persons entitled to
benefits have not been located, their rights under the Plan shall stand
suspended. Before this provision becomes operative, the Trustee shall send a
certified letter to all such persons at their last known address advising them
that their interest in benefits under the Plan shall be suspended. Any such
suspended amounts shall be held by the Trustee for a period of 3 additional
years (or a total of 8 years from the time the benefits first became payable),
and thereafter such amounts shall be reallocated among current Participants in
the same manner that a current contribution would be allocated. However, if a
person subsequently makes a valid claim with respect to such reallocated amounts
and any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of New York and all
questions pertaining to its validity, construction and administration shall be
determined in accordance with the laws of that State, except to the extent
superseded by the Act.
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<PAGE>
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.20 Counsel.
The Trustee and the Administrator may consult with legal counsel,
who may be counsel for the Employer and for the Administrator or the Trustee (as
the case may be), with respect to the meaning or construction of this Plan and
the Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be
executed by its duly authorized officers and its corporate seal to be affixed on
this _____ day of _______, 1998.
Hudson River Bancorp, Inc.
ATTEST:
____________________________ By ________________________________
- -----------------------------, -------------------------------,
Secretary President and Chief Executive
Officer
[Corporate Seal]
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Exhibit 22
SUBSIDIARIES OF THE REGISTRANT
(Upon the completion of Transaction)
<TABLE>
<CAPTION>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
------ ---------- --------- ---------------
<S> <C> <C> <C>
Hudson River Bancorp, Inc. The Hudson City Savings 100% Delaware
Institution
The Hudson City Savings Hudson City Associates, Inc. 100% New York
Institution
The Hudson City Savings Hudson River Mortgage 100% New York
Institution Company
The Hudson City Savings Hudson River Funding Corp. 100% New York
Institution
</TABLE>
It is contemplated that the financial statements of the Registrant will
be consolidated with its subsidiaries.
Exhibit 24.1
CONSENT OF SILVER FREEDMAN & TAFF, L.L.P.
We hereby consent to the references to this firm and our opinions in:
the Registration Statement on Form S-1 filed by Hudson River Bancorp, Inc.,
Hudson, New York, and all amendments thereto; in the Form H-(e)l-S for Hudson
River Bancorp, Inc., and all amendments thereto; and in the Application for
Conversion on Form 86-AC filed by The Hudson City Savings Institution (the
"Bank"), and all amendments thereto, and in the Notice and Application for the
Hudson City Savings Institution filed with the Federal Deposit Insurance
Corporation and all amendments thereto, relating to the conversion of the Bank
from a New York State chartered mutual savings bank to a New York State
chartered stock savings bank, the concurrent issuance of the Bank's outstanding
capital stock to Hudson River Bancorp, Inc., a holding company formed for such
purpose, and the offering of Hudson River Bancorp, Inc.'s common stock.
/s/SILVER, FREEDMAN & TAFF, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
Exhibit 24.2
CONSENT OF KPMG Peat Marwick LLP
INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form S-1 and in
the Application for Conversion on Form 86-AC and in the Notice and Application
for Conversion of Hudson River Bancorp, Inc. of our report dated June 20, 1997
(except for note 17, which is as of November 20, 1997), on the Consolidated
Financial Statements of The Hudson City Savings Institution and subsidiaries as
of March 31, 1997 and 1996, and for each of the years in the three-year period
ended March 31, 1997.
We also consent to the reference to our firm under the heading
"Experts" in the related Prospectus.
/s/ KPMG Peat Marwick LLP
Albany, New York
March 6, 1998
Exhibit 24.3
Consent of RP Financial
March 6, 1998
Board of Trustees
The Hudson City Savings Institution and
Board of Directors
Hudson River Bancorp, Inc.
One Hudson City Centre
Hudson, New York 12534
Ladies and Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion on Form 86-AC of Hudson River Bancorp, Inc., Hudson, New York and any
amendments thereto, and in the Form S-1 Registration Statement and any
amendments thereto for Hudson River Bancorp, Inc. We also hereby consent to the
inclusion of , summary of and references to our Appraisal Report in such filings
including the Prospectus of Hudson River Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ Ronald S. Riggins
------------------------
Ronald S. Riggins
President
