As filed with the Securities and Exchange Commission on October 30, 1998
Registration No. 333-63539
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. ONE TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COHOES BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 6035 14-1807865
(State or other (Primary Standard I.R.S. Employer
jurisdiction of incoporation Industrial Classification Identification
or organization) Code Number) No.)
75 Remsen Street, Cohoes, New York 12047 (518) 233-6500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Harry L. Robinson
President and Chief Executive Officer
Cohoes Bancorp, Inc.
75 Remsen Street
Cohoes, New York 12047 (518) 233-6500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Please send copies of all communications to:
Robert L. Freedman, P.C.
Martin L. Meyrowitz, P.C.
Beth A. Freedman, Esq.
James M. Larkins, III, 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
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 Class Amount to be Proposed Maximum Offering Proposed Aggregate Maximum Amount of
Securities to be Registered Registered Price Per Share (2) Offering Price Registration Fee
- --------------------------- ------------ ------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (1) 12,778,790 shares $10.00 $127,787,900 (3)
Participation Interests (4) -- $3,650,942 (5)
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares to be issued to the Cohoes Savings Bank Foundation.
(3) Registration fee previously paid with Form S-1 filed on September 16, 1998.
(4) In addition, this registration statement also covers an indeterminate
amount of interest to be offered or sold pursuant to the Cohoes Savings
Bank 401(k) Savings Plan.
(5) The securities of Cohoes Savings Bank are included in the amount shown for
Common Stock. Accordingly, no separate fee is required for the
participation interests. In accordance with Rule 457(h) of the Securities
Act, as amended, the registration fee has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such Plan.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
PROSPECTUS SUPPLEMENT
- ---------------------
COHOES BANCORP, INC.
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN IN RSI RETIREMENT TRUST
This Prospectus Supplement relates to the offer and sale to
participants (the "Participants") in the Cohoes Savings Bank 401(k) Retirement
Savings Plan in RSI Retirement Trust (the "Plan") of up to __________ shares of
Cohoes Bancorp, Inc. (the "Holding Company") common stock, par value $.01 per
share (the "Holding Company Stock") and related participation interests in the
Plan, as set forth herein.
In connection with the proposed conversion of Cohoes Savings Bank ("the
"Bank") from mutual to stock form (the "Conversion") and the formation of the
Holding Company as the holding company of the Bank, the Plan has been amended to
provide for an investment fund consisting of Holding Company Stock as an
investment option for the Participants in the Plan (the "Employer Stock Fund").
The amended Plan permits Participants in the Plan to direct the trustee of the
Employer Stock Fund (the "Trustee") to purchase Holding Company Stock with
amounts in the Plan attributable to the accounts of such Participants. This
Prospectus Supplement relates solely to the initial election of a Participant to
direct the purchase of Holding Company Stock in the Conversion and not to any
future purchases under the Plan or otherwise.
The Prospectus dated ________ __, 1998 of the Holding Company (the
"Prospectus"), which is being delivered with this Prospectus Supplement,
includes detailed information with respect to the Holding Company, the
Conversion, the Holding Company Stock and the financial condition, results of
operations and business of the Bank. This Prospectus Supplement, which provides
detailed information with respect to the Plan, should be read only in
conjunction with the Prospectus. Capitalized terms not defined in this
Prospectus Supplement have the meanings ascribed to them in the Prospectus.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
BY EACH PARTICIPANT, SEE "RISK FACTORS"
IN THE PROSPECTUS.
----------------------
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, THE
NEW YORK STATE BANKING DEPARTMENT, OR THE FEDERAL DEPOSIT INSURANCE CORPORATION,
NOR HAS SUCH COMMISSION, OFFICE, OR CORPORATION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ____________, 1998.
<PAGE>
No person has been authorized to give any information or to make any
representation other than as contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
any such other information or representation must not be relied upon as having
been authorized by the Holding Company, the Bank or the Plan. This Prospectus
Supplement does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus Supplement and the Prospectus nor any sale made hereunder shall
under any circumstance create any implication that there has been no change in
the affairs of the Holding Company, the Bank or the Plan since the date hereof
or that the information herein contained or incorporated herein by reference is
correct as of any time subsequent to the date hereof. This Prospectus Supplement
should be read only in conjunction with the Prospectus that is delivered
herewith and should be retained for future reference.
TABLE OF CONTENTS
Page
----
The Offering................................................................ 1
Securities Offered........................................................ 1
Election to Purchase Holding Company Stock in the Conversion.............. 1
Method of Directing Transfer.............................................. 1
Time for Directing Transfer............................................... 2
Irrevocability of Transfer Direction...................................... 2
Subsequent Elections...................................................... 2
Purchase Price of Holding Company Stock................................... 2
Nature of a Participant's Interest in the Holding Company Stock........... 2
Voting and Tender Rights of Holding Company Stock......................... 2
Description of the Plan..................................................... 3
Introduction.............................................................. 3
Eligibility and Participation............................................. 4
Investment of Contributions............................................... 4
Financial Data............................................................ 6
Administration of the Plan................................................ 7
Reports to Plan Participants.............................................. 8
Amendment and Termination................................................. 8
Merger, Consolidation or Transfer......................................... 8
Federal Tax Aspects of the Plan........................................... 8
Restrictions on Resale.................................................... 12
Legal Opinions.............................................................. 12
Summary Plan Description
(including Summaries of Material Modifications thereto).................... A-1
Financial Statements........................................................ B-1
Election Form
i
<PAGE>
THE OFFERING
Securities Offered
Up to __________ shares of Holding Company Stock which may be acquired
by the Plan for the accounts of employees participating in the Plan, and related
participation interests, are offered hereby. The Holding Company is the issuer
of such securities. Only employees of the Bank may participate in the Plan.
Information relating to the Plan is contained in this Prospectus Supplement and
information relating to the Holding Company, the Conversion and the financial
condition, results of operations and business of the Bank is contained in the
Prospectus delivered herewith. The address of the principal executive office of
the Holding Company is 75 Remsen Street, Cohoes, New York 12047 and its
telephone number is (518) 233-6575. The address and telephone number of the
Bank's principal office are the same as the Holding Company's.
Election to Purchase Holding Company Stock in the Conversion
In connection with the Bank's Conversion, the Plan has been amended to
permit each Participant to direct that all or part of the funds in his or her
accounts under the Plan (hereinafter referred to in the aggregate as a
Participant's "Accounts") be transferred to the Employer Stock Fund and used to
purchase Holding Company Stock in the Conversion. The Trustee of the Employer
Stock Fund will follow the Participants' directions and exercise Subscription
Rights to purchase Holding Company Stock in the Conversion to the extent
provided in the Bank's Plan of Conversion. See "The Offering - Subscription
Offering and Subscription Rights" in the Prospectus. Funds not allocated to the
purchase of Holding Company Stock will remain invested in accordance with the
investment instructions of Participants in effect at such time.
Respective purchases by the Plan in the Conversion will be counted as
purchases by the individual Participants at whose election they are made to the
extent of the funds directed by such Participants to purchase Holding Company
Stock, and will be subject to the purchase limitations applicable to such
individuals, rather than being counted in determining the maximum amount that
the Holding Company's or the Bank's Tax-Qualified Employee Plans (as defined in
the Prospectus) may purchase in the aggregate. See "The Offering - Subscription
Offering and Subscription Rights" in the Prospectus.
Method of Directing Transfer
Included with this Prospectus Supplement is an election and investment
form (the "Election Form"). If a Participant wishes to direct some or all the
funds in his or her Accounts into the Employer Stock Fund to purchase Holding
Company Stock in the Conversion, he or she should indicate that decision by
checking the appropriate box in Part 2 of the Election Form and completing this
Part of the Election Form. If a Participant does not wish to make such an
election, he or she should so indicate by checking the appropriate box in Part 2
of the Election Form. See also "Investment of Contributions - Holding Company
Stock Investment Election Procedures" below.
S-1
<PAGE>
Time for Directing Transfer
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund in order to purchase Holding Company Stock in the Conversion
is __________ __, 1998, unless extended (the "Election Deadline"). A
Participant's completed Election Form must be returned to
___________________________ by ____ p.m. Eastern time on such date.
Irrevocability of Transfer Direction
Once received in proper form, an executed Election Form may not be
modified, amended or revoked without the consent of the Bank unless the
Conversion has not been completed within 45 days after the end of the
Subscription and Community Offering. See also "Investment of Contributions -
Holding Company Stock Investment Election Procedures" below.
Subsequent Elections
After the Election Deadline, Participants initially will not be
permitted to direct or redirect any portion of their Accounts into Holding
Company Stock; however, the Bank intends to provide for such future investment.
Participants will be notified when and to what extent future investments in the
Employer Stock Fund may be permitted. Participants may direct the Trustee to
sell their shares of Holding Company Stock purchased in the Conversion through
the Plan pursuant to the procedures outlined in the Plan by filing a request
form with the Plan Administrator. See "Investment of Contributions - Adjusting
Your Investment Strategy" below.
Purchase Price of Holding Company Stock
The funds transferred to the Employer Stock Fund for the purchase of
the Holding Company Stock in the Conversion will be used by the Trustee to
purchase Holding Company Stock through the exercise of Subscription Rights
granted to the Plan under the Bank's Plan of Conversion. The price paid for such
shares of Holding Company Stock will be $10.00 per share, the same price as is
paid by all other persons who purchase Holding Company Stock in the Conversion.
Nature of a Participant's Interest in the Holding Company Stock
The Holding Company Stock will be held in the name of the Trustee of
the Employer Stock Fund, in its capacity as trustee. The Trustee will maintain
individual accounts reflecting each Participant's individual interest in the
Employer Stock Fund.
Voting and Tender Rights of Holding Company Stock
The Trustee will exercise voting and tender rights attributable to all
Holding Company Stock held by the Plan Trust (the "Trust") as directed by
Participants with interests in the Employer Stock Fund. Shares with respect to
which no instructions have been received by the Trustee will not be voted.
S-2
<PAGE>
DESCRIPTION OF THE PLAN
Introduction
The Plan was adopted by the Bank as a profit sharing plan with a cash
or deferred arrangement described at Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code"), to encourage employee thrift and savings and
to allow eligible employees to share in profits.
The Bank intends that the Plan will comply in operation with each of
the requirements of the Code which are applicable to a plan qualified under
Section 401(a) of the Code and the requirements which are applicable to a
qualified cash or deferred arrangement under Section 401(k) of the Code.
The Plan is an "individual account plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and a
"defined contribution plan" under the Code. As such, the Plan is not subject to
the Plan Termination Insurance provisions of Title IV of ERISA. However, the
Plan is subject to those provisions of Title I (Protection of Employee Benefit
Rights) and Title II (Amendments to the Internal Revenue Code Relating to
Retirement Plans) of ERISA that apply to "individual account plans" and "defined
contribution plans" other than "money purchase pension plans." Accordingly, the
Plan is not subject to the funding requirements contained in Part 3 of Title I
of ERISA or Section 412 of the Code which by their terms do not apply to an
individual account plan (other than a money purchase pension plan). In addition,
the Plan does not provide for distribution of Participants' Accounts in the form
of a qualified joint and survivor annuity or a qualified preretirement survivor
annuity. Neither the plan termination insurance provisions, the funding
requirements nor the annuity requirements contained in ERISA and/or the Code
will be extended to Participants or beneficiaries under the Plan.
Reference to Full Text of Plan. The following statements are summaries
of certain provisions of the Plan. They are not a complete description of such
provisions and are qualified in their entirety by the full text of the Plan
which is filed as an exhibit to the registration statement of which this
Prospectus Supplement is a part and which is incorporated by reference herein.
Copies of the Plan are available to all employees upon request to the Plan
Administrator. Each employee is urged to read carefully the full text of the
Plan.
Reference to Summary Plan Description. Certain information regarding
the Plan is contained in the Summary Plan Description (including Summaries of
Material Modifications thereto (the "Summary Plan Description"), a copy of which
is attached to, and made a part of, this Prospectus Supplement.
S-3
<PAGE>
Tax and Securities Laws. Participants should consult with legal counsel
regarding the tax and securities laws implications of participation in the Plan.
Any directors, officers or beneficial owners of more than 10% of the outstanding
shares of Holding Company Stock should consider the applicability of Sections
16(a) and 16(b) of the Securities Exchange Act of 1934, as amended, to his or
her participation in the Plan.
Eligibility and Participation
All employees of the Bank who have met the eligibility requirements may
participate in the Plan by completing and filing with the Bank an application
for participation. See "JOINING THE PLAN - Eligibility" and "- Participation" in
the Summary Plan Description attached hereto.
As of ________ __, 1998, there were approximately ___ employees
eligible to participate in the Plan, and ___ employees had elected to
participate in the Plan.
Investment of Contributions
Investment Options. All amounts credited to Participants' Accounts
under the Plan are held in the Trust, which is administered by the Trustee
appointed by the Bank's Board of Directors.
Each Participant must instruct the Trustee as to how funds held in his
or her Accounts are to be invested. In addition to the Employer Stock Fund,
Participants may elect to instruct the Trustee to invest such funds in any or
all of the following investment options ("Investment Options"): (a) a Core
Equity Fund, (b) an Emerging Growth Equity Fund, (c) a Value Equity Fund, (d) an
Actively Managed Bond Fund (e) an Intermediate-Term Bond Fund, (f) a Short-Term
Investment Fund or (g) an International Equity Fund. Investments in the Employer
Stock Fund may be made only through reallocation of existing funds in the six
investment options listed above. A brief description of the Employer Stock Fund
is set forth below. For descriptions of the other Investment Options available
to Plan Participants, see "INVESTING YOUR PLAN ACCOUNT The Investment Funds" in
the Summary Plan Description attached hereto.
Employer Stock Fund. Effective until __________ __, 1998, or such later
date as elected by the Holding Company, Participants in the Plan may elect to
direct the Trustee to transfer some or all of the funds in their Accounts to the
Employer Stock Fund to purchase Holding Company Stock in the Conversion. The
price paid for shares of Holding Company Stock will be the same price as is paid
by all other persons who purchase Holding Company Stock in the Conversion. The
number of shares, if any, subject to purchase for the Accounts of each
Participant who may elect to invest in Holding Company Stock is not currently
determinable. Any cash dividends received on Holding Company Stock held by the
Plan will be reinvested in accordance with the Participant's investment
instructions then in effect.
The Plan is intended to comply with the requirements of Section 404(c)
of ERISA, whereby the Participants (not the Trustee or other Plan fiduciaries)
will be solely responsible for their decision to invest any portion of their
Accounts in any one or more of the Investment Options, including the Employer
Stock Fund. Please see the Summary Plan Description
S-4
<PAGE>
attached hereto and the other information provided by the Trustee, the Plan
Administrator and other Plan fiduciaries with regard to each Participant's
rights and responsibilities pertaining to the investment of his or her Accounts.
The investment in Holding Company Stock involves certain risks. No
assurance can be given that shares of Holding Company Stock purchased pursuant
to the Plan will thereafter be able to be sold at a price equal to or in excess
of the purchase price. See also "Risk Factors" in the Prospectus.
Holding Company Stock Investment Election Procedures. Participants may
instruct the Trustee to purchase Holding Company Stock by redirecting funds from
their existing Accounts into the Employer Stock Fund by filing an Election Form
with the Plan Administrator on or prior to the Election Deadline. Total funds
redirected by each Participant into the Employer Stock Fund must represent whole
share amounts (i.e., must be divisible by the $10.00 per share purchase price)
and must be allocated in not less than 10% increments from Investment Options
containing the Participant's Plan funds. When a Participant instructs the
Trustee to redirect the funds in his or her existing Accounts into the Employer
Stock Fund in order to purchase Holding Company Stock, the Trustee will
liquidate funds from the appropriate Investment Option(s) and apply such
redirected funds as requested, in order to effect the new allocation.
For example, a Participant may fund an election to purchase 100 shares
of Holding Company Stock by redirecting the aggregate purchase price of $1,000
for such shares from the following Investment Options (provided the necessary
funds are available in such Investment Options): (i) 10% from the Core Equity
Fund, (ii) 30% from the Value Equity Fund, and (iii) 60% from the
Intermediate-Term Bond Fund. In such case, the Trustee would liquidate $100 of
the Participant's funds from the Core Equity Fund, $300 from funds in the Value
Equity Fund and $600 from funds in the Intermediate-Term Bond Fund to raise the
$1,000 aggregate purchase price. If a Participant's instructions cannot be
fulfilled because the Participant does not have the required funds in one or
more of the Investment Options to purchase the shares of Holding Company Stock
subscribed for, the Participant will be required to file a revised Election Form
with the Plan Administrator by the Election Deadline. Once received in proper
form, an executed Election 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 Offering.
Adjusting Your Investment Strategy. Until changed in accordance with
the terms of the Plan, future allocations of a Participant's contributions would
remain unaffected by the election to purchase Holding Company Stock through the
Plan in the Conversion. A Participant may modify a prior investment allocation
election or request the transfer of funds to another investment vehicle by
filing a written notice with the Plan Administrator. However, modifications and
fund transfers relating to the Employer Stock Fund are permitted only during an
"Investment Change Period." An "Investment Change Period" opens at the beginning
of the third business day after the Holding Company issues a "Quarterly Earnings
Release" and closes at the end of the twelfth business day after such release.
The term "Quarterly Earnings Release" means any press release issued by the
Holding Company for general distribution which announces, for the first time,
the
S-5
<PAGE>
Holding Company's Results of operations for a particular fiscal quarter. The
Bank anticipates these opportunities will occur four times per year. The Bank
will attempt to notify Participants of the commencement of each Investment
Change Period but will not assume responsibility for doing so.
Valuation of Accounts. The Investment Options and the Employer Stock
Fund are valued daily. The net value of each Participant's Accounts is valued
from time to time by the Trustee, but not less often than monthly. In
determining such net value, the Trustee shall value the assets comprising the
Trust at their fair market value.
When Holding Company Stock is purchased or sold, the cost or net
proceeds are charged or credited to the Accounts of Participants affected by the
purchase or sale. The Bank expects to pay any brokerage commissions, transfer
fees and other expenses incurred in the sale and purchase of Holding Company
Stock for the Employer Stock Fund. A Participant's Accounts will be adjusted to
reflect changes in the value of shares of Holding Company Stock resulting from
stock dividends, stock splits and similar changes.
The net gain (or loss) of the Trust from investments (including
interest payments, dividends, realized and unrealized gains and losses on
securities, and any expenses paid from the Trust) are determined not less often
than monthly, and are allocated among the Accounts of Participants according to
the balance of each such Accounts as of the end of each quarter. For purposes of
such allocations, all assets of the Trust are valued at their fair market value
pursuant to the method described in the Plan.
Financial Data
Employer Contributions. For the Plan Year ended December 31, 1997, the
Bank made matching contributions totaling approximately $193,199. The Bank has
made no discretionary contributions to the Plan for the fiscal year ended
December 31, 1997. See generally "CONTRIBUTIONS TO THE PLAN" in the Summary Plan
Description attached hereto.
Due to the additional expenses related to the establishment and
operation of the ESOP and RRP, the Bank may determine to reduce its matching
contribution under the Plan in the future.
Performance of Holding Company Stock. As of the date of this Prospectus
Supplement, no shares of Holding Company Stock have been issued or are
outstanding and there is no established market for the Holding Company Stock.
Accordingly, there is no record of the historical performance of the Holding
Company Stock.
Performance of Investment Options. The following table provides
performance data with respect to the Investment Options available under the
Plan, based on information provided to the Company by RSI Retirement Trust, the
trustee for funds invested in such Investment Options ("RSI").
S-6
<PAGE>
The information set forth below with respect to the Investment Options
has been reproduced from materials supplied by RSI. The Bank and the Holding
Company take no responsibility for the accuracy of such information.
Additional information regarding the Investment Options may be
available from RSI or the Bank. Participants should review any available
additional information regarding these investments before making an investment
decision under the Plan.
<TABLE>
<CAPTION>
Net Investment Performance
---------------------------------------------------------------
For Twelve-Month Period December 31, 1997
Ended December 31, Annualized
------------------------------------ ---------------------
1997 1996 1995 3 Years 5 Years
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Core Equity Fund...................... 26.47 21.53 40.17 29.97 20.15
Emerging Growth Equity Fund........... 10.35 27.09 42.83 27.75 22.21
Value Equity Fund..................... 33.14 25.90 33.96 32.03 20.45
Actively Managed Bond Fund............ 10.59 3.15 17.70 10.91 8.14
Intermediate-Term Bond Fund........... 8.19 4.02 13.99 9.38 6.97
Short-Term Investment Fund............ 5.80 4.70 5.39 5.86 5.02
International Equity Fund............. 2.89 10.86 12.46 10.01 12.83
</TABLE>
Each Participant should note that past performance is not necessarily
an indicator of future results.
Administration of the Plan
Trustee. The trustee is appointed by the Board of Directors of the Bank
to serve at its pleasure. The current trustee for the Investment Options (other
than the Employer Stock Fund) is RSI. The Bank's trust department will serve as
trustee of the Employer Stock Fund.
The Trustees receive and hold the contributions to the Plan in trust
and distribute them to Participants and beneficiaries in accordance with the
provisions of the Plan. The Trustees are responsible, following Participant
direction, for effectuating the investment of the assets of the Trust in the
Holding Company Stock and the other Investment Options.
Plan Administrator. RSI and the Bank share the duties of Plan
Administrator. The Bank is responsible for administration of the Plan and is
appointed by and serves at the pleasure of the Board of Directors of the Bank.
The Bank may appoint individuals to assist in the administration of the Plan and
in carrying out its responsibilities for interpretation of the provisions of the
Plan, prescribing procedures for filing applications for benefits, preparation
and distribution of information explaining the Plan, furnishing the Bank with
reports with respect to the administration of the Plan, receiving, reviewing and
keeping on file reports of the financial condition of the Trust, and appointing
or employing individuals to assist in the administration of the Plan. RSI is
responsible for maintenance of Plan records, preparation and filing of all
returns and reports relating to the Plan which are required to be filed with the
U.S. Department of Labor and the IRS, and for all disclosures required to be
made to Participants and beneficiaries under Sections 104 and 105 of ERISA.
S-7
<PAGE>
Reports to Plan Participants
As of the end of each fiscal quarter, the Plan Administrator will
furnish to each Participant a statement showing (i) balances in the
Participant's Accounts as of the end of that period, (ii) the amount of
contributions and forfeitures allocated to his or her Accounts for that period,
and (iii) the adjustments to his or her Accounts to reflect a respective share
of dividends on Holding Company Stock, and other income, gains or losses, if
any.
Amendment and Termination
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank, by action of its Board of Directors, may terminate the
Plan in its sole discretion at any time and for any reason. If the Plan is
terminated in whole or in part, then, regardless of other provisions in the
Plan, each Participant affected by such termination shall become fully vested in
all of his Accounts. The Bank reserves the right to make from time to time any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA and the Code.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust assets to another plan, the Plan requires
that each Participant would (if either the Plan or the other plan were then
terminated) receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he or she would have been
entitled to receive immediately before the merger, consolidation or transfer (if
the Plan had then been terminated).
Federal Tax Aspects of the Plan
The Plan will be administered to comply in operation with the
requirements (i) for qualification under Section 401(a) of the Code, (ii) for
treatment as a qualified cash or deferred arrangement under Section 401(k) of
the Code, and (iii) for exclusion of elective deferrals under Section 402(g) of
the Code. Assuming that the Plan is administered in accordance with such
Sections of the Code, participation in the Plan should have the following
implications for federal income tax purposes:
(a) Amounts contributed to Participants' Accounts, including
Participant elective deferrals, and the investment earnings on these Accounts,
are not includable in Participants' gross income for federal income tax purposes
until such contributions or earnings are actually distributed or withdrawn from
the Plan. However, Participant elective deferrals to the Plan are subject to
both FICA and Medicare taxes. Special tax treatment may apply to the taxable
portion of any distribution that includes Holding Company Stock, that is paid to
another employer's plan or to
S-8
<PAGE>
an IRA in a "rollover," or that is eligible for special tax treatment for lump
sum distributions (as described below).
(b) Income earned by the Trust will not be taxable to the Trust.
Permitted Rollover Amounts. Most payments from the Plan will be
"eligible rollover distributions." This means that they can be rolled over to an
IRA or to another employer plan that accepts rollovers. Required minimum
payments, beginning generally in the year in which the Participant reaches age
70 1/2 or retires, whichever is later, cannot be rolled over.
Direct Rollover. A Participant may choose a direct rollover of all or
any portion of a payment that is an "eligible rollover distribution." In a
direct rollover, the eligible rollover distribution is paid directly from the
Plan to an IRA or another employer plan that accepts rollovers. If the
Participant chooses a direct rollover, the rollover amount will not be taxed
until it is taken out of the IRA or the employer plan.
Payments that are not Rolled Over. A payment made to a Participant is
subject to 20% mandatory income tax withholding. This amount is sent to the IRS
as income tax withholding, and it will be credited against any income tax owed
for the year. The payment is taxed in the year it is received unless, within 60
days, it is rolled over to an IRA or to another plan that accepts rollovers. If
the payment is not rolled over, special tax rules may apply (as described
below).
Sixty-Day Rollover Option. Even if a Participant has an eligible
rollover distribution paid to him or her, all or part of it can still be rolled
over to an IRA or to another employer plan that accepts rollovers. However, the
rollover must be made within 60 days after the payment is received. The portion
of the payment that is rolled over will not be taxed until it is taken out of
the IRA or the employer plan. The Participant can roll over up to 100% of the
payment from the Plan, including an amount equal to the 20% that was withheld,
by including other money to replace the 20% that was withheld. On the other
hand, if only the 80% that was received is rolled over, the Participant will be
taxed on the 20% that was withheld.
Additional 10% Tax. If a Participant receives a payment before reaching
age 59 1/2 and does not roll it over, then, in addition to the regular income
tax, an extra tax equal to 10% of the taxable portion of the payment may be
imposed. The additional 10% tax does not apply to the payment if it is (1) paid
because the Participant separates from service with the employer during or after
the year in which the Participant reaches age 55, (2) paid because of retirement
due to disability, (3) paid as equal (or almost equal) payments over the
Participant's life or life expectancy (or the Participant's and his or her
beneficiary's lives or life expectancies), (4) used to pay certain medical
expenses, (5) paid to a beneficiary upon a Participant's death, or (6) paid to
an alternate payee pursuant to a qualified domestic relations order.
Special Tax Treatment. If an eligible rollover distribution is not
rolled over, it will be taxed in the year it is received. However, if it
qualifies as a "lump sum distribution," it may be eligible for special tax
treatment. A lump sum distribution is a payment, within one year, of the
Participant's entire balance under the Plan (and certain other similar plans of
the employer) that
S-9
<PAGE>
is payable because the Participant has reached age 59 1/2, has separated from
service with his employer, or has died. For a payment to qualify as a lump sum
distribution, the recipient must have been a participant in the Plan for at
least 5 years. The special tax treatment for lump sum distributions is described
below.
Five-Year Averaging. If the Participant receives a lump sum
distribution after reaching age 59 1/2, he or she may be able to make a
one-time election to figure the tax on the payment by using "5-year
averaging." 5-year averaging often reduces the tax owed because it
treats the payment much as if it were paid over 5 years. The entire tax
(using current tax rates) is paid in the year in which the lump sum
distribution is received.
Ten-Year Averaging For Those Born Before January 1, 1936. If a
Participant receives a lump sum distribution and was born before
January 1, 1936, he or she can make a one-time election to figure the
tax on the payment by using "10-year averaging" (using 1986 tax rates)
instead of 5-year averaging (using current tax rates). Like the 5-year
averaging rules, 10-year averaging often reduces the amount of tax
owed.
Capital Gain Treatment For Those Born Before January 1, 1936.
In addition, if a Participant who was born before January 1, 1936,
receives a lump sum distribution, he or she may elect to have the
portion of the payment that is attributable to pre-1974 participation
in the Plan (if any) taxed as long-term capital gain.
There are other limits on the special tax treatment for lump sum
distributions. For example, a Participant can generally elect this special tax
treatment only once during his or her lifetime, and the election applies to all
lump sum distributions received in that same year. If the Participant has
previously rolled over a payment from the Plan (or certain other similar plans
of the employer), he or she cannot use this special tax treatment for later
payments from the Plan. If the payment is rolled over to an IRA, the Participant
will not be able to use this special tax treatment for later payments from the
IRA. Also, if any portion of the payment is rolled over to an IRA, this special
tax treatment is not available for the rest of the payment.
The special tax treatment for lump sum distributions described above,
other than the special rules for those born before January 1, 1936, has been
repealed for all such distributions received in tax years beginning after
December 31, 1999.
Employer Securities. There is a special rule for a payment from the
Plan that includes employer securities. To use this special rule, the payment
must qualify as a lump sum distribution, as described above (or would qualify
except that the Participant has not participated in the Plan for at least 5
years). Under this rule, the Participant has the option of not paying tax on the
"net unrealized appreciation" of the securities until they are sold. Net
unrealized appreciation generally is the increase in the value of the securities
that took place while they were held by the Plan.
The Participant may elect not to have the special rule apply to the net
unrealized appreciation. In such case, the net unrealized appreciation will be
taxed in the year the securities
S-10
<PAGE>
are received from the Plan (and may be eligible for the special tax treatment
described above), unless they are rolled over. The securities (including any net
unrealized appreciation) can be rolled over to an IRA or to another employer
plan that accepts rollovers.
Other Payment Recipients. In general, the rules summarized above that
apply to payments to Participants also apply to payments to Participants'
surviving spouses and to spouses or former spouses who are alternate payees
pursuant to a qualified domestic relations order. Some of the rules summarized
above also apply to a deceased Participant's beneficiary who is not a spouse.
However, there are some significant exceptions for payments to surviving
spouses, alternate payees, and other beneficiaries.
A surviving spouse of a deceased Participant may choose to have an
eligible rollover distribution paid in a direct rollover to an IRA or paid to
the spouse. If the spouse has the payment made to him or her, such spouse can
keep it or roll it over to an IRA (but not to an employer plan). An alternate
payee has the same choices as the Participant. Thus, an alternate payee can have
the payment paid as a direct rollover or paid to the alternate payee. If the
alternate payee has it paid to him or her, the alternate payee can either keep
it or roll it over to an IRA or to another employer plan that accepts rollovers.
A beneficiary other than the surviving spouse cannot roll over the payment under
any circumstances.
A surviving spouse, alternate payee or another beneficiary may be able
to use the special tax treatment for lump sum distributions and the special rule
for payments that include employer securities, as described above. A payment
that is received because of the Participant's death may be eligible for the
special tax treatment available for lump sum distributions if the Participant
met the appropriate age requirements, whether or not the Participant had 5 years
of participation in the Plan.
The foregoing is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.
Accordingly, each Participant may wish to consult a tax advisor concerning the
Federal, state and local tax consequences of participating in and receiving
distributions from the Plan.
Participants subject to taxes imposed by state, local and other taxing
authorities, including foreign governments, should also consult with their own
attorneys or tax advisers regarding the tax consequences thereunder.
S-11
<PAGE>
Restrictions on Resale
Any person receiving shares of Holding Company Stock under the Plan who
is an "affiliate" of the Bank or the Holding Company as the term "affiliate" is
used in Rules 144 and 405 under the Securities Act of 1933 (e.g., directors,
officers and substantial shareholders of the Bank) may re-offer or resell such
shares only pursuant to a registration statement or, assuming the availability
thereof, pursuant to Rule 144 or some other exemption of the registration
requirements of the Securities Act of 1933. Any person who may be an "affiliate"
of the Bank or the Holding Company may wish to consult with counsel before
transferring any Holding Company Stock owned by him or her. In addition,
Participants are advised to consult with counsel as to the applicability of
Section 16 of the Securities Exchange Act of 1934 which may restrict the sale of
Holding Company Stock acquired under the Plan, or other sales of Holding Company
Stock.
LEGAL OPINIONS
The validity of the issuance of the Holding Company Stock will be
passed upon by Silver, Freedman & Taff, L.L.P., 1100 New York Avenue, N.W.,
Washington, D.C. 20005, which firm acted as special counsel for the Holding
Company and the Bank in connection with the Bank's Conversion.
S-12
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI
RETIREMENT TRUST
FINANCIAL STATEMENTS
DECEMBER 31, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Independent Auditors' Report .......................................... 1
Statements Of Net Assets Available For Benefits ....................... 2
Statements Of Changes In Net Assets Available For Benefits ............ 3
Notes To Financial Statements ......................................... 4-8
Schedule
SUPPLEMENTAL INFORMATION Number
- ------------------------ ------
Schedule Of Assets Held For Investment Purposes ....................... I
Schedule Of Reportable Transactions ................................... II
<PAGE>
To The Board Of Trustees
Cohoes Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Cohoes, New York
Independent Auditors' Report
We were engaged to audit the financial statements of the Cohoes Savings
Bank Retirement Savings Plan as of December 31, 1997 and 1996 and for the years
then ended, and the supplemental schedules as of and for the year ended December
31, 1997 as listed in the accompanying table of contents. These financial
statements and schedules are the responsibility of the Plan's management.
As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974, the Plan administrator instructed us not to
perform, and we did not perform, any auditing procedures with respect to the
information described in Note 3, which was certified by the Plan's Trustee,
Retirement System Group, Inc. for the years ended December 31, 1997 and 1996,
except for comparing the information with the related information included in
the financial statements and supplemental schedules. We have been informed by
the Plan administrator that the Trustee holds the Plan's investment assets and
executes investment transactions. The Plan administrator has obtained
certifications from the Trustee as of and for the years ended December 31, 1997
and 1996 that the information provided to the Plan administrator by the Trustee
is complete and accurate.
Because of the significance of the information that we did not audit,
we are unable to, and do not, express an opinion on the accompanying financial
statements and schedules taken as a whole. The form and content of the
information included in the financial statements and schedules, other than that
derived from the information certified by the Trustee, have been audited by us
in accordance with generally accepted auditing standards and, in our opinion,
are presented in compliance with the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974.
Albany, New York
July 29, 1998
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Statements Of Net Assets Available For Benefits
December 31
1997 1996
---- ----
Assets:
Investments in registered investment company, at
fair value: (Note 4)
Core equity fund ................................. $1,186,615 $ 917,304
Emerging growth equity fund ...................... 954,814 819,049
Value equity fund ................................ 551,209 403,755
Short-term investment fund ....................... 353,293 455,680
Actively managed bond fund ....................... 327,026 319,266
Intermediate term bond fund ...................... 314,450 290,029
International equity fund ........................ 34,979 19,354
---------- ----------
Total investments in registered investment
company at fair value ....................... 3,722,386 3,224,437
Loans to participants (Note 5) ....................... 231,608 231,440
---------- ----------
Total investments at fair value ............... 3,953,994 3,455,877
Receivables:
Employer's contributions ........................... 193,199 164,519
Other assets:
Cash ............................................... 16,221 6,726
---------- ----------
Net Assets Available For Benefits ......... $4,163,414 $3,627,122
========== ==========
The accompanying notes are an integral part of these financial statements
(2)
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Statements Of Changes In Net Assets Available For Benefits
For The Years Ended December 31
1997 1996
---- ----
Additions:
Investment income:
Net investment gain (Note 4) ....................... $ 523,925 $ 462,630
Interest on loans .................................. 15,133 14,964
---------- ----------
Net investment income ......................... 539,058 477,594
---------- ----------
Contributions:
Employer's contributions ........................... 263,137 238,357
Employees' contributions ........................... 194,434 178,409
Rollovers contributed from other plans ............. 21,157 41,141
---------- ----------
Total contributions ........................... 478,728 457,907
---------- ----------
Total additions ............................... 1,017,786 935,501
---------- ----------
Deductions:
Benefits paid to participants ...................... 477,811 722,823
Miscellaneous expenses ............................. 3,683 5,645
---------- ----------
Total deductions .............................. 481,494 728,468
---------- ----------
Net increase in net assets available for benefits .... 536,292 207,033
Net assets available for benefits - beginning ........ 3,627,122 3,420,089
---------- ----------
Net Assets Available For Benefits - Ending ........... $4,163,414 $3,627,122
========== ==========
The accompanying notes are an integral part of these financial statements
(3)
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Notes To Financial Statements
Note 1: Plan Description
The following description of the Cohoes Savings Bank 401(k) Savings
Plan in RSI Retirement Trust provides only general information. Participants
should refer to the Plan agreement for a more complete description of the Plan's
provisions.
The Plan, which became effective January 1, 1986, is a defined
contribution deferred compensation, 401(k) plan covering substantially all
salaried full-time employees of the Bank. Employees are eligible to participate
in the Plan upon attainment of age 21 and completion of one year of service. The
Plan is subject to the provisions of the Employee Retirement Income security Act
of 1974 (ERISA).
The Plan permits participants to contribute up to 15% of their salary
on a pretax basis. Participants may also contribute up to an additional 10% of
their salary on an after-tax basis. The Plan Administrator may limit the maximum
contributions per participant to comply with Internal Revenue Service
regulations. A discretionary matching contribution will be made by the Bank
equal to a percentage of the employee contributions. The percentage will be
determined annually by the Bank; however, in applying the matching percentage,
only employee contributions up to 6% of their compensation will be considered.
In addition, the Bank may make additional profit sharing contributions to the
Plan, at its sole discretion. All forfeitures of nonvested benefits are used to
reduce the employer's contribution.
Each participant's account is credited with the participant's
contribution and allocations of (a) the Company's contribution and, (b) Plan
earnings, and charged with an allocation of administrative expenses. Allocations
are based on participant earnings or account balances, as defined. The benefit
to which a participant is entitled is the benefit that can be provided from the
participant's vested account.
Participants are immediately vested in their voluntary contributions
plus actual earnings thereon. Participants become fully vested in the Bank's
contributions according to the following schedule:
Years of Service Percentage
Less than 2 0%
----------- --
2 40%
3 60%
4 80%
5 100%
On termination of service, participants may receive distributions equal
to the value of their vested account balance. The participant's account may be
paid out with a lump-sum distribution, purchase of an annuity contract, or any
other method providing periodic payments. Participants who die, or become
totally and permanently disabled while actively employed, will receive a benefit
equal to the value of their account as of the next valuation date.
(4)
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Notes To Financial Statements
Note 1: Plan Description (Continued)
Investment options - Upon enrollment in the Plan, a participant may
direct employee contributions in any of seven investment options.
Core Equity Fund - Funds are invested in shares of a registered investment
company that invests in a broadly diversified group of high-quality,
medium-to-large companies.
Value Equity Fund - Funds are invested in shares of a registered investment
company that invests in a diversified portfolio of stocks with below average
price-to-earnings (P/E) ratio and above-average growth prospects.
Emerging Growth Equity Fund - Funds are invested in shares of a registered
investment company that invests in quality growth stocks of smaller companies)
those in the $50 million to $750 million capitalization range at time of
purchase).
International Equity Fund - Funds are invested in shares of a registered
investment company that invests in stocks that are headquartered in foreign
countries.
Actively Managed Bond Fund - Funds are invested in shares of a registered
investment company that invests in high-quality, fixed income securities (bonds
and other debt securities) with maturities of up to 30 years.
Intermediate - Term Bond Fund - Funds are invested in shares of a registered
investment company that invests in high-quality, fixed-income securities that
mature within ten years or have expected average lives of ten years or less.
Short-Term Investment Fund - Funds are invested in shares of a registered
investment company that invests in high-quality, cash equivalent-type securities
maturing in one year or less, and U.S. Government instruments with maturities of
up to two years.
Note 2: Summary Of Significant Accounting Policies
Investment valuation - The Plan's investments are stated at fair value.
Shares of registered investment companies are valued at quoted market prices
which represent the net cost value of shares held by the Plan at year end. Loans
to participants are valued at cost which approximates fair value.
Securities transactions - Securities purchased and sold are recorded on
the respective trade dates. Interest income is recorded on the accrual basis.
Dividends are recorded on the ex-dividend date.
(5)
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Notes To Financial Statements
Note 2: Summary Of Significant Accounting Policies
Administrative expenses - The costs of plan administration are paid by
the Bank.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
Note 3: Information Certified By Plan Trustee
The Plan trustee, Retirement System Group, Inc., furnished certain
information to the Plan Administrator and certified to its accuracy. This
information included, but was not limited to, summaries of investments,
investment transactions, and investment income received.
Note 4: Investment Valuations
The Plan's investments are held in a custodial account at Retirement
System Group, Inc. The following table presents the fair value of investments at
December 31, 1997 and 1996. Investments that represent five percent or more of
total plan assets are separately identified.
Fair Value Of Investments
1997 1996
---- ----
Mutual funds:
Core Equity Fund ......................... $1,186,615 $ 917,304
Emerging Growth Equity Fund .............. 954,814 819,049
Value Equity Fund ........................ 551,209 403,755
Short-Term Investment Fund ............... 353,293 455,680
Actively Managed Bond Fund ............... 327,026 319,266
Intermediate Term Bond Fund .............. 314,450 290,029
International Equity Fund ................ 34,979 19,354
Loans to participants ...................... 231,608 231,440
---------- ----------
Total ............................. $3,953,994 $3,455,877
========== ==========
(6)
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Notes To Financial Statements
Note 4: Investment Valuations (Continued)
A summary of the asset balances and changes in assets for the year
ended December 31, 1997 follows:
<TABLE>
<CAPTION>
Emerging Value Actively Intermediate Short-term
Core Equity Growth Equity Equity Fund Managed Bond Investment
Fund Fund Fund Bond Fund Term Fund Fund
---- ---- ---- --------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Net investment gain .. $ 243,991 $ 83,671 $ 133,069 $ 24,311 $ 21,406 $ 17,760
Interest on loans .... -- -- -- -- -- --
Employer contributions 20,800 21,871 11,852 4,094 6,166 2,218
Employee contributions 56,923 62,458 33,675 10,789 15,131 7,324
Rollovers contributed
form other plans ... 6,928 11,132 2,601 -- -- --
Benefits paid to
participants ....... (140,538) (119,975) (81,631) (43,601) (18,161) (67,483)
Miscellaneous ........ (1,532) (1,005) (538) (359) (105) (72)
Forfeitures .......... (3,571) (2,332) (1,651) (975) (147) (269)
Net loan activity .... (1,113) 6,829 (42) (2,268) 3,607 3,794
Interfund transfers,
net ................. 87,423 73,116 50,119 15,769 (3,476) (65,659)
Net assets available
for plan
benefits - beginning 917,304 819,049 403,755 319,266 290,029 455,680
----------- ----------- ----------- ----------- ----------- -----------
Net Assets Available
For Plan Benefits -
Ending .............. $ 1,186,615 $ 954,814 $ 551,209 $ 327,026 $ 314,450 $ 353,293
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Employer
International Loans To Contribution
Equity Fund Participants Cash Receivable Total
----------- ------------ ---- ---------- -----
<S> <C> <C> <C> <C> <C>
Net investment gain .. $ (283) $ -- $ -- $ -- $ 523,925
Interest on loans .... -- 15,133 -- -- 15,133
Employer contributions 2,937 -- -- 193,199 263,137
Employee contributions 8,134 -- -- -- 194,434
Rollovers contributed
form other plans ... 496 -- -- -- 21,157
Benefits paid to
participants ....... (2,638) (3,784) -- -- (477,811)
Miscellaneous ........ (72) -- -- -- (3,683)
Forfeitures .......... (550) -- 9,495 -- --
Net loan activity .... 276 (11,083) -- -- --
Interfund transfers,
net ................. 7,325 (98) -- (164,519) --
Net assets available
for plan
benefits - beginning 19,354 231,440 6,726 164,519 3,627,122
----------- ----------- -------- ----------- -----------
Net Assets Available
For Plan Benefits -
Ending .............. $ 34,979 $ 231,608 $ 16,221 $ 193,199 $ 4,163,414
=========== =========== ======== =========== ===========
</TABLE>
(7)
<PAGE>
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Notes To Financial Statements
Note 5: Loans To Participants
Participants may borrow an amount not in excess of $50,000 or 50% of
their vested account balance, whichever is less, with a minimum loan of $1,000.
Loans are subject to certain conditions and limitations and stipulated in the
Plan document and under Internal Revenue Service regulations. Loans are
generally repayable over a maximum of five years through regular payroll
deductions. Loans related to the financing of a primary residence may be repaid
over a maximum period of fifteen years. The interest rate is the prime rate
published in the Wall Street Journal on the day in which the loan is requested,
rounded to the nearest quarter percent.
Note 6: Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
Note 7: Tax Status
The Plan obtained its latest determination letter in February, 1995, in
which the Internal Revenue Service stated that the Plan, as then designed, was
in compliance with the applicable requirements of the Internal Revenue Code. The
Plan has been amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Internal Revenue
Code. Therefore, no provision for income taxes has been included in the Plan's
financial statements.
Note 8: Form 5500
The accompanying financial statements differ from the financial
information included in Form 5500 for the years ended December 31, 1997 and 1996
due to differences in timing and classification of certain revenue and expense
items.
(8)
<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
Schedule I
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Item 27(a) - Schedule Of Assets Held For Investment Purposes
December 31, 1997
The Plan's investment in accounts of the Retirement System Group, Inc.
and participant loans as of December 31, 1997 are as follows:
Units Fair Value
----- ----------
Registered investment company:
Core Equity Fund ............................ 15,679.37 $1,186,615
Emerging Growth Equity Fund ................. 13,047.46 954,814
Short-Term Investment Fund .................. 9,544.74 551,209
Value Equity Fund ........................... 16,439.90 353,293
Intermediate Term Bond Fund ................. 9,386.49 327,026
Actively Managed Bond Fund .................. 9,789.84 314,450
International Equity Fund ................... 756.14 34,979
----------
Total investment in registered
investment company .................. 3,722,386
Participants' loans - interest
rate - 6.00% - 9.00% ....................... 231,608
----------
Total Investments .................... $3,953,994
==========
<PAGE>
Schedule II
COHOES SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Item 27(d) - Schedule Of Reportable Transactions
December 31, 1997
<TABLE>
<CAPTION>
Current Value
Purchase Selling Cost Of Of Asset On Net Gain
Price Price Assets Transaction Date Or Loss
----- ----- ------ ---------------- -------
<S> <C> <C> <C> <C> <C>
Core Equity Fund ..... $ -- $283,736 $187,835 $283,736 $ 95,901
Core Equity Fund ..... 309,059 -- -- 309,057 --
Emerging Growth Equity
Fund ............... -- 221,518 142,505 221,518 79,013
Emerging Growth Equity
Fund ............... 273,812 -- -- 273,812 --
Value Equity Fund .... -- 136,144 88,483 136,144 47,661
Value Equity Fund .... 150,529 -- -- 150,529 --
Actively Managed Bond
Fund ............... -- 212,853 191,658 212,853 21,195
Actively Managed Bond
Fund ............... 196,302 -- -- 196,302 --
</TABLE>
Note: Reportable transactions for the purposes of this schedule are:
(a) Transactions within the Plan year involving securities of the same
issue if within the plan year any series of transactions with respect to such
securities, when aggregated, involved an amount in excess of 5% of the fair
value of plan assets at the beginning of the Plan year, and
(b) Transactions within the Plan year with respect to securities with
or in conjunction with a person if any prior or subsequent single transactions
within the Plan year with such person with respect to securities exceed 5% of
the fair value of plan assets at the beginning of the Plan year.
<PAGE>
THE COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
PARTICIPANT ELECTION TO INVEST IN HOLDING COMPANY STOCK
<TABLE>
<CAPTION>
<S> <C> <C>
1. PARTICIPANT DATA
___________________________________________________________________________________________________________________
Print your full name above (Last, first, middle initial) Social Security Number
___________________________________________________________________________________________________________________
Street Address City State Zip
$__________________________________________________________ _____________ ____________
Balance of Participant's Plan Accounts at December 31, 1997 Date of Birth Date of Hire
</TABLE>
2. INVESTMENT DIRECTION
The Plan is giving participants a special opportunity to invest their
account balances in common stock ("Holding Company Stock") issued by Cohoes
Bancorp, Inc. (the "Holding Company") in connection with the conversion of
Cohoes Savings Bank ("the Bank") from the mutual to the stock form. This
election may be made during the Subscription and Community Offering, with
respect to the balance in your accounts under the Plan (hereinafter referred to
as your "Accounts") as of December 31, 1997. Please review the Subscription and
Community Prospectus dated _____________ __, 1998 (the "Prospectus") and the
Prospectus Supplement (the "Supplement") dated ____________ ___, 1998 before
making any decision.
Investing in Holding Company Stock entails some risks, and we encourage
you to discuss this investment decision with your spouse and your investment
advisor. The Bank, the Plan's Trustee, and the Plan Administrator are not
authorized to make any representations about this investment other than what
appears in the Prospectus and Supplement, and you should not rely on any
information other than what is contained in the Prospectus and Supplement.
Any shares purchased by the Plan pursuant to your election will be
subject to the conditions or restrictions otherwise applicable to Holding
Company Stock, as discussed in the Prospectus and Supplement. In addition, once
you have elected to have your Accounts invested in Holding Company Stock, you
may have limited opportunities to change this investment decision. Any part of
your Accounts invested in Holding Company Stock may be changed to an alternative
authorized investment under the Plan only during an "Investment Change Period."
An "Investment Change Period" opens at the beginning of the third
business day after the Holding Company issues a "Quarterly Earnings Release" and
closes at the end of the twelfth business day after such release. The term
"Quarterly Earnings Release" means any press release issued by the Holding
Company for general distribution which announces, for the first time, the
Holding Company's results of operations for a particular fiscal quarter. The
Bank anticipates these opportunities will occur four times per year. The Bank
will attempt to notify Participants of the commencement of each Investment
Change Period but will not assume responsibility for doing so.
S-13
<PAGE>
[ ] I hereby direct the Trustee to obtain the funds necessary to purchase
____ whole shares of Holding Company Stock at a price of $10.00 per
share and a total investment in Holding Company Stock of $________ by
using funds in my current Accounts from among the following Investment
Options in the following percentages (in not less than 10% increments):
[ ] Core Equity Fund ________%
[ ] Emerging Growth Equity Fund ________%
[ ] Value Equity Fund ________%
[ ] Actively Managed Bond Fund ________%
[ ] Intermediate-Term Bond Fund ________%
[ ] Short-Term Investment Fund ________%
[ ] International Equity Fund ________%
[ ] I choose not to invest any of my Accounts in Holding Company Stock.
3. PARTICIPANT SIGNATURE AND ACKNOWLEDGMENT - REQUIRED
By signing this PARTICIPANT INVESTMENT ELECTION, I authorize and direct the Plan
Administrator and Trustee to carry out my instructions. I acknowledge that I
have been provided with and read a copy of the Prospectus and Supplement
relating to the issuance of Holding Company Stock, and I have read the
explanation provided in Part 2 of this form. I am aware of the risks involved in
the investment in Holding Company Stock, and understand that the Trustees and
Plan Administrator are not responsible for my choice of investment. In addition
I understand if my order for Holding Company Stock is unable to be fulfilled
either partially or in full, any remaining funds will be allocated to my
existing investment option.
________________________________________________________________________________
Participant's Signature Date Signed
Signed before me this ________ day of _________, 1998 _________________________
Notary Public
My Commission Expires _____________________________
PLEASE COMPLETE AND RETURN BY ______________ __, 1998
IF YOU HAVE ANY QUESTIONS, PLEASE CALL THE STOCK CENTER AT (518)_________.
S-14
<PAGE>
PROSPECTUS
[Logo]
COHOES BANCORP, INC.
(Proposed Holding Company for Cohoes Savings Bank)
Minimum of 5,950,000 and Maximum of 8,050,000 Shares of Common Stock
Cohoes Savings Bank is converting from the mutual to the stock form of
organization. As part of the conversion, Cohoes Savings Bank will become a
wholly owned subsidiary of Cohoes Bancorp, Inc. Cohoes Bancorp, Inc. was formed
in September, 1998 and upon consummation of the conversion will own all of the
shares of Cohoes Savings Bank. The common stock of Cohoes Bancorp, Inc. is being
offered for sale to the public in accordance with a plan of conversion which
must be approved by the Superintendent of Banks of the State of New York, the
Federal Deposit Insurance Corporation and by a majority of the votes eligible to
be cast by voting depositors of Cohoes Savings Bank.
Terms of the Offering
An independent appraiser has estimated the pro forma market value of Cohoes
Savings Bank, on a converted basis, to be between $59,500,000 and $80,500,000.
Based on this estimate, Cohoes Bancorp, Inc. will offer between 5,950,000 shares
and 8,050,000 shares to depositors, trustees and officers of Cohoes Savings
Bank, the Employee Stock Ownership Plan and the public. In addition, Cohoes
Bancorp, Inc. intends to issue a number of shares equal to 3% of the shares sold
in the conversion to a charitable foundation. Cohoes Bancorp, Inc. may increase
the number of shares offered up to 9,257,500 shares, subject to regulatory
approval. Based on these estimates, we are making the following offering of
shares of common stock:
<TABLE>
<CAPTION>
Adjusted
Minimum Midpoint Maximum Maximum
------- -------- ------- -------
<S> <C> <C> <C> <C>
Per Share Price............................. $10.00 $10.00 $10.00 $10.00
Number of Shares............................ 5,950,000 7,000,000 8,050,000 9,257,500
Underwriting Commission and Other Expenses.. $ 1,595,000 $ 1,711,000 $ 1,826,000 $ 1,959,000
Net Proceeds to Cohoes Bancorp, Inc......... $57,905,000 $68,289,000 $76,674,000 $90,616,000
Net Proceeds Per Share...................... $9.73 $9.76 $9.77 $9.79
</TABLE>
Please refer to Risk Factors beginning on page ___ of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
Neither the Securities and Exchange Commission, the Superintendent of Banks of
the State of New York, the New York State Banking Department, the Federal
Deposit Insurance Corporation, nor any state securities regulator has approved
or disapproved these securities or determined if this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
For information on how to subscribe for common stock, call the Stock Information
Center at (518) 235-4000.
KEEFE, BRUYETTE & WOODS, INC.
--------------------
The date of this Prospectus is ___________________, 1998
<PAGE>
[INSERT MAP]
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements. References
in this document to "Cohoes Savings", the "Bank", "we", "us", and "our" refer to
Cohoes Savings Bank either in its present form or as a stock savings bank
following the Conversion. In certain circumstances where appropriate, "we,"
"us," or "our" refer collectively to Cohoes Savings Bank and Cohoes Bancorp,
Inc. References in this document to the "Holding Company" refer to Cohoes
Bancorp, Inc. All information contained in this Prospectus with respect to the
Holding Company, the Bank and its subsidiaries has been supplied by the Holding
Company and the Bank.
The Holding Company:
Cohoes Bancorp, Inc.
75 Remsen Street
Cohoes, New York 12047-2892
Cohoes Bancorp, Inc. is not an operating company and has not engaged in
any significant business to date. It was formed in September 1998 as a
Delaware-chartered corporation to be the holding company for the Bank. The
holding company structure will provide greater flexibility in terms of
operations, expansion and diversification. See page "Cohoes Bancorp, Inc." on
page____.
The Bank:
Cohoes Savings Bank
75 Remsen Street
Cohoes, New York 12047-2892
Cohoes Savings Bank was established in Cohoes, New York in 1851. We are
a community and customer oriented New York chartered mutual savings bank serving
primarily the Cohoes, New York and surrounding area through 16 full service
banking offices located throughout Albany, Saratoga, Schenectady and Rensselaer
Counties, and a portion of Warren County in New York. We provide financial
services to individuals, families and small businesses. Historically, we have
emphasized residential mortgage lending, primarily originating one- to
four-family mortgage loans. Our deposits are insured up to the applicable limits
by the Federal Deposit Insurance Corporation. At June 30, 1998, we had total
assets of $535.7 million, deposits of $449.5 million, and total equity of $53.3
million. See "Cohoes Savings Bank" on pages ____ to _____.
Financial and operational highlights of the Bank include the following:
o Focus on Residential lending. A cornerstone of our lending program has
long been one- to four-family residential lending. We believe that, in
comparison to many other types of assets, one- to four-family
residential loans carry acceptable yields and credit risk. In addition,
such loans create strong ties to consumers which can be utilized to
market other financial products. At June 30, 1998, we had $258.4 million
(or 62.1% of total loans) of one- to four-family residential loans and
$22.0 million of home equity lines of credit. See "Business of Cohoes
Savings Bank - Lending Activities." In recent years, in order to
increase the yield on interest-earning assets and to increase the amount
of our interest rate sensitive assets, we have increased originations of
multi-family and commercial real estate loans which have adjustable
rates and/or shorter terms to maturity than one- to four-family
residential real estate loans. See "Risk Factors - Risks Associated with
Multi-Family and Commercial Real Estate Loans."
o Interest Rate Sensitivity. We, like virtually all financial
institutions, are vulnerable to changes in interest rates. In managing
our asset/liability mix, we may, at times, place more emphasis on
enhancing our short-term net interest margin than on limiting interest
rate risk. At June 30, 1998, based upon certain assumptions utilized by
us in assessing interest rate risk, the value of our net portfolio
equity would have declined by 7.7% and 14.8% if there would have been
instantaneous increases in interest rates of 100 and 200 basis points,
respectively. See "Risk Factors - Interest Rate Risk Exposure" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations of Cohoes Savings Bank - Asset/Liability Management."
<PAGE>
o Asset Quality. Our ratio of non-performing assets to total assets was
1.15% and our ratio of non-performing loans to total loans was 1.36% at
June 30, 1998. Reflecting our focus on residential lending, our ratio of
net charge-offs to average total loans was .24%, .37%, .10%, .06% and
.01% for fiscal years 1998, 1997, 1996, 1995, and 1994, respectively. At
June 30, 1998, our ratio of allowance for loan losses to total loans was
.85% and our ratio of allowance for loan losses to total non-performing
loans was 62.54%. See "Business Delinquencies and Non-Performing
Assets."
o Commitment to Growth. We believe that in order to remain an independent
community-based financial institution in the rapidly changing financial
services industry, we must be competitive. In order to remain
competitive, we are committed to growing the Bank through acquisitions
although none are currently contemplated and through other facets of our
business, including insurance services, which can increase noninterest
income for us. See "Business of Cohoes Savings Bank - Subsidiary and
Other Activities." During fiscal 1998, we experienced a 4.7% increase in
deposit accounts. In addition, we experienced a $14.5 million increase
in loans receivable. See "Business of Cohoes Savings Bank - Lending."
The Stock Offering
We are offering between 5,950,000 and 8,050,000 shares of common stock
at $10.00 per share in the Conversion. We may increase the offering to 9,257,500
shares without further notice to you. Any increase over 9,257,500 shares would
require the approval of the Superintendent and the FDIC. You may not change or
cancel any stock order previously delivered to us as a result of an increase in
the offering within these limits.
Stock Purchase Priorities. The shares of Holding Company Common Stock
will be offered on the basis of priorities. Our depositors and the ESOP
established by us will receive subscription rights to purchase shares of common
stock. Any remaining shares not subscribed for may be offered in a direct
community offering or a public offering. See "The Conversion - Offering of
Holding Company Common Stock" on pages _____ to ____.
Prohibition on Transfer of Subscription Rights. You may not sell or
assign your subscription rights. Any transfer of subscription rights is
prohibited by law and may result in the forfeiture of your subscription rights.
Stock Pricing and Number of Shares to be Issued. We set the purchase
price per share of the common stock at $10.00. This is the price most commonly
used in recent years in stock offerings involving Conversions of mutual savings
institutions. The number or range of shares of common stock to be issued in the
offering is based on an independent appraisal of the pro forma market value of
the common stock by RP Financial, an appraisal firm experienced in appraisals of
savings institutions. RP Financial has estimated that as of September 4, 1998,
and as updated as of October 23, 1998, the estimated valuation range of Holding
Company Common Stock was between $59,500,000 and $80,500,000 (with a midpoint of
$70,000,000). The Estimated Valuation Range represents our estimated market
value after giving effect to the sale of the common stock in this offering and
the issuance of a number of shares equal to 3% of the shares issued in the
Conversion to the Foundation. Based on this valuation and the $10.00 per share
price, the number of shares of common stock that we will issue in the offering
will range from between 5,950,000 shares and 8,050,000 shares. The establishment
of, and contribution to, the Cohoes Savings Foundation had the effect of
reducing our market valuation. See "Risk Factors - the Expense and Dilutive
Effect of the Stock Contribution to the Charitable Foundation" on pages ___ and
___ and "Comparison of Valuation and Pro Forma Information With No Foundation"
on pages ___ to ___.
The appraisal was based both upon our financial condition and results
of operations and upon the effect of the additional capital we will raise in
this Offering. The independent appraisal will be updated before we complete the
Conversion. Changes in market and financial conditions and demand for the common
stock may cause the estimated valuation range to increase by up to 15%, to up to
$92,575,000. If this occurs, the maximum number of shares that can be sold in
this offering can increase to up to 9,257,500 shares (plus the 277,725 shares to
be issued to the Cohoes Savings Foundation). If the Estimated Valuation Range is
either below $59,500,000 or above $92,575,000, then you
2
<PAGE>
will be notified and will have the opportunity to modify or cancel your order.
See "The Conversion Stock Pricing and Number of Shares to be Issued" on pages
____ to ____.
The independent valuation prepared by RP Financial is not a
recommendation as to the advisability of purchasing the Holding Company Common
Stock. Accordingly, you should not buy the Holding Company Common Stock based
solely on the independent valuation.
Termination of the Offering. The subscription offering will terminate
at ___:____ __.m., Cohoes, New York time, on ________________, 1998. Any direct
community offering or public offering may terminate at any time without notice,
but no later than ________________, 1998, without approval by the Superintendent
of Banks of the New York State Banking Department and the FDIC. If the offering
is not completed by _____________________, 1998, all subscribers will be
notified and will be given the opportunity to cancel or modify their order.
Benefits to Management and Employees from the Offering. Our employees
will participate in the offering through individual purchases and through
purchases of stock through our employee stock ownership plan, which is a type of
retirement plan. We also intend to implement a RRP and a Stock Option and
Incentive Plan, which may benefit the officers, employees and directors. If we
adopt the RRP, such individuals will be awarded stock at no cost to them. The
RRP and Stock Option and Incentive Plan may not be adopted until at least six
months after the Conversion and are subject to stockholder approval. We also
intend to enter into employment agreements with certain executive officers
following completion of the offering. See "Management of the Bank - Benefit
Plans" on pages ___ to ___.
The Charitable Foundation. To further our commitment to the local
community, we intend to establish the Foundation as part of the Conversion. We
will make a contribution to the Foundation, in the form of common stock, in a
total amount equal to a number of shares equal to 3% of the shares issued in the
Conversion. The Foundation will be dedicated exclusively to supporting
charitable causes and community development in the Bank's primary market area.
Due to the issuance of shares of common stock to the Foundation, persons
purchasing shares in the offering will have their ownership and voting interest
in the Holding Company diluted by 2.9%. We will incur an expense equal to the
full amount of the contribution to the Cohoes Savings Foundation, offset in part
by a tax benefit, during the quarter in which the contribution is made. Such
expense will reduce our earnings. See "Risk Factors - The Expense and Dilutive
Effect of the Stock Contribution to the Charitable Foundation" on pages ___ and
___, "Pro Forma Data" on pages ___ to ___ and "The Conversion - Stock
Contribution to the Charitable Foundation" on pages ___ to ___.
Use of the Proceeds Raised from the Sale of Holding Company Common
Stock in the Offering. We will use the net proceeds received from the offering
as follows. The percentages used are estimates.
o 50% will be used to buy all of the capital stock of the Bank.
o 8% will be loaned to the employee stock ownership plan to fund its
purchase of common stock.
o 42% will be retained and initially be placed in short-term investments,
which may later be used as a possible source of funds for stock
repurchases, the payment of dividends to stockholders, and for other
general corporate purposes.
The proceeds received by the Bank will increase our capital and will be
available for expansion of our retail banking franchise through future lending
and investment, in addition to general corporate purposes. See "Use of Proceeds"
on pages ____ and ____.
3
<PAGE>
The Holding Company and the Bank Following the Conversion
Assuming the Conversion had been consummated as of June 30, 1998, we
would have had, on a pro forma basis at the maximum of the estimated valuation
range, total consolidated assets of $605.4 million, total consolidated
liabilities of $482.4 million, including $449.5 million of deposits, and total
consolidated stockholders' equity of $123.0 million. See "Pro Forma Unaudited
Financial Information." In addition, at June 30, 1998, the Bank would have had,
on a pro forma basis at the maximum of the estimated valuation range, leverage
capital of $82.7 million or 14.7% of adjusted total assets and risk-based
capital of $86.2 million or 25.4% of total risk-weighted assets, respectively.
See "Regulatory Capital."
Upon completion of the Conversion, we will be a well capitalized,
independent community-oriented financial institution with 17 full service branch
offices. Our business strategy will be to operate as a community oriented
financial institution dedicated to meeting the borrowing and savings needs of
our customers while providing superior service. We will seek to implement this
strategy by (i) increasing our origination of loans in our market area and
emphasizing retail banking, including the origination of single-family
residential mortgage loans and consumer loans; (ii) continuing to expand our
insurance and investments activities, which provide alternative sources of
income to our traditional banking activities; (iii) maintaining asset quality;
(iv) maintaining a high level of capital; and (v) continuing our pattern of
controlled growth.
4
<PAGE>
As a New York chartered savings bank, we will continue to be subject to
comprehensive regulation and examination by the Department, as our chartering
authority and primary regulator, and by the FDIC, which administers the Bank
Insurance Fund, which will insure our deposits to the maximum extent permitted
by law. We will be a member of the FHLB of New York, which is one of the 12
regional banks which comprise the FHLB System. We will be further subject to
regulations of the FRB governing reserves required to be maintained against
deposits and certain other matters. The Holding Company will be a registered
savings and loan holding company and will be subject to examination and
regulation by both the OTS and the Department and subject to various reporting
and other requirements of the SEC. Our principal executive offices following
consummation of the Conversion will be located at 75 Remsen Street, Cohoes, New
York, 12047, and our telephone number will be (518) 233-6500.
Dividends
Cohoes Bancorp, Inc. intends to pay dividends in the future. However,
the amount and timing of such payments has yet to be determined. The
determination to pay a dividend is dependent upon a number of factors, including
(i) the amount of the net proceeds retained by the Holding Company in the
Conversion, (ii) investment opportunities available, (iii) capital requirements,
(iv) regulatory limitations, (v) results of operations and financial condition,
(vi) tax considerations, and (vii) general economic conditions. See "Dividends"
on pages ___ and ___.
Market for the Common Stock
We anticipate the Holding Company Common Stock to be traded on The
Nasdaq National Market System under the symbol "COHB". It is possible that an
active and liquid trading market, however, may not develop or be maintained.
Investors should have a long-term investment intent. Persons purchasing shares
may not be able to sell their shares when they desire or sell them at a price
equal to or above $10.00. KBW has informed us that it has agreed to make a
market in the common stock. KBW will, however, not be subject to any obligation
with respect to such efforts. See "Market for the Common Stock" on page ____.
5
<PAGE>
Prospectus Delivery and Procedures for Common Stock
To ensure that each person or entity is properly identified as to such
party's stock purchase priorities, such party must list all deposit accounts on
the order form accompanying this prospectus, giving all names on each account
and the account numbers at the applicable date. The failure to provide accurate
and complete account information on the order form may result in a reduction or
elimination of your order.
Only orders submitted on original order forms will be accepted for
processing. Photocopies or facsimile copies of order forms or the form of
certification will not be accepted. Payment by cash, check, money order, bank
draft or withdrawal from an existing account at the Bank must accompany your
order form. No wire transfers will be accepted. See "The Conversion and the
Merger - Method of Payment for Subscriptions" on pages ___ to ___.
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the respective expiration dates for the Offering, in accordance with
Rule 15c2-8 of the Exchange Act, as amended, no Prospectus will be mailed later
than five days prior to such date or hand delivered any later than two days
prior to such date. Execution of the stock order form will confirm receipt or
delivery in accordance with Rule 15c2-8. Stock order forms will only be
distributed with a Prospectus and a certification form requiring each
prospective investor to acknowledge, among other things, that the shares of
Holding Company 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 Holding Company Common Stock.
Important Risks in Owning the Holding Company's Common Stock
Before you decide to purchase stock in the offering, you should read
the "Risk Factors" section on pages ____ to ____ of this document, in addition
to the other sections of this Prospectus. The Holding Company Common Stock is
subject to investment risk, including the possible loss of the principal of your
investment.
6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF COHOES SAVINGS BANK
The summary information presented below under "Selected Consolidated
Financial Data" and "Selected Operating Data" for, and as of the end of, each of
the years ended June 30 is derived from the Bank's audited financial statements.
The following information is only a summary and you should read it along with
our financial statements and notes beginning on page F-1.
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In Thousands)
Selected Consolidated Financial Data:
<S> <C> <C> <C> <C> <C>
Total assets................................. $ 535,716 $ 491,700 $ 463,363 $ 459,336 $ 403,334
Cash and cash equivalents.................... 14,229 16,664 8,900 15,179 15,235
Loans, net ................................. 412,759 398,530 393,970 379,088 313,419
Investment securities........................ 45,424 25,273 25,969 40,052 48,825
Securities available-for-sale................ 48,720 35,475 20,886 10,433 13,776
Deposits..................................... 449,541 429,390 404,539 398,963 346,459
FHLB borrowings.............................. 19,897 -- 2,116 6,117 105
Total equity................................. 53,282 49,092 44,290 40,130 36,276
Real estate owned............................ 509 1,874 421 396 437
Nonperforming loans.......................... 5,649 6,688 7,793 5,063 4,892
</TABLE>
<TABLE>
<CAPTION>
For the Fiscal Year Ended June 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
Selected Operating Data:
<S> <C> <C> <C> <C> <C>
Total interest income........................ $ 38,423 $ 36,285 $ 35,383 $ 32,100 $ 27,560
Interest expense............................. 19,262 17,821 18,164 15,405 12,388
------ ------ ------ ------ ------
Net interest income..................... 19,161 18,464 17,219 16,695 15,172
Provision for loan losses.................... 1,400 1,325 490 330 750
----- ----- ------ ------ ------
Net interest income after provision
for loan losses........................ 7,761 17,139 16,729 16,365 14,422
Noninterest income
Net gain (loss) on sale of mortgage
loans.................................. 81 106 (20) (102) 226
Other................................... 2,662 2,684 2,487 2,293 2,050
Noninterest expense.......................... 13,767 12,314 11,919 12,152 11,114
--------- --------- --------- --------- ---------
Income before income taxes................... 6,737 7,615 7,277 6,404 5,584
Income taxes................................. 2,650 2,972 2,882 2,565 2,194
---------- ---------- ---------- ---------- ----------
Net income.............................. $ 4,087 $ 4,643 $ 4,395 $ 3,839 $ 3,390
========= ========= ========= ========= =========
Selected Operating Ratios and Other Data:
Performance Ratios:
Average yield on interest-earning assets..... 7.96% 8.04% 7.98% 7.76% 7.38%
Average rate paid on interest-bearing
liabilities................................ 4.33 4.27 4.42 3.99 3.57
Average interest rate spread................. 3.63 3.77 3.56 3.77 3.81
Net interest margin (1)...................... 3.97 4.09 3.89 4.04 4.06
Net interest income after provision for
loan losses to noninterest expense.......... 129.01 139.18 140.36 134.67 129.76
Noninterest expense as a percent of average
assets..................................... 2.75 2.62 2.59 2.82 2.86
Return on average assets (2)................. 0.82 0.99 0.95 0.89 0.87
Return on average equity (3)................. 7.88 9.87 10.28 9.95 9.85
Ratio of average equity to average assets.... 10.35 10.03 9.28 8.95 8.85
Efficiency ratio (4)......................... 62.85 57.94 60.55 64.34 63.70
Asset Quality Ratios:
Nonperforming loans as a percent of total
loans...................................... 1.36 1.66 1.96 1.32 1.54
Nonperforming assets as a percent of total
assets..................................... 1.15 1.74 1.77 1.19 1.32
Allowance for loan losses as a percent of
total loans................................ 0.85 0.77 0.82 0.82 0.95
Allowance for loan losses as a percent of
nonperforming loans..................... 62.54 46.43 41.69 61.88 61.55
Net loans charged-off to average loans....... 0.24 0.37 0.10 0.06 0.01
Branch Locations:
Traditional.................................. 7 7 6 5 4
Supermarket.................................. 9(6) 8 4 4 3
Public accommodation (5)..................... 1 1 1 1 1
</TABLE>
(Footnotes on following page)
<PAGE>
- ------------
(1) Net interest income as a percentage of average interest-earning assets.
(2) Ratio of net earnings to average total assets.
(3) Ratio of net earnings to average total equity.
(4) The Efficiency Ratio is computed by dividing noninterest expense by the sum
of net interest income and noninterest income.
(5) The public accommodation office is expected to become a full service branch
office on October 1, 1998.
(6) The Queensbury branch location opened for business in July, 1998.
7
<PAGE>
RISK FACTORS
In addition to other information in this document, you should consider
carefully the following risk factors in evaluating an investment in our common
stock.
Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
As a result of the Conversion, our equity will increase substantially.
Expenses are expected to increase due to the costs associated with our employee
stock ownership plan, our restricted stock plan, and being a public company.
Because of the increases in our equity and expenses, our return on equity may
decrease as compared to our performance in previous years. A lower return on
equity could limit the trading price potential of the Holding Company Common
Stock. See "Use of Proceeds" and "Pro Forma Data."
In addition, we intend to initially invest the additional capital being
raised through the offering into shorter-term, lower-yielding assets (i.e.,
federal funds sold) and gradually reinvest the additional capital into
longer-term, higher- yielding loans and mortgage-backed securities as
opportunities arise. Until the additional capital can be effectively reinvested,
our return on equity is expected to decrease from the Bank's historic levels.
Dilutive Effect of Issuance of Additional Shares
If a RRP is approved by stockholders of the Holding Company, the RRP
intends to acquire an amount of Holding Company Common Stock equal to 4% of the
Shares sold in the Conversion and including shares issued to the Foundation. If
such shares are acquired at a per share price equal to the purchase price, the
cost of such shares would be $3.3 million, assuming the number of Conversion
Shares sold are equal to the maximum of the Estimated Offering Range. Such
shares of Holding Company Common Stock may be acquired in the open market with
funds provided by the Holding Company, if permissible, or from authorized but
unissued shares of Holding Company Common Stock. In the event that the RRP
acquires authorized but unissued shares of Holding Company Common Stock from the
Holding Company, the interests of existing stockholders will be diluted.
Assuming the issuance of 8,050,000 Shares in the Offering and the contribution
of 241,500 shares of Holding Company Common Stock to the Foundation, the
issuance of authorized but unissued shares of Holding Company Common Stock to
such plan in an amount equal to 4% of the Conversion Shares sold in the
Conversion would dilute the voting interests of existing stockholders by
approximately 2.8%, and net income per share and stockholders' equity per share
would be decreased by a corresponding amount. See "Pro Forma Unaudited Financial
Information - Additional Pro Forma Data" and "Management - Benefits -
Recognition and Retention Plan."
8
<PAGE>
If a Stock Option and Incentive Plan is approved by stockholders of the
Holding Company, the Holding Company intends to reserve for future issuance
pursuant to such plan a number of shares of Holding Company Common Stock equal
to an aggregate of 10% of the Conversion Shares and the contribution of shares
to the Foundation (829,150 shares, based on the issuance of the maximum
8,050,000 shares and the contribution of 241,500 shares to the Foundation). Such
shares may be authorized but previously unissued shares, treasury shares or
shares purchased by the Holding Company in the open market or from private
sources. Assuming the issuance of 8,050,000 Conversion Shares and the
contribution of 241,500 shares of Holding Company Common Stock to the
Foundation, if only authorized but previously unissued shares are used under
such plan, the issuance of the total number of shares available under such plan
would dilute the voting interests of existing stockholders by approximately
6.7%, and net income per share and stockholders' equity per share would be
decreased by a corresponding amount. See "Pro Forma Unaudited Financial
Information - Additional Pro Forma Data" and "Management - Benefits."
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 other 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) or an inverted yield curve (i.e., where short term interest rates are
higher than long term interest rates), could adversely impact net interest
income. As a result of a decline in the yield earned on average interest-earning
assets that exceeded a decline in the rate paid on its average liabilities, the
Bank's average interest rate spread decreased from 3.77% for 1997 to 3.63% for
1998. No assurance can be given that the Bank's average interest rate spread
will not decrease further in future periods. Any such decrease in the Bank's
average interest rate spread could adversely affect the Bank's net interest
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Cohoes Savings Bank - Asset/Liability Management."
If an institution's interest-earning assets have longer effective
maturities than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, the institutions' net interest
income generally would be adversely affected by material and prolonged increases
in interest rates and positively affected by comparable declines in interest
rates. The Bank attempts to reduce the vulnerability of its operations to
changes in interest rates by maintaining significant amounts of liquid assets
and assets with relatively short estimated lives. Changes in interest rates also
can affect the average life of loans and mortgage-related and other securities.
Decreases in interest rates in recent periods have resulted in increased
prepayments of loans and mortgage backed securities, as borrowers refinanced to
reduce borrowing costs. Under these circumstances, the bank is subject to
reinvestment risk to the extent that it is not able to reinvest such prepayments
at rates which are comparable to the rates on the maturing loans or securities.
See "Business of Cohoes Savings Bank Lending Activities."
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Risks Related to Multi-Family and Commercial Real Estate Loans; Geographic
Concentration of Loans
The Bank originates multi-family and commercial real estate loans,
which amounted to $93.2 million (or 22.4% of the Bank's loan portfolio) as of
June 30, 1998. Multi-family and commercial real estate lending generally is
considered to involve a higher degree of risk than single-family residential
lending due to a variety of factors, including generally larger loan balances,
the dependency on successful operation of the project for repayment, loan terms
which often do not require full amortization of the loan over its term and
successfully developing and/or selling the property. See "Business of Cohoes
Savings Bank - Lending Activities." As of June 30, 1998, the Bank had $823,000
of non-performing multi-family and commercial real estate loans (excluding
restructured loans which are performing under the restructured terms).
In addition, the Bank had $25.9 million of commercial real estate loans
secured by property located in New York City as of June 30, 1998. At that date,
the entire commercial real estate loan portfolio located in New York City was
performing in accordance with its respective terms. However, no assurance can be
made that the New York City economy will continue at current levels or that such
loans will continue to perform in accordance with their terms in the future.
Competition
The Bank 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 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 the Bank's
growth in the future. See "Business of the Bank - Competition."
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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 Holding
Company 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 Holding
Company 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 Holding Company 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 Holding Company Common Stock. See "Restrictions on Acquisition
of the Holding Company and the Bank."
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."
Voting Control of Directors and Executive Officers. The trustees and
executive officers (13 persons) of the Bank propose to purchase an aggregate of
approximately 310,000 shares, representing approximately 5.2% of the shares
offered in the Conversion at the minimum of the Estimated Valuation Range, and
4.0% 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 and Incentive Plan and the ESOP,
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which may give directors, executive officers and employees the potential to
control the voting of additional Holding Company Common Stock and including
shares issued to the Foundation. A number of shares equal to 4% of the shares of
Holding Company Common Stock issued in the Conversion, including shares issued
to the Foundation, will be available for issuance under the RRP (331,660 shares
at the maximum of the Estimated Valuation Range), and a number of shares equal
to 10% of the shares issued in the Conversion, including shares issued to the
Foundation, will be available for issuance under the Stock Option and Incentive
Plan (829,150 shares at the maximum of the Estimated Valuation Range). It is
intended that the ESOP will purchase 8% of the shares issued in the Conversion,
including shares issued to the Foundation (663,320 shares at the maximum of the
Estimated Valuation Range). In connection with the Conversion, the Foundation
will receive 241,500 shares of Holding Company Common Stock at the maximum of
the Estimated Valuation Range which, if a waiver of the voting restriction
imposed on such Holding Company 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 and two outside directors. Thus, after the Conversion, the
aggregate number of shares which may be controlled by directors and executive
officers of the Holding Company, including those to be issued to the Foundation
and those that may be issued under the Stock Option and Incentive Plan and the
RRP totaled 1,712,310 at the maximum of the Estimated Valuation Range, or 18.8%
of the total number of shares at the maximum of the Estimated Valuation Range,
including shares issued to the Foundation, on a fully diluted basis (including
shares available for issuance under the Stock Option and Incentive Plan and
RRP). Management's voting control could, together with additional stockholder
support, defeat 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 Compensation and Other 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" and "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" and "-- RRP." 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."
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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 Holding Company will experience additional expense in
the quarter in which the Conversion is completed as a result of the shares that
are contributed by the Holding Company to the charitable foundation. See "The
Conversion -- Establishment of The Cohoes Savings Foundation."
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 Holding
Company Common Stock at this time. The Holding Company has received approval to
have its common stock listed on The Nasdaq National Market System (the "Nasdaq
NMS") under the symbol "COHB" conditioned on the consummation of the Conversion.
The Nasdaq NMS requires a minimum of three market makers in order to be eligible
for inclusion on the Nasdaq NMS. Keefe Bruyette and Woods has indicated its
intention to make a market in the Holding Company's Common Stock following
completion of the Conversion. The Company believes it will have additional
market makers and will meet the eligibility requirements for inclusion on the
Nasdaq NMS. 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 Holding Company Common Stock
will develop or that, if developed, will continue, nor is there any assurance
that purchasers of the Holding Company Common Stock will be able to sell their
shares at or above the purchase price for Holding Company Common Stock. In the
event a liquid market for the Holding Company Common Stock does not develop or
market makers for the Holding Company Common Stock discontinue their activities,
such occurrences may have an adverse impact on the liquidity of the Holding
Company Common Stock and the market value of the Holding Company Common Stock.
See "Market for Common Stock."
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Year 2000 Compliance
The Bank has been following, and will continue to follow, the
guidelines provided by the Federal Financial Institutions Examinations Council
("FFIEC"). The Bank has formulated a Year 2000 Plan in which it has conducted a
comprehensive review of its computer systems to identify applications that could
be affected by the "Year 2000" issue, and has developed and tested 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 is in the process of developing contingency plans should its
primary service providers and other vendors be unable to comply. Management
anticipates the costs to become Year 2000 compliant to be approximately
$100,000; however, there can be no assurance that the vendors' systems will be
Year 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.
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 the Stock Contribution. The Stock
Contribution 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 in the period the Foundation is established.
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As a condition to receiving the non-objection of the FDIC to the
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 Holding Company Common Stock held by the Foundation will be voted in
the same ratio as all other shares of the Holding Company Common Stock on all
proposals considered by stockholders 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 laws 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 FDIC and the Superintendent that
compliance with the voting restriction would have the effect described in
clauses (i), (ii) or (iii) 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. As of the date hereof, no event has occurred which would require
the Holding Company to seek a waiver from the FDIC and the Superintendent of the
voting restriction.
Adverse Impact on Earnings. 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 $2.4 million ($1.4 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 second
quarter of fiscal 1999. Such expense will 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%
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of the Holding Company's annual taxable income. If the Stock Contribution had
been made at June 30, 1998, the Bank would have reported net income of $2.7
million for the fiscal year rather than net income of $4.1 million.
In the future, the Holding 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 Stockholders' Interests. The Stock Contribution will
involve the donation of a number of shares equal to 3% of the shares of the
Holding Company Common Stock issued in the Conversion or up to 241,500 shares of
Holding Company Common Stock, par value $0.01 per share or the sale of such
shares for their aggregate par value of $2,415 based on the maximum of the
Estimated Valuation Range, to the Foundation. Upon completion of the Conversion
and the Stock Contribution, the Holding Company will have 8,291,500 shares
issued and outstanding at the maximum of the Estimated Valuation Range, of which
the Foundation will own 241,500 shares, or 3.0%. 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 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 income tax purposes. Based on present information, the Holding Company
currently estimates that the Stock Contribution should be fully deductible for
Federal and New York income tax purposes. However, no assurances can be given
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 Holding Company 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 $59.5 million and $80.5 million, with a midpoint of $70.0 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 $62.9
million and $85.1 million. This represents an increase of $4.0 million at the
midpoint of the Estimated Valuation Range. In such event the estimated pro forma
stockholders' equity of the Holding Company would be approximately $133.8
million at the midpoint based on a pro forma price to book ratio of 79.3% and a
pro forma price to earnings ratio of 15.6x. See "Comparison of Valuation and Pro
Forma Information with No Stock Contribution."
The decrease in the amount of Holding Company 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
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proposals considered by the Holding Company's stockholders. See "The Conversion
- - Establishment of Cohoes Savings 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 - Establishment of The Cohoes Savings 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 Holding Company
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 proposals requiring 80% stockholder 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 "-- Takeover Defensive
Provisions."
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 Company Common
Stock. Finally, as the Foundation sells its shares of Holding Company Common
Stock over time, its ownership interest and voting power in the Holding Company
is expected to decrease.
COHOES BANCORP, INC.
The Holding Company was formed at the direction of the Bank in
September 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 the Bank. 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 the Bank, 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 the Bank, if any. See "Dividends" and "Regulation -
The Holding Company." 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 Holding Company Common Stock in the
Conversion. See "Management of the Bank - Benefit Plans Employee Stock Ownership
Plan."
The executive office of the Holding Company is located at 75 Remsen
Street, Cohoes, New York 12047-2892. Its telephone number at that address is
(518) 233-6500.
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COHOES SAVINGS BANK
The Bank serves the financial needs of communities in its market area
through its main office and 16 other full service branch offices located
throughout the Bank's primary market area. Its deposits are insured up to
applicable limits by the FDIC. At June 30, 1998, the Bank had total assets of
$535.7 million, deposits of $449.5 million and total equity of $53.3 million (or
9.95% of total assets).
The Bank has been, and intends to continue to be, an independent,
community oriented financial institution. The Bank's business involves
attracting deposits from the general public and using such deposits, together
with other funds, to originate primarily residential mortgage loans, and to a
lesser extent, commercial and multi-family real estate, consumer and commercial
business loans. The Bank originates its loans primarily in the Bank's market
area and to a lesser extent, it has in the past originated multi-family and
commercial real estate loans in New York City. However, depending upon market
conditions and as a result of the somewhat depressed economy in the Bank's
primary market area, the Bank may explore lending opportunities outside its
primary market area in the future. At June 30, 1998, $258.4 million, or 62.07%,
of the Bank's total loan portfolio consisted of residential mortgage loans. See
"Business of the Bank - Lending Activities." The Bank also invests in government
agency and corporate debt securities and other permissible investments. See
"Business of the Bank - Investment Activities."
The executive office of the Bank is located at 75 Remsen Street,
Cohoes, New York 12047-2892. Its telephone number at that address is (518)
233-6500.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Conversion Shares
cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $57.9 million and $76.7
million (or up to $90.6 million in the event of an increase in the aggregate pro
forma market value of the Holding Company 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 the Bank issued in the
Conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Conversion Shares to the Bank. On an interim
basis, the proceeds will be invested by the Holding Company and the Bank 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 $4.9 million (based upon the sale of shares at the minimum
of the Estimated Valuation Range) to $6.6 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 prime
rate of interest as reported in the Wall Street Journal 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 fifteen-year period.
The net proceeds received by the Bank will become part of the Bank'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 stockholder 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 $2.5 million (based
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upon the sale of shares at the minimum of the Estimated Valuation Range and
including shares issued to the Foundation) to approximately $3.3 million (based
upon the sale of shares at the maximum of the Estimated Valuation Range). In the
event that the per share price of the Holding Company 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 Holding Company Common Stock in the Conversion and who receive
Exchange Shares in the Merger. See "Business of the Bank - Lending Activities"
and " - Investment Activities" and "Management of the Bank - Benefit Plans -
Employee Stock Ownership Plan" and "- RRP."
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
Holding Company 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
Holding Company Common Stock based on its view of the appropriateness of the
price of the Holding Company 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. In addition, the
Holding Company or the Bank 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.
DIVIDENDS
The Holding Company currently plans to pay dividends in the future.
However, the amount and timing of such payments has yet to be determined.
Dividends, when and if paid, will be subject to determination and declaration by
the Board of Directors at its discretion. The Board 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 the Bank 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 $57.9 million to $76.7 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
the Bank, 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 the Bank to pay dividends to the
Holding Company. See "Description of Capital Stock - Holding Company Capital
Stock - Dividends." The Bank, 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. In addition, 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. See "The Conversion - Effects of Conversion -- Deposit Accounts and
Loans" and "Regulation - The Bank -- Capital Requirements" and "- Limitations on
Dividends." Earnings allocated to the Bank's "excess" bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation" and "Taxation."
19
<PAGE>
MARKET FOR COMMON STOCK
The Bank, 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 Holding Company Common Stock. The
Holding Company has been approved for listing of the Holding Company Common
Stock on the Nasdaq NMS under the symbol "COHB" upon completion of the
Conversion. In order to be quoted on the Nasdaq NMS, among other criteria, there
must be at least three market makers for the Holding Company Common Stock. KBW
has agreed to act as a market maker for the Holding Company 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 Holding Company Common Stock at any given
time. Accordingly, there can be no assurance that an active and liquid market
for the Holding Company Common Stock will develop or be maintained or that
resales of the Holding Company Common Stock can be made at or above the purchase
price. See "The Conversion Stock Pricing" and "-- Number of Shares to be
Issued."
20
<PAGE>
REGULATORY CAPITAL
At June 30, 1998, the Bank exceeded all of the regulatory capital
requirements applicable to it. The table below sets forth the historical
regulatory capital of the Bank at June 30, 1998 and the pro forma regulatory
capital of the Bank after giving effect to the Conversion, based upon the sale
of the number of shares shown in the table. The pro forma regulatory capital
amounts reflect the receipt by the Bank of 50% of the net Conversion proceeds,
minus the amounts to be loaned to the ESOP and contributed to the RRP. The pro
forma risk-based capital amounts assume the investment of the net proceeds
received by the Bank in assets which have a risk-weight of 20% under applicable
regulations, as if such net proceeds had been received at June 30, 1998.
<TABLE>
<CAPTION>
Pro Forma at June 30, 1998 Based on
--------------------------------------------------------------------------------------------
Minimum Midpoint Maximum Maximum As Adjusted
Cohoes Savings Bank ---------------------- ---------------------- ---------------------- ----------------------
Historical at Conversion Shares Sold Conversion Shares Sold Conversion Shares Sold Conversion Shares Sold
June 30, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
-------------------- -------------------- --------------------- ------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1) Amount Assets(1)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital..... $53,282 9.95% $74,880 13.32% $78,775 13.86% $82,669 14.46% $87,148 15.10%
======= ==== ======= ===== ======= ===== ======= ===== ======= =====
Leverage capital:
Actual........ $53,270 10.13% $74,868 13.56% $78,763 14.14% $82,657 14.71% $87,136 15.36%
Requirement... 21,033 4.00 22,093 4.00 22,283 4.00 22,474 4.00% 22,693 4.00
-------- ------- -------- ------ -------- ------ -------- ------ -------- ------
Excess........ $32,237 6.13% $52,775 9.56% $56,479 10.14% $60,183 10.71% $64,443 11.36%
======= ======= ======= ====== ======= ===== ======= ===== ======= =====
Risk-based
capital(2):
Actual........ $56,803 17.08% $78,401 23.21% $82,296 24.29% $86,190 25.37% $90,669 26.60%
Requirement... 26,601 8.00 27,025 8.00 27,101 8.00 27,177 8.00 27,265 8.00
-------- ------- -------- ------ -------- ------ -------- ------ -------- ------
Excess........ $30,202 9.08% $51,376 15.21% $55,194 16.29% $59,013 17.37% $63,404 18.60%
======= ======= ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- --------------
(1) Adjusted total or adjusted risk-weighted assets, as appropriate. As of June
30, 1998, the adjusted total and risk-weighted assets of the Bank were
$525.8 million and $332.5 million, respectively.
(2) Does not reflect the interest rate risk component to be added to the
risk-based capital requirements or, in the case of the core capital
requirement, the 4.0% requirement to be met in order for an institution to
be "adequately capitalized" under applicable laws and regulations. See
"Regulation - Regulatory Capital Requirements."
21
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at June 30, 1998 and the pro forma consolidated capitalization of the Holding
Company after giving effect to the Conversion, based upon the sale of shares at
the maximum of the Estimated Valuation Range and the other assumptions set forth
under "Pro Forma Unaudited Financial Information - Additional Pro Forma Data."
<TABLE>
<CAPTION>
The Holding Company - Pro Forma Consolidated
Based Upon Sale at $10.00 Per Share
-------------------------------------------------
9,257,500
5,950,000 7,000,000 8,050,000 Shares(1)
Cohoes Savings Shares Shares Shares (15% above
Bank (Minimum of (Midpoint of (Maximum of Maximum of
Historical Range) Range) Range) Range)
---------- ------ ------ ------ ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) ........................... $ 449,541 $ 449,541 $ 449,541 $ 449,541 $ 449,541
Borrowings ............................ 19,897 19,897 19,897 19,897 19,897
--------- --------- --------- --------- ---------
Total deposits and borrowings ......... $ 469,438 $ 469,438 $ 469,438 $ 469,438 $ 469,438
========= ========= ========= ========= =========
Stockholders' equity:
Serial preferred stock, $0.01 par
value, 25,000,000 shares authorized;
none to be outstanding.............. $ -- $ -- $ -- $ -- $ --
Common stock, $0.01 par value,
25,000,000 shares authorized; shares
to be issued as reflected(3)........ $ -- 61 72 83 95
Additional paid-in capital ........... -- 59,629 70,317 81,006 93,298
Retained earnings(4)(5) .............. 53,270 52,199 52,010 51,821 51,604
Net unrealized gain on available-
for-sale securities,
net of taxes ....................... 12 12 12 12 12
Less:
Common stock held or to be acquired
by the ESOP(6) ..................... -- (4,903) (5,768) (6,633) (7,628)
Common stock to be acquired by the
RRP(7) ............................. -- (2,451) (2,884) (3,317) (3,814)
--------- --------- --------- --------- ---------
Total stockholder's equity ............ $ 53,282 $ 104,547 $ 113,759 $ 122,972 $ 133,567
========= ========= ========= ========= =========
</TABLE>
22
<PAGE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to 15%
to reflect changes in market and financial conditions following the
commencement of the Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Holding Company Common Stock in the Offerings. Such withdrawals would reduce
pro forma deposits by the amount of such withdrawals.
(3) Reflects the issuance of the Conversion Shares to be sold in the Offering.
No effect has been given to the issuance of additional shares of Holding
Company Common Stock pursuant to the proposed Stock Option and Incentive
Plan. See "Pro Forma Unaudited Financial Information Additional Pro Forma
Data" and "Management - Benefits - Stock Option and Incentive Plan." Also
reflects issuance of additional shares of Holding Company Common Stock to
the Foundation.
(4) The retained earnings of the Bank will be substantially restricted after the
Conversion by virtue of the liquidation account to be established in
connection with the Conversion. See "The Conversion - Liquidation Rights."
In addition, certain distributions from the Bank's retained earnings may be
treated as being from its accumulated bad debt reserve for tax purposes,
which would cause the Bank to have additional taxable income. See
"Taxation."
(5) Pro forma stockholders' equity includes the effects of estimated one-time
charges of approximately $5.9 million, $4.8 million net of tax effect, and a
$1.8 million, $2.1 million, $2.4 million and $2.8 million expense ($1.1
million, $1.3 million, $1.5 million and $1.7 million, net of tax) relating
to the contribution of 178,500, 210,000, 245,000 and 277,725 shares of
Holding Company Common Stock to the Foundation at the minimum, midpoint,
maximum and maximum as adjusted of the valuation range. Since the estimated
charges are non-recurring, they have not been reflected in the pro forma
combined income statement and related per share calculations. The charges
are expected to be incurred shortly following the Conversion.
(6) Assumes that an amount equal to 8% of the Holding Company Common Stock sold
in the Offerings will be purchased by the ESOP, which is reflected as a
reduction of stockholders' equity. The ESOP shares will be purchased with
funds loaned to the ESOP by the Holding Company. See "Pro Forma Unaudited
Financial Information - Additional Pro Forma Data" and "Management -
Benefits - Employee Stock Ownership Plan."
(7) The Holding Company intends to adopt the RRP and to submit such plan to
stockholders at an annual or special meeting of stockholders held at least
six months following the consummation of the Conversion. If the plan is
approved by stockholders, the Holding Company intends to purchase a number
of shares of Holding Company Common Stock equal to 4% of the Holding Company
Common Stock sold in the Offering. Assumes that stockholder approval had
been obtained and that the shares have been purchased in the open market at
the purchase price. However, in the event the Holding Company issues
authorized but unissued shares of Holding Company Common Stock to the RRP in
the amount of 4% of the Holding Company Common Stock sold in the Offering
(including shares issued to the Foundation), the voting interests of
existing stockholders would be diluted approximately 2.8% (assuming the
issuance of 8,050,000 Conversion Shares the contribution of 241,500 shares
of Holding Company Common Stock to the Foundation). The shares are reflected
as a reduction of stockholders' equity. See "Pro Form Unaudited Financial
Information - Additional Pro Forma Data" and "Management - Benefits -
Recognition and Retention Plan."
23
<PAGE>
PRO FORMA
The following tables provide unaudited pro forma data with respect to
the Holding Company's stockholders' equity, net income and related per share
amounts based upon the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range. The actual net proceeds from the sale of the
Conversion Shares cannot be determined until the Conversion is completed.
However, net proceeds are currently estimated to be between $57.9 million and
$78.7 million (or $90.6 million in the event the Estimated Valuation Range is
increased by 15%) based upon the following assumptions: (i) all Conversion
Shares will be sold in the Subscription Offering; (ii) KBW will receive a fee
equal to 1.20% of the aggregate purchase price for sales in the Subscription
Offering (excluding the sale of shares to the ESOP, employee benefit plans,
officers, directors and their immediate families and the Foundation); (iii) the
Holding Company will contribute to the Foundation a number of shares equal to
3.0% of the shares of Holding Company Common Stock issued in the Conversion from
authorized but unissued shares; and (iv) total expenses, including the marketing
fees paid to KBW, of the Conversion will be between $1.6 million and $1.8
million (or $2.0 million in the event the Estimated Valuation Range is increased
by 15%). Actual expenses may vary from those estimated. It is also assumed that
Conversion Shares had been sold at the beginning of the period and the net
proceeds from the Offering had been invested at 5.37% which represents the yield
on one-year U.S. Government securities at June 30, 1998. The yield on one-year
U.S. Government securities was used rather than the arithmetic average of the
average yield on total interest-earning assets and the average rate paid on
deposits, because the yields on one-year U.S. Government securities are believed
to be more reflective of market interest rates. The effect of withdrawals from
deposit accounts at the Bank for the purchase of Conversion Shares in the
Offering has not been reflected. A combined effective federal and state income
tax rate of 40.0% has been assumed for the period, resulting in an after-tax
yield of 3.22% for the year ended June 30, 1998.
The following pro forma unaudited information is based, in part, on
historical information related to the Holding Company and assumptions as to
future events. For these and other reasons, the pro forma unaudited financial
data may not be representative of the financial effects of the Conversion at the
dates on which such transactions actually occur and should not be taken as
indicative of future results of operations. Pro forma stockholders' equity
represents the difference between the stated amount of assets and liabilities of
the Holding Company computed in accordance with GAAP.
Subsequent to June 30, 1998, Cohoes Savings Bank terminated its
proposed merger with SFS Bancorp, Inc. and paid an agreed upon fee of $2.0
million to SFS Bancorp, Inc. The payment of this fee is not reflected in any
historical or pro forma information presented.
The following tables give effect to the issuance of a number of shares
equal to 3.0% of the Common Stock of the Holding Company sold in the Conversion
from authorized but unissued shares to the Foundation concurrently with the
completion of the Conversion. The pro forma stockholders' equity is not intended
to represent the fair market value of the Holding Company Common Stock and may
be different than amounts that would be available for distribution to
stockholders in the event of liquidation.
24
<PAGE>
PRO FORMA DATA WITH MERGER
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1998
-----------------------------------------------------------------------
5,950,000 7,000,000 8,050,000 9,257,500
Conversion Conversion Conversion Conversion
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 (Minimum Share (Midpoint Share (Maximum (15% above
of Range) of Range) of Range) Maximum of Range)
--------- --------- --------- -----------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds ......................................... $ 59,500 $ 70,000 $ 80,500 $ 92,575
Plus: Shares acquired by Foundation .................... 1,785 2,100 2,415 2,777
--------- --------- --------- ---------
Pro forma market capitalization ................... $ 61,285 $ 72,100 $ 82,915 $ 95,352
========= ========= ========= =========
Gross proceeds ......................................... $ 59,500 $ 70,000 $ 80,500 $ 92,575
Less offering expenses and commissions ................. 1,595 1,711 1,826 1,959
--------- --------- --------- ---------
Estimated net proceeds ............................ $ 57,905 $ 68,289 $ 78,674 $ 90,616
Less: Shares purchased by the ESOP ..................... (4,903) (5,768) (6,633) (7,628)
Shares purchased by the RRP ....................... (2,451) (2,884) (3,317) (3,814)
--------- --------- --------- ---------
Total estimated net proceeds, as adjusted(1) ........... $ 50,551 $ 59,637 $ 68,724 $ 79,174
========= ========= ========= =========
Net income(2):
Historical ........................................ $ 4,087 $ 4,087 $ 4,087 $ 4,087
Pro forma income on net proceeds, as adjusted ..... 1,629 1,922 2,214 2,551
Pro forma ESOP adjustment(3) ...................... (196) (231) (265) (305)
Pro forma RRP adjustment(4) ....................... (294) (346) (398) (458)
--------- --------- --------- ---------
Pro forma net income .............................. $ 5,226 $ 5,432 $ 5,638 $ 5,875
========= ========= ========= =========
Diluted net income per share(2)(5):
Historical ........................................ $ 0.72 $ 0.61 $ 0.53 $ 0.46
Pro forma income on net proceeds, as adjusted ..... 0.29 0.29 0.29 0.29
Pro forma ESOP adjustment(3) ...................... (0.03) (0.03) (0.03) (0.03)
Pro forma RRP adjustment(4) ....................... (0.05) (0.05) (0.05) (0.05)
--------- --------- --------- ---------
Pro forma diluted net income per share(4)(6) ...... $ 0.93 $ 0.82 $ 0.74 $ 0.67
========= ========= ========= =========
Offering price to pro forma diluted net
income per share(5) .................................. 10.75x 12.20x 13.51x 14.93x
========= ========= ========= =========
Stockholders' equity:
Historical ........................................ $ 53,282 $ 53,282 $ 53,282 $ 53,282
Estimated net proceeds ............................ 57,905 68,289 78,674 90,616
Plus: Shares issued to Foundation ................ 1,785 2,100 2,415 2,777
Less: Contribution to Foundation ................. (1,785) (2,100) (2,415) (2,777)
Plus: Tax benefit of contribution to Foundation .. 714 840 966 1,111
Less: Common stock acquired by the ESOP(3) ....... (4,903) (5,768) (6,633) (7,628)
Common stock to be acquired by the RRP(4) (2,451) (2,884) (3,317) (3,814)
--------- --------- --------- ---------
Pro forma stockholders' equity(4)(6)(7) ........... $ 104,547 $ 113,759 $ 122,972 $ 133,567
========= ========= ========= =========
Stockholders' equity per share(5):
Historical ........................................ $ 7.39 $ 6.43 $ 5.59 $ 8.69
Estimated net proceeds ............................ 9.45 9.47 9.49 9.50
Plus: Shares issued to Foundation ................ 0.29 0.29 0.29 0.29
Less: Contribution to Foundation ................. (0.29) (0.29) (0.29) (0.29)
Plus: Tax benefit of contribution to Foundation .. 0.12 0.12 0.12 0.12
Less: Common stock acquired by the ESOP(3) ....... (0.80) (0.80) (0.80) (0.80)
Common stock to be acquired by the RRP(4) (0.40) (0.40) (0.40) (0.40)
--------- --------- --------- ---------
Pro forma stockholders' equity per share(4)(6)(7) . $ 17.06 $ 15.78 $ 14.84 $ 14.01
========= ========= ========= =========
Purchase price as a percentage of pro forma
stockholders' equity per share(5) ............ 58.62% 63.37% 67.39% 71.38%
========= ========= ========= =========
</TABLE>
- --------------
(1) Estimated net proceeds, as adjusted, consist of the estimated net proceeds
from the Offering minus (i) the proceeds attributable to the purchase by the
ESOP; and (ii) the value of the shares to be purchased by the RRP, subject
to stockholder approval, after the Conversion at an assumed purchase price
of $10.00 per share; and (iii) certain one-time Merger-related cash expenses
expected to be paid concurrently with consummation of the Conversion and the
Merger. For the purposes of this presentation, one-time cash Merger-related
expenses of $7.5 million (pre-tax) which are expected to be paid upon
consummation of the Conversion and the Merger are reflected as an adjustment
to net proceeds for purposes of the pro forma net income and pro forma net
income per share information. For purposes of pro forma stockholders' equity
and pro forma stockholders' equity per share, $4.8 million of Merger-related
non-recurring expenses, net of tax are deducted.
(2) Does not give effect to the non-recurring expense that will be recognized in
1998 as a result of the establishment of the Foundation. The Holding Company
will recognize an after-tax expense for the amount of the contribution to
the Foundation which is expected to be $1.1 million, $1.3 million, $1.4
million and $1.7 million at the minimum, midpoint, maximum and maximum, as
adjusted. Assuming the contribution to the Foundation was expensed during
the year ended June 30, 1998, pro forma net earnings (loss) per share would
be $0.57, $0.51, $0.47 and $0,42, at the minimum, midpoint, maximum and
maximum, as adjusted, respectively. Per share net income data is based on
8,982,199, 9,980,063, 10,977,927 and 12,125,471 shares outstanding which
represents Conversion Shares sold in the Offering, shares contributed to the
Foundation, Exchange Shares issued in the Merger and shares to be allocated
or distributed under the ESOP and RRP for the period presented.
Additionally, SFS stock options are incorporated into earnings per share
calculations based on the treasury method.
(Footnotes continued on next page)
25
<PAGE>
(3) It is assumed that 8.0% of the Conversion Shares sold in the Offering will
be purchased by the ESOP with funds loaned by the Holding Company. The
Holding Company and the Bank intend to make annual contributions to the ESOP
in an amount at least equal to the principal and interest requirement of the
debt. The pro forma net earnings assumes (i) that the loan to the ESOP is
payable over 15 years, with the ESOP shares having an average fair value of
$10.00 per share in accordance with SOP 93-6, entitled "Employers'
Accounting for Employee Stock Ownership Plans," of the AICPA, and (ii) the
effective tax rate was 40.0% for the period. See "Management - Benefits -
Employee Stock Ownership Plan."
(4) It is assumed that the RRP will purchase, following stockholder approval of
such plan, a number of shares of Holding Company Common Stock equal to 4.0%
of the Conversion Shares for issuance to directors, officers and employees.
Funds used by the RRP to purchase the shares initially will be contributed
to the RRP by the Holding Company. It is further assumed that the shares
were acquired by the RRP at the beginning of the period presented in open
market purchases at the purchase price and that 20.0% of the amount
contributed, net of taxes, was an amortized expense during the year ended
June 30, 1998. The issuance of authorized but unissued shares of Holding
Company Common Stock pursuant to the RRP in the amount of 4.0% of the
Conversion Shares sold in the Offering would dilute the voting interests of
existing stockholders by approximately 3.0% and under such circumstances pro
forma net earnings per share for the year ended June 30, 1998 would be
$0.68, $0.63, $0.59 and $0.55, at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range, respectively, and pro
forma stockholders' equity per share at June 30, 1998 would be $12.96,
$12.50, $12.13 and $11.78 at the minimum, midpoint, maximum and 15% above
the maximum of such range, respectively. There can be no assurance that the
actual purchase price of shares purchased by or issued to the RRP will be
equal to the purchase price. See "Management - Benefits - Recognition and
Retention Plan."
(5) The diluted per share calculations are determined by adding the number of
Conversion Shares assumed to be issued in the Conversion, Exchange Shares
issued in the Merger as well as shares of Holding Company Common Stock to be
contributed to the Foundation and, for purposes of calculating earnings per
share, in accordance with SOP 93-6, subtracting 473,937 shares, 557,573
shares, 641,209 shares, and 737,391 shares, respectively, representing the
ESOP shares which have not been committed for release during the year ended
June 30, 1998. The calculation of ESOP shares released assumes that such
shares are earned and released ratably over the year, using a 15-year
amortization period. Additionally, SFS stock options are incorporated into
earnings per share calculations based on the treasury method. Thus, it is
assumed at June 30, 1998 that 8,982,199, 9,980,063, 10,977,927 and
12,125,471 shares of Holding Company Common Stock are outstanding at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively. Assuming the uncommitted ESOP shares were not
subtracted from the number of shares of Holding Company Common Stock
outstanding at June 30, 1998, the offering price as a multiple of pro forma
net earnings per share would be 15.35x, 16.55x, 17.67x and 18.89x at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively. For purposes of calculating pro forma
stockholders' equity per share, it is assumed that shares outstanding total
9,330,951, 10,412,451, 11,493,951 and 12,737,676 shares at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range.
(6) No effect has been given to the issuance of additional shares of Holding
Company Common Stock pursuant to the Stock Option and Incentive Plan, which
will be adopted by the Holding Company following the Conversion and
presented for approval by stockholders at an annual or special meeting of
stockholders of the Holding Company held no earlier than six months
following the consummation of the Conversion. If the Option Plan is approved
by the stockholders, an amount equal to 10% of the Conversion Shares sold in
the Offering, including shares issued to the Foundation, or 612,850,
721,000, 829,150 and 953,522 shares at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, will
be reserved for future issuance upon the exercise of options to be granted
under the Option Plan. The issuance of Holding Company Common Stock pursuant
to the exercise of options under the Option Plan will result in the dilution
of existing stockholders' interests. Assuming stockholder approval of the
Option Plan, that all these options were exercised at the beginning of the
period at an exercise price of $10.00 per share and that the shares to fund
the RRP are acquired thorough open market purchases at the purchase price,
pro forma diluted net earnings per share for the year ended June 30, 1998
would be $0.66, $0.62, $0.58 and $0.54 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, and
pro forma stockholders' equity per share at June 30, 1998 would be $12.85,
$12.40, $12.04 and $11.70 at the minimum, midpoint, maximum and 15% above
the maximum of such range, respectively. See "Management - Benefits - Stock
Option and Incentive Plan."
(7) The retained earnings of the Bank will be substantially restricted after the
Conversion by virtue of the liquidation account to be established in
connection with the Conversion. See "Dividend Policy" and "The Conversion -
Effects of the Conversion - Effects on Liquidation Rights." In addition,
certain distributions from the Bank's retained earnings may be treated as
begin from its accumulated bad debt reserve for tax purposes, which would
cause the Bank to have additional taxable income. See "Taxation - Federal
Taxation." Pro forma stockholders' equity and pro forma stockholders' equity
per share (i) reflect certain nonrecurring charges, net of tax (see Note 5
to the Pro Forma Unaudited Consolidated Statement of Financial Condition)
and (ii) do not give effect to the liquidation account or the bad debt
reserves established by the Bank for federal income tax purposes in the
event of a liquidation of the Bank.
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to 15%
to reflect changes in market and financial conditions following the
commencement of the Offering.
26
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION
WITH NO FOUNDATION
In the event that the Foundation were not being established as part of
the Conversion , RP Financial has estimated that the pro forma aggregate market
capitalization of the Holding Company would be approximately $85.1 million at
the maximum, which is approximately $2.2 million greater than the pro forma
aggregate market capitalization of the Holding Company if the Foundation is
included, and would result in an approximately $4.6 million increase in the
amount of Holding Company Common Stock offered for sale in the Conversion. The
pro forma price to book 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 Foundation. Further, assuming the
maximum of the Estimated Valuation Range, pro forma stockholders' equity per
share and pro forma earnings per share would be substantially the same at $14.84
and $14.84, respectively, and $0.74 and $0.74 respectively, with the Foundation
or without the Foundation. The pro forma price to book ratio and the pro forma
price to earnings ratio are substantially the same with and without the
Foundation at the maximum at 67.39% and 67.39%, respectively, and 13.51x and
13.51x, respectively. There is no assurance that in the event the Foundation was
not formed that the appraisal prepared at the time would have concluded that the
pro forma market value of the Holding Company would be the same as that
estimated herein. Any appraisals prepared at that time would be based on the
facts and circumstances existing at the time, including, among other things,
market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Estimated Valuation Range, assuming the Conversion
was completed at June 30, 1998.
<TABLE>
<CAPTION>
At the Maximum
At the Minimum At the Midpoint At the Maximum As Adjusted
---------------------- ---------------------- ---------------------- ------------------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
---------- ---------- ---------- ---------- ---------- ---------- ----------- ----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount ..........$ 59,500 $ 62,900 $ 70,000 $ 74,000 $ 80,500 $ 85,100 $ 92,575 $ 97,865
Pro forma market capitalization .... 61,285 62,900 72,100 74,000 82,915 85,100 95,352 97,865
Total assets ....................... 586,981 589,434 596,193 599,079 605,406 608,724 616,001 619,817
Total liabilities .................. 482,434 482,434 482,434 482,434 482,434 482,434 482,434 482,434
Pro forma stockholders' equity ..... 104,547 107,000 113,759 116,645 122,972 126,290 133,567 137,383
Pro forma consolidated
net earnings ...................... 5,226 5,315 5,432 5,537 5,638 5,759 5,875 6,014
Pro forma stockholders' equity
per share ......................... 17.06 17.01 15.78 15.76 14.84 14.84 14.01 14.03
Pro forma consolidated net
earnings per share ................ 0.93 0.92 0.82 0.82 0.74 0.74 0.67 0.67
Pro forma pricing ratios:
Offering price as a percentage
of pro forma stockholders'
equity per share ............... 58.62% 58.79% 63.37% 63.45% 67.39% 67.39% 71.38% 71.28%
Offering price to pro forma
net earnings per share(1) ...... 10.75% 10.87% 12.20% 12.20% 13.51% 13.51% 14.93% 14.93%
Pro forma market capitalization
to assets ...................... 10.44% 10.67% 12.09% 12.35% 13.70% 13.98% 15.48% 15.79%
Pro forma financial ratios:
Return on assets(2) ............. 0.89% 0.90% 0.91% 0.92% 0.93% 0.95% 0.96% 0.97%
Return on stockholders' equity(3) 5.00% 4.97% 4.78% 4.75% 4.58% 4.56% 4.40% 4.38%
Stockholders' equity to assets .. 17.81% 18.15% 19.08% 19.47% 20.31% 20.75% 21.68% 22.17%
</TABLE>
- ---------------
(1) If the contribution to the Foundation had been expensed during the year
ended June 30, 1998, the offering price to pro forma net earnings per share
would have been 13.58x, 15.90x, 18.20x and 20.81x at the minimum, midpoint,
maximum and maximum, as adjusted, respectively.
(2) If the contribution to the Foundation had been expensed during the year
ended June 30,1998, return on assets would have been 0.71%, 0.70%, 0.69% and
0.69% at the minimum, midpoint, maximum and maximum, as adjusted,
respectively.
(3) If the contribution to the Foundation had been expensed during the year
ended June 30,1998, return on stockholders' equity would have been 3.99%,
3.68%, 3.42% and 3.17% at the minimum, midpoint, maximum and maximum, as
adjusted, respectively.
27
<PAGE>
COHOES SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(000's omitted)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
INTEREST INCOME:
<S> <C> <C> <C>
Interest and fees on mortgage loans ...................... $ 28,793 $ 28,236 $ 26,587
Consumer and other loans ................................. 4,780 4,930 5,516
Investment securities and securities available for sale .. 4,108 2,847 3,096
Federal funds sold and interest-bearing deposits ......... 742 272 184
------------- ------------- -------------
Total interest income ....................... 38,423 36,285 35,383
------------- ------------- -------------
INTEREST EXPENSE:
Deposits (Note 11) ....................................... 18,816 17,568 17,741
Mortgagors' escrow deposits .............................. 114 120 126
Borrowings ............................................... 332 133 297
------------- ------------- -------------
Total interest expense ...................... 19,262 17,821 18,164
------------- ------------- -------------
Net interest income ......................... 19,161 18,464 17,219
PROVISION FOR LOAN LOSSES (Note 7) ........................... 1,400 1,325 490
------------- ------------- -------------
Net interest income after provision
for loan losses ........................... 17,761 17,139 16,729
------------- ------------- -------------
NONINTEREST INCOME:
Service charges on deposits .............................. 746 765 741
Loan servicing revenue ................................... 495 568 605
Net gain (loss) on sale of mortgage loans ................ 81 106 (20)
Other .................................................... 1,421 1,351 1,141
------------- ------------- -------------
Total noninterest income .................... 2,743 2,790 2,467
------------- ------------- -------------
NONINTEREST EXPENSE:
Compensation and benefits ................................ 7,322 6,253 6,286
Occupancy ................................................ 2,686 2,493 2,247
FDIC deposit insurance premium ........................... 65 37 33
Advertising .............................................. 430 307 291
Other .................................................... 3,264 3,224 3,062
------------- ------------- -------------
Total noninterest expense ................... 13,767 12,314 11,919
------------- ------------- -------------
Income before income tax expense ............ 6,737 7,615 7,277
INCOME TAX EXPENSE (Note 15) ................................. 2,650 2,972 2,882
------------- ------------- -------------
Net income .................................. $ 4,087 $ 4,643 $ 4,395
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF COHOES SAVINGS
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 16 full-service branches and one public accommodation
office (a limited purpose convenience office) which is expected to be converted
into a branch office in October, 1998, consists of Albany, Saratoga, Schenectady
and Rensselaer counties in New York and a portion of Warren county 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 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, fees on deposit related
services, gains on sales of securities, 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, and 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
interest-earning assets. When interest-bearing liabilities mature or reprice
more quickly than interest-earning assets in a given period, a significant
increase in market rates of interest could adversely affect net 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 monthly 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.
29
<PAGE>
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 June 30, 1998, the Bank had securities with
a carrying value of $76.2 million with contractual maturities of five years or
less. 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,
except for approximately $103.5 million of fixed rate products. 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 June 30, 1998, 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).
Assumed Change Net
in Interest Rates Interest Dollar Percent
(Basis Points) Income Change Change
------ ------ ------
-200 $ 19,986 $ 826 4.31%
-150 19,770 610 3.18
-100 19,244 84 0.44
-50 19,204 44 0.23
0 19,160 -- 0.00
+50 19,153 (7) (0.04)
+100 19,137 (23) (0.12)
+150 19,056 (104) (0.54)
+200 18,918 (242) (1.26)
Assumed Change Net
in Interest Rates Market Dollar Percent
(Basis Points) Value Change Change
----- ------ ------
-200 $ 99,941 $ 10,985 12.35%
-150 97,343 8,387 9.43
-100 94,643 5,687 6.39
-50 91,845 2,889 3.25
0 88,956 -- 0.00
+50 85,741 (3,215) (3.61)
+100 82,151 (6,805) (7.65)
+150 79,056 (9,900) (11.13)
+200 75,804 (13,152) (14.78)
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 were based upon proprietary data selected by management
and are reflective of historical results or current market conditions. These
assumptions relate to interest rates, repayment rates, deposit decay rates, and
the market values of certain assets under the various interest rate scenarios.
Prepayment assumptions for mortgage-backed securities and residential
mortgage loans were based upon industry standards for prepayments. The Bank's
mortgage-backed securities and residential mortgages are the only assets or
liabilities which management assumed possess optionality for purposes of
determining market value changes.
30
<PAGE>
Management assumed that non-maturity deposits could be maintained with
rate adjustments not directly proportionate to the change in market interest
rate. These assumptions are based upon management's analysis of its customer
base and competitive factors.
The net market value and net interest income tables presented above are
predicated upon a stable balance sheet with no growth or change in asset or
liability mix. In addition, the net market value table is based upon the present
value of discounted cash flows using management's estimates of current
replacement rates to discount the cash flows. The net interest income table is
based upon a cash flow simulation of the Bank's existing assets and liabilities.
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. Also, a change in the US Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
changes to the net market value and net interest income other than those
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 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
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing liabilities. Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rates earned or paid on them.
31
<PAGE>
The following table presents, for the periods indicated, the total
dollar amount of interest income from the average interest-earning assets and
the resultant yields earned, the total dollar amount of interest expense on
average interest-bearing liabilities and the resultant rates paid, expressed
both in dollars and percentages as well as the weighted average yields earned
and rates paid. No tax equivalent adjustments were made. All average balances
are daily average balances. Nonaccruing loans have been included in the table as
loans carrying zero yield.
<TABLE>
<CAPTION>
Average Year Ended June 30,
Yield ---------------------------------------------------------------------------------------------
Earned/ 1998 1997 1996
Average ----------------------------- ------------------------------- ----------------------------
Rate Paid at Average Interest Average Interest Average Interest
June 30, Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
1998 Balance Paid Rate Balance Paid Rate Balance Paid Rate
---- ------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in Thousands)
Interest-earning assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable ......... 8.09% $404,781 $ 33,573 8.29% $401,262 $ 33,166 8.27% $390,273 $ 32,104 8.23%
Securities available
for sale ................ 6.18 30,336 1,933 6.37 19,330 1,253 6.48 14,350 872 6.08
Investment securities .... 6.28 30,372 1,926 6.34 22,240 1,373 6.17 31,950 1,993 6.24
Federal funds sold ....... 5.50 13,321 739 5.55 4,641 245 5.28 2,255 127 5.63
FHLB stock ............... 7.45 3,479 249 7.16 3,400 218 6.41 3,346 230 6.87
Other interest-earning
assets .................. 6.00 184 3 1.63 416 30 7.21 967 57 5.89
------- ------ ------- ------ ------- ------
Total interest-earning
assets ................. 7.72 482,473 38,423 7.96 451,289 36,285 8.04 443,141 35,383 7.98
------ ------ ------
Non-earning assets ........ 18,714 17,919 17,264
------- ------- -------
Total assets ............ $501,187 $469,208 $460,405
======== ======== ========
Interest-bearing
liabilities
Savings accounts ......... 3.00% $120,959 3,623 3.00 $123,518 3,698 2.99 $123,976 3,718 3.00
School savings accounts .. 5.50 15,112 837 5.54 11,895 661 5.56 8,271 460 5.56
Money market accounts .... 3.32 18,163 569 3.13 15,607 447 2.86 17,089 488 2.86
Demand deposits .......... 0.59 47,075 304 0.65 41,124 275 0.67 35,073 246 0.70
Time deposits ............ 5.78 230,794 13,483 5.84 215,183 12,487 5.80 214,420 12,829 5.98
Escrow accounts .......... 2.00 7,065 114 1.61 7,396 120 1.62 7,249 126 1.74
Borrowings ............... 6.05 5,467 332 6.07 2,392 133 5.56 4,694 297 6.33
------- ------ ------- ------ ------- ------
Total interest-bearing
liabilities ........... 4.28 444,635 19,262 4.33 417,115 17,821 4.27 410,772 18,164 4.42
------ ------ ------
Other liabilities ......... 4,677 5,033 6,898
Net worth ................. 51,875 47,060 42,735
------- ------- ------
Total liabilities and
net worth .............. $501,187 $469,208 $460,405
======== ======== ========
Net interest income ....... $19,161 $ 18,464 $ 17,219
======= ======== ========
Net interest rate
spread(1) ................ 3.44% 3.63% 3.77% 3.56%
==== ==== ==== ====
Net earning assets(2) ..... $ 37,838 $ 34,174 $ 32,369
======== ======== ========
Net yield on average
interest-earning
assets(3) ................ 3.97% 4.09% 3.89%
==== ==== ====
Average interest-earning
assets to average
interest-bearing
liabilities............... 1.09X 1.08X 1.08X
</TABLE>
- ----------------
(1) Interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(2) Net earning assets represents total interest-earning assets less total
interest-bearing liabilities.
(3) Net yield on average interest-earning assets, or net interest margin,
represents net interest income as a percentage of average interest-earning
assets.
32
<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. It distinguishes between the
changes related to outstanding balances and those due to the changes in interest
rates. 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 prior-period rate) and (ii) changes in rate
(i.e., changes in rate multiplied by prior-period volume). For purposes of this
table, changes attributable to both rate and volume, which cannot be segregated,
have been allocated proportionally to the change due to volume and the change
due to rate.
<TABLE>
<CAPTION>
Years Ended June 30, Years Ended June 30,
1998 vs. 1997 1997 vs. 1996
--------------------------------------- ---------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
----------------------- Increase --------------------- Increase
Volume Rate (Decrease) Volume Rate (Decrease)
------ ---- ---------- ------ ---- ----------
(In Thousands)
Interest and dividend income from:
<S> <C> <C> <C> <C> <C> <C>
Loans receivable................ $ 292 $ 115 $ 407 $ 908 $ 154 $ 1,062
Securities available for sale... 701 (21) 680 320 61 381
Investment securities........... 515 38 553 (600) (20) (620)
Federal Funds sold.............. 481 13 494 126 (8) 118
FHLB............................ 5 26 31 4 (16) (12)
Other interest-earning assets... (11) (16) (27) (38) 11 (27)
----------- ----------- ----------- ----------- ---------- -----------
Total interest and dividend income 1,983 155 2,138 720 182 902
--------- ---------- --------- ---------- ---------- ----------
Interest expense for:
Savings accounts................ (78) 2 (75) (14) (6) (20)
School savings accounts......... 178 (2) 176 201 -- 201
Money market accounts........... 77 44 122 (42) 1 (41)
Demand deposits................. 39 (10) 29 41 (12) 29
Time deposits................... 911 85 996 46 (385) (342)
Escrow accounts................. (5) (1) (6) 3 (9) (6)
Borrowings...................... 186 13 199 (131) (33) (164)
---------- ----------- ---------- ----------- ------------ -----------
Total interest expense 1,310 131 1,441 104 (447) (343)
---------- ----------- ---------- ----------- ----------- ------------
Net interest income............. $ 673 $ 24 $ 697 $ 616 $ 629 $ 1,245
========== =========== ========== ========== ========== =========
</TABLE>
33
<PAGE>
Financial Condition
Comparison of June 30, 1998 and June 30, 1997
Assets. Total assets at June 30, 1998 was $535.7 million, up $44.0
million, or 8.9% from the $491.7 million at June 30, 1997. The increase was
evenly divided with the loan portfolio, up $14.3 million, securities available
for sale up $13.2 million and investment securities up $20.1 million. This
growth in earning assets was funded by an increase in deposits from $429.4
million on June 30, 1997 to $449.5 million at June 30, 1998 and an increase in
borrowings of $19.9 million over the same period. 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 one to four family real estate and commercial business loans offset
by a decrease in consumer loans. One- to four-family real estate loans increased
$14.8 million, from $243.6 million to $258.4 million. 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 30 year fixed rate one to four family real
estate loans at a time when adjustable rate loans are less popular. A portion of
these loans were retained and match funded using long-term FHLB advances. See
"Business of Cohoes Savings Bank -- Borrowings." Commercial business loans
increased from $12.1 million at June 30, 1997, to $15.0 million at June 30,
1998. Consumer loans decreased $2.5 million to a balance of $49.7 million at
June 30, 1998 from $52.2 million at June 30, 1997. Most of this decrease relates
to a reduction in outstanding balances on home equity lines of credit.
Allowance for Loan Losses. The allowance for loan losses increased from
$3.1 million at June 30, 1997 to $3.5 million at June 30, 1998, an increase of
$428,000. This increase is the result of the $1.4 million provision for loan
losses taken in the year ended June 30, 1998 offset by $972,000 in net
charge-offs for the same period. The adequacy of the allowance for loan losses
is evaluated quarterly by management based upon a review of significant loans,
with particular emphasis on nonperforming and delinquent loans that management
believes warrant special attention. At June 30, 1998 the allowance for loan
losses provided coverage of 62.5% of total nonperforming loans, up from 46.4% at
June 30, 1997. The balance of the allowance is maintained at a level which is,
in management's judgment, reflective of the amount of risk inherent in the loan
portfolio. See "Business of the Bank - Asset Quality - Allowance for Loan
Losses."
Securities Available for Sale and Investment Securities. The balances
of securities available for sale and investment securities (collectively
"securities") increased from $35.5 million and $25.3 million, respectively, at
June 30, 1997 to $48.7 million and $45.4 million, respectively, as of June 30,
1998. These increases were the result of the purchase of securities totaling
$82.9 million offset by paydowns, maturities and calls of securities totaling
$49.5 million and sales totaling $60,000 during the year ended June 30, 1998.
Management's intention is to continue purchasing securities with available funds
in excess of loan demand. During the year ended June 30, 1998, loan demand was
stronger than in fiscal 1997.
Bank Premises and Equipment. The balance of bank premises and equipment
decreased from $7.7 million at June 30, 1997 to $7.3 million at June 30, 1998.
This decrease was a result of approximately $763,000 in computer-related
expenditures offset by $1.1 million in depreciation.
Other Real Estate Owned. The balance of other real estate owned
decreased from $1.9 million at June 30, 1997 to $509,000 at June 30, 1998, a
decrease of approximately $1.4 million. The majority of this decrease relates to
the sale in September 1997 of the Bank's largest ORE property that had a balance
of $1.0 million at June 30, 1997.
Deposits. Total deposits increased $20.1 million, or 4.7%, from $429.4
million at June 30, 1997 to $449.5 million at June 30, 1998. Of this total
increase, time deposits increased $743,000 (.3%), savings accounts increased
$1.7 million (1.4%), school savings accounts increased $3.3 million (24.1%),
money market accounts increased $6.2 million (40.3%), and demand accounts
increased $8.1 million (17.7%).
Borrowings. The balance of borrowings increased $19.9 million all of
which was the result of new borrowings during the year ended June 30, 1998 as
the bank matched financed portfolioed fixed-rate loans with these borrowings.
34
<PAGE>
Ten year fixed rate, fifteen year amortizing FHLB borrowings were used to fund
certain fixed rate one to four family real estate loans.
Comparison of June 30, 1997 and June 30, 1996
Assets. Total assets at June 30, 1997 stood at $491.7 million, up $28.3
million, or 6.1%, from $463.4 million at June 30, 1996. The increase was
concentrated in the loan portfolio which increased $4.6 million, ending June 30,
1997 at $398.5 million and securities available for sale which increased $14.6
million, ending June 30, 1997 at $35.5 million. This growth in loans and
securities was funded by an increase of $24.9 million in deposits from $404.5
million on June 30, 1996 to $429.4 million at June 30, 1997. 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 one- to four-family real estate loans, offset by decreases in the
Bank's commercial real estate and commercial business loans. Total one to four
family real estate loans increased $8.7 million, or 3.7%, which increased the
level of total residential real estate as a percentage of total loans from 59.1%
at June 30, 1996 to 60.6% at June 30, 1997. Commercial real estate loans fell
from $96.6 million at June 30, 1996 to $94.0 million at June 30, 1997. At June
30, 1997, commercial real estate loans represented 23.4% of total loans.
Commercial business loans decreased $1.2 million to a balance of $12.1 million
at June 30, 1997 from $13.3 million at June 30, 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 decreased from
$3.2 million at June 30, 1996 to $3.1 million at June 30, 1997, a decrease of
$144,000. This decrease is the result of a $1.3 million provision for loan
losses taken in the year ended June 30, 1997 offset by $1.5 million in net
charge-offs for the same period. At June 30, 1997, the allowance for loan losses
provided coverage of 46.4% of total non-performing loans, up slightly from 41.7%
at June 30, 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. In determining the appropriate level of the allowance
for loan losses, management considers past and anticipated loss experience,
evaluations of real estate collateral, current and anticipated economic
conditions, geographical concentration of loans, volume and type of lending, and
the levels of non-performing and other classified loans. The amount of the
allowance is based on estimates and the ultimate losses may vary from such
estimates. Management of the Bank assesses the allowance for loan losses on a
quarterly basis and makes provisions for loan losses in order to maintain the
adequacy of the allowance. See "Business of the Bank - Asset Quality - Allowance
for Loan Losses."
Securities Available for Sale and Investment Securities. The balance of
securities available for sale increased from $20.9 million at June 30, 1996 to
$35.5 million as of June 30, 1997. The balance of investment securities
decreased slightly from $26.0 million at June 30, 1996 to $25.3 million as of
June 30, 1997. The increase in securities available for sale and slight decrease
in investment securities (collectively "securities") during the year ended June
30, 1997 were driven by purchases of securities totaling $28.7 million, which
were offset by paydowns, maturities and calls of securities totaling $14.7
million and sales totaling $287,000.
Bank Premises and Equipment. The balance of Bank premises and equipment
increased from $6.9 million at June 30, 1996 to $7.7 million at June 30, 1997.
This increase was a result of expenditures totaling $1.8 million for the most
part relating to the opening of four new branch locations during the year ended
June 30, 1997 offset by $1.1 million in depreciation.
Other Real Estate Owned. The balance of other real estate owned
increased from $421,000 at June 30, 1996 to $1.9 million at June 30, 1997, an
increase of approximately $1.5 million. This increase directly relates to the
addition during the year ended June 30, 1997 of an ORE property that had a
balance of $1.0 million at June 30, 1997.
Deposits. Total deposits increased $24.9 million, or 6.2%, from $404.5
million at June 30, 1996 to $429.4 million at June 30, 1997. Of this total
increase, time deposits increased $20.6 million (9.8%), school savings accounts
increased $3.3 million (31.1%), demand accounts increased $5.1 million (12.5%),
while savings accounts decreased $3.1 million (2.4%) and money market accounts
decreased $1.1 million (6.6%).
Borrowings. Borrowings decreased $2.1 million during the year ended
June 30, 1997. There were no borrowings at June 30, 1997. This decrease was a
result of an increase in deposit balances which exceeded loan demand.
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Operating Results
Comparison of Year Ended June 30, 1998 and Year Ended June 30, 1997
Net Income. Net income for the year ended June 30, 1998 was $4.1
million, down from $4.6 million for the year ended June 30, 1997. Noninterest
expense increased $1.5 million for the year ended June 30, 1998 as compared to
the previous year. This increase was in part offset by an increase in net
interest income of $697,000 and a reduction in income tax expense of $322,000.
Net Interest Income. Net interest income for the year ended June 30,
1998 was $19.2 million, up $697,000 from the year ended June 30,1997. The
increase was primarily the result of the increase of $31.2 million in average
earning assets from $451.3 million for the year ended June 30, 1997 to $482.5
million for the same period in 1998. Average interest-bearing liabilities also
increased $27.5 million during the same period. The net impact of these volume
increases resulted in an increase in net interest income of $673,000. The Bank's
net interest margin for the year ended June 30, 1998 was 3.97%, down 12 basis
points from 4.09% for the year ended June 30, 1997. The yield on average earning
assets decreased from 8.04% to 7.96% , while the rate paid on average
interest-bearing liabilities increased from 4.27% to 4.33%, producing a decrease
in net interest spread of 14 basis points from 3.77% during fiscal 1997 to 3.63%
during fiscal 1998.
Interest Income. Interest income for the year ended June 30, 1998 was
$38.4 million, up from $36.3 million for the comparable period in 1997. The
largest component of the Bank's interest income is interest on loans. Interest
on loans increased from $33.2 million for the year ended June 30, 1997 to $33.6
million for the year ended June 30, 1998. This increase of $407,000 is the
result of both volume increases and rate increases. The average balance of loans
increased $3.5 million to $404.8 million, while the yield on loans increased 2
basis points from 8.27% to 8.29%. The increase in interest earned on loans was
supplemented by increases in interest earned on securities available for sale,
investment securities and federal funds. Interest income on these categories of
earning assets increased $680,000, $553,000 and $494,000, respectively.
Substantially all of the increases in interest income on these assets are
attributed to increases in volume. The average balance of securities available
for sale increased from $19.3 million for the year ended June 30, 1997 to $30.3
million for the year ended June 30, 1998. This increase in volume resulted in an
increase in interest income of $701,000. The average balance of investment
securities increased from $22.2 million in 1997 to $30.4 million in 1998,
resulting in a $515,000 increase in interest income due to volume. The average
balance of federal funds increased from $4.6 million in 1997 to $13.3 million in
1998. The increase in the volume of federal funds resulted in a $481,000
increase in interest income in the year ended June 30, 1998 as compared to the
year ended June 30, 1997. The changes in rates on securities available for sale,
investment securities and federal funds, as well as the changes in volume and
rate on other categories of interest-earning assets was not significant.
Interest Expense. Interest expense increased during the year ended June
30, 1998 to $19.3 million, up from $17.8 million for the comparable period in
1997. 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 paid on time deposits for the year ended June 30, 1998
was $13.5 million, up $1.0 million from the $12.5 million in 1997. This increase
is the result of an increase in the average balance of time deposits, from
$215.2 million in 1997 to $230.8 million in 1998 and an increase of 4 basis
points in the rates paid on these deposits from 5.80% in 1997 to 5.84% in 1998,
primarily due to competitive market conditions. Interest expense on savings
accounts was relatively flat, decreasing $75,000 from 1997 to 1998, almost
entirely attributed to a reduction in the average balance of savings accounts of
$2.6 million as depositors sought higher yielding investment opportunities.
Interest on school savings accounts increased $176,000, from $661,000 for the
year ended June 30, 1997 to $837,000 for the year ended June 30, 1998,
substantially all of which was the result of an increase in the average balance
of school savings accounts of $3.2 million. Interest on money market accounts
increased $122,000, from $447,000 for the year ended June 30, 1997 to $569,000
for the year ended June 30, 1998. The increase is attributed to an increase in
the average balance of money market accounts of $2.6 million as well as an
increase of 27 basis points in the rates paid on these money market accounts,
from 2.86% to 3.13% in compliance with the Bank's strategy to attract money
market accounts and remain competitive in its primary market area. Interest on
borrowings for the year ended June 30, 1998 was $332,000, up from $133,000 in
1997. Most of this increase was attributable to an increase in the average
balance of borrowings, from $2.4
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million in 1997 to $5.5 million in 1998 as the Bank attempted to match fund
fixed rate residential loans with borrowings. Fluctuations in interest expense
on other categories of interest-bearing liabilities were not significant.
Provision for Loan Losses. The provision for loan losses of $1.4
million in the year ended June 30, 1998 remained consistent with the $1.3
million provision in the year ended June 30, 1997. The amount of the provision
is attributed to the $13.3 million increase in outstanding loans tempered by the
reduction in the level of net charge-offs from $1.5 million for the year ended
June 30, 1997 to $972,000 for the year ended June 30, 1998.
Noninterest Income. Total noninterest income for the year ended June
30, 1998 was $2.7 million, relatively unchanged from the $2.8 million for the
year ended June 30, 1997. Service charges on deposits declined only slightly to
$746,000 for the year ended June 30, 1998, from $765,000 for the year ended June
30, 1997. Loan servicing revenue declined $73,000 from $568,000 for the year
ended June 30, 1997 to $495,000 for the year ended June 30, 1998. The decline
relates to a reduction in the balance of loans serviced for others due to
repayments on such loans exceeding loan sales during 1998. Fluctuations in other
noninterest income categories were not significant.
Noninterest Expense. Total noninterest expense increased $1.5 million
to $13.8 million for the year ended June 30, 1998, up from $12.3 million for the
comparable period in 1997. Increases in compensation and benefits of $1.1
million, occupancy of $193,000 and advertising of $123,000 were the primary
contributors to the overall increase. The increase in compensation and benefits
is the result of a decrease in the post-retirement benefit expense based on
revised actuarial assumptions in 1997, the recognition of a full year's salary
expense for employees at the four new branch locations opened in the year ended
June 30, 1997, an increase in the cost of health insurance benefits of $114,000
as well as general merit increases for the Bank's employees during the year
ended June 30, 1998. The increase in occupancy is directly attributed to a full
year's cost associated with the opening of the four branch locations mentioned
above. The increase in advertising is generally the result of the additional
cost of customer binders, brochures and media print for the introduction of
imaging for all demand account products during the month of June 1998. The
remaining categories of noninterest expense did not experience significant
fluctuation.
Income Tax Expense. Income tax expense decreased from $3.0 million for
the year ended June 30, 1997 to $2.7 million for the comparable period in 1998.
The reduction is primarily the result of less income before income tax expense,
$6.7 million in 1998 as compared to $7.6 million in 1997.
Comparison of Year Ended June 30, 1997 and Year Ended June 30, 1996
Net Income. Net income for the year ended June 30, 1997 was $4.6
million, up from $4.4 million for the year ended June 30, 1996. Net interest
income increased $1.2 million and noninterest income increased $323,000 for the
year ended June 30, 1997 as compared to the previous year. These increases were
in part offset by increases in the provision for loan losses of $835,000,
noninterest expense of $395,000 and income tax expense of $90,000.
Net Interest Income. Net interest income for the year ended June 30,
1997 was $18.5 million, up $1.2 million from the year ended June 30,1996. The
increase was partially the result of the increase of $8.2 million in average
earning assets from $443.1 million for the year ended June 30, 1996 to $451.3
million for the same period in 1997. Interest-bearing liabilities also increased
during the same period, up $6.3 million. The net impact of these volume
increases resulted in an increase in net interest income of $616,000. Net
interest income also increased by $629,000 due to changes in the yield on
average earning assets and rate paid on average interest-bearing liabilities.
The yield on average earning assets increased from 7.98% to 8.04%, while the
rate paid on average interest-bearing liabilities decreased from 4.42% to 4.27%.
The Bank's net interest margin for the year ended June 30, 1997 was 4.09%, up 20
basis points from 3.89% for the year ended June 30, 1996.
Interest Income. Interest income for the year ended June 30, 1997 was
$36.3 million, up from $35.4 million for the comparable period in 1996. The
largest component of interest income is interest on loans. Interest on loans
increased from $32.1 million for the year ended June 30, 1996 to $33.2 million
for the year ended June 30, 1997. This increase of $1.1 million is primarily the
result of an $11.0 million increase in the average balance of loans to $401.3
million, while the yield on loans increased 4 basis points from 8.23% to 8.27%.
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
37
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securities. Interest income on securities available for sale increased $381,000
while interest income on investments fell $620,000. 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 $14.4 million for the year ended June 30, 1996 to $19.3 million for the
year ended June 30, 1997. This increase in volume resulted in an increase in
interest income of $320,000. The average balance of investment securities
decreased from $32.0 million in 1996 to $22.2 million in 1997, resulting in a
$600,000 decrease in interest income due to volume as the Bank used liquidity to
fund increased loan demand. The changes in 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 decreased during the year ended June
30, 1997 to $17.8 million, down from $18.2 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 June 30, 1997 was
$12.5 million, down $342,000 from the $12.8 million in 1996. This decrease is
primarily the result of a decrease of 18 basis points in the rates paid on these
deposits from 5.98% in 1996 to 5.80% in 1997, reflecting the general decline in
market interest rates, offset by a slight increase in the average balance of
time deposits of $763,000 due to a decline in general market rates. Interest
expense on savings accounts was relatively flat, decreasing $20,000 from 1996 to
1997, primarily attributable to a reduction in the average balance of savings
accounts of $458,000. Interest on school savings accounts increased $201,000,
from $460,000 for the year ended June 30, 1996 to $661,000 for the year ended
June 30, 1997, substantially all of which was the result of an increase in the
average balance of school savings accounts of $3.6 million. Interest on
borrowings for the year ended June 30, 1997 was $133,000, down from $297,000 in
1996. Most of this decrease was attributable to a decrease in the average
balance of borrowings, from $4.7 million in 1996 to $2.4 million in 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
$490,000 in the year ended June 30, 1996 to $1.3 million in the year ended June
30, 1997. This increase is primarily the result of increases in net charge-offs
from $374,000 for the year ended June 30, 1996 to $1.5 million for the year
ended June 30, 1997. The increase in net charge-offs combined with the continued
growth of the 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. See "Business of the Bank - Asset Quality Allowance
for Loan Losses."
Noninterest Income. Total noninterest income increased $323,000 for the
year ended June 30, 1997 as compared to the same period in 1996. Income from
service charges on deposits increased only slightly to $765,000 for the year
ended June 30, 1997, from $741,000 for the year ended June 30, 1996. Loan
servicing revenue decreased $37,000 from $605,000 in the year ended June 30,
1996 to $568,000 in the year ended June 30, 1997. The decline relates to a
reduction in the balance of loans serviced for others. Net gain (loss) on the
sale of mortgage loans increased from a loss of $20,000 for the year ended June
30, 1996 to a gain of $106,000 for the year ended June 30, 1997. Other
noninterest income increased from $1.1 million for the year ended June 30, 1996
to $1.4 million for the year ended June 30, 1997. This increase was the result
of increases in ATM fees, loan assignment fees, rents collected on ORE
properties and gains on the sale of securities.
Noninterest Expense. Total noninterest expense increased $395,000 to
$12.3 million for the year ended June 30, 1997, up from $11.9 million for the
comparable period in 1996. The increase in occupancy of $246,000 and other
noninterest expense of $162,000 were the primary contributors to the overall
increase. The decrease in compensation and benefits resulted from general merit
increases for the Bank's employees during the year ended June 30, 1997, offset
by a decrease in the post-retirement benefit expense based on revised actuarial
assumptions. The increase in occupancy was directly attributed to the increased
lease expense associated with the opening of four new branch locations in the
year ended June 30, 1997. The increase in other noninterest expense was
generally attributed to an increase in legal fees associated with the collection
and foreclosure of delinquent loans.
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Income Tax Expense. Income tax expense increased from $2.9 million for
the year ended June 30, 1996 to $3.0 million for the comparable period in 1997.
The increase is the result of more income before income tax expense, $7.6
million in 1997 as compared to $7.3 million in 1996.
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 include
cash and cash equivalents, investment securities that mature within one year,
and its portfolio of securities available for sale. At June 30, 1998, 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 16.8%.
The Bank's cash inflows result primarily from loan repayments,
maturities, calls and paydowns of securities, new deposits, and to a lesser
extent, drawing upon the Bank's credit lines with the FHLB 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 assets combined with
daily monitoring of 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 $53.3
million at June 30, 1998, 9.9% of total assets on that date. As of June 30, 1997
and 1996, total equity was $49.1 million and $44.3 million, respectively, or
10.0% and 9.6% of total assets at the respective dates. As of June 30, 1998, the
Bank exceeded all of the capital requirements of the FDIC. The Bank's regulatory
capital ratios at June 30, 1998 were as follows: Tier I (leverage) capital,
10.6%; Tier I risk-based capital, 16.0%; and Total risk-based capital, 17.1%.
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 been following, and will continue to follow, the
guidelines provided by the Federal Financial Institutions Examinations Council
("FFIEC"). The Bank has formulated a Year 2000 Plan in which it has conducted a
comprehensive review of its computer systems to identify applications that could
be affected by the "Year 2000" issue, and has developed and tested 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 is in the process of developing contingency plans should its
primary service providers and other vendors be unable to comply. Management
anticipates the costs to become Year 2000 compliant to be approximately
$100,000; however, there can be no assurance that the vendors' systems will be
Year 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.
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Impact of 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 condition and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the 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/ Existing Pronouncements to be Adopted by the
Holding Company
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 committed to be released. The Holding Company has
adopted an ESOP in connection with the Conversion, which is expected to purchase
8% of the Holding Company 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 FASB issued SFAS No. 123, "Accounting for Stock
Based Compensation" ("SFAS No. 123"). This statement establishes financial
accounting standards for stock-based employee compensation plans. SFAS No. 123
permits the Holding Company 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 non-employees or to
acquire goods or services from outside suppliers or vendors. The Holding 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 Holding 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 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,
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1997, including interim periods. The Holding Company will adopt this Statement
for all financial statements prepared after the 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.
The Holding Company will adopt this Statement for all financial statements
prepared after the Conversion
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
Holding Company's financial reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post- retirement Benefits," which amends the disclosure
requirements of SFAS No. 87. "Employers' Accounting for Pensions," SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers'
Accounting for Post-retirement Benefits Other Than Pensions." Statement No. 132
standardizes the disclosure requirements of Statements No. 87 and No. 106 to the
extent practicable and recommends a parallel format for presenting information
about pensions and other post-retirement benefits. This Statement is applicable
to all entities and addresses disclosure only. The Statement does not change any
of the measurement or recognition provisions provided for in Statements No. 87,
No. 88, or No. 106. The Statement is effective for fiscal years beginning after
December 15, 1997. Management anticipates providing the required disclosures in
the June 30, 1999 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. SFAS No. 133 will
not impact the Bank's accounting or disclosures.
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BUSINESS OF THE HOLDING COMPANY
The Holding Company, a Delaware corporation, was organized in September,
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."
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. Although there are no current
arrangements, understandings or agreements regarding any such opportunities or
transactions, the Holding Company will be in a position after the Conversion,
subject to regulatory limitations and the Holding Company's financial position,
to take advantage of any such acquisition and expansion opportunities that may
arise. 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 1851. 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, multi-family and commercial real
estate, consumer and commercial business loans. The Bank originates its loans
primarily in its market area and, to a lesser extent, the Bank also originates
commercial real estate loans in New York City. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Bank also
invests in mortgage-backed securities, U.S. Government and agency obligations
and, to a limited extent, corporate debt securities. Revenues are derived
primarily from interest on loans and securities.
The Bank 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 FDIC. The Bank only solicits deposits in its primary
market area and does not currently solicit brokered deposits. The Bank is a
member of the FHLB 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. The Bank's primary market area is comprised of
Albany, Saratoga, Schenectady, and Rensselaer Counties, and a portion of Warren
County in New York, which are serviced through the Bank's main office and 15
other full service banking offices and one public accommodation office which the
Bank has applied to the FDIC and the Department and received approval to convert
to a full service banking office. The Bank expects to convert this office to a
full service branch office in October, 1998. The Bank's main office and seven of
its branch offices are located in Albany County. Based on the most recent
information available, the Bank had less than 10% of total bank and thrift
deposits in its market area.
42
<PAGE>
The Bank'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 and governmental jobs
represent the largest type of employment in the Bank's primary market area, with
jobs in wholesale/retail trade accounting for one of the largest employment
sectors. 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 lines of credit and second
mortgages, secured by the borrower's primary residence. The Bank's general
practice is to originate fixed and adjustable rate mortgage loans with terms to
maturity between 5 and 30 years and until December 1997, sold substantially all
its fixed rate mortgage loans on the secondary market. Currently, the Bank has
been retaining its 30-year and 15-year fixed rate mortgage loans for its
portfolio as the declining interest rate environment has made it more difficult
to originate adjustable-rate loans. The Bank retains all adjustable rate
mortgage loans in its portfolio. The Bank also originates multi-family and
commercial real estate, consumer and commercial business loans. In-market loan
originations are generated by eight on-staff loan originators, 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 Bank also has established
relationships with certain mortgage brokers that take applications for
residential mortgage loans (under Cohoes underwriting guidelines) on behalf of
Cohoes. During fiscal 1998, $5.2 million of the Bank's loans were originated
through mortgage brokers. At June 30, 1998, the Bank's loan portfolio totaled
approximately $416.3 million.
The Bank originates fixed and adjustable rate consumer loans. 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. The approval of the Bank's of Trustees is required for
any loans over $500,000. Pursuant to the Bank's lending policy, certain senior
officers may approve loans up to $500,000.
The Bank is not subject to state or federal regulation limiting the
aggregate amount of mortgage loans it is permitted to make to one borrower or
affiliated groups of borrowers. New York law does require lending policies that
avoid imprudent mortgage concentrations. However, the aggregate amount of
commercial loans that the Bank is permitted to make to any one borrower or group
of related borrowers is generally limited to 15% of unimpaired capital and
surplus. At June 30, 1998, the Bank's loans-to-one-borrower limit was
approximately $8.0 million. On the same date, the Bank had no borrowers with
outstanding balances in excess of this amount.
At June 30, 1998, the Bank's largest lending relationship consisted of five
loans to a group of borrowers secured by professional buildings and warehouse
space, and totaling $3.9 million. The next largest lending relationship
consisted of six loans aggregating approximately $3.3 million primarily secured
by an office building and a self-storage facility. The third largest lending
relationship consisted of eight loans totaling approximately $3.3 million
secured by two mobile home parks and a car wash facility. The fourth largest
lending relationship consisted of four loans totaling approximately $3.2 million
secured by a participation in a shopping center and office/apartment building.
The fifth largest lending relationship consisted of eight loans totaling
approximately $2.6 million secured by an office building and commercial building
lots. As of June 30, 1998, 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.
43
<PAGE>
The following table sets forth the composition of the Bank's loan portfolio
in dollar amounts and as a percentage of the portfolio at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------ ------------------ ------------------- ------------------ ------------------
Amount % of Total Amount % of Total Amount % of Total Amount % of Total Amount % of Total
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family
real estate ............. $258,399 62.07% $243,620 60.62% $234,900 59.06% $227,253 59.38% $179,836 56.79%
Multi-family and
commercial real estate .. 93,229 22.39 93,979 23.39 96,623 24.29 86,659 22.65 77,642 24.52
-------- ----- -------- ------- -------- ------ -------- ------ -------- -----
Total real estate loans . 351,628 84.46 337,599 84.01 331,523 83.35 313,912 82.03 257,478 81.31
Consumer loans:
Home equity lines of
credit .................. 21,976 5.28 25,205 6.27 27,342 6.87 30,792 8.05 31,741 10.02
Conventional second
mortgages ............... 15,093 3.63 14,069 3.50 11,111 2.79 10,765 2.81 10,444 3.30
Automobile loans .......... 9,783 2.35 9,290 2.31 9,982 2.51 9,790 2.56 7,211 2.28
Credit cards .............. 1,655 0.40 2,152 0.54 2,767 0.70 3,350 0.88 3,093 0.97
Other consumer loans ...... 1,184 0.28 1,438 0.36 1,776 0.45 2,117 0.55 2,131 0.67
-------- ----- -------- ------ ------- ------ -------- ------ -------- ------
Total consumer loans .... 49,691 11.94 52,154 12.98 52,978 13.32 56,814 14.85 54,620 17.24
Commercial business loans ... 14,991 3.60 12,096 3.01 13,250 3.33 11,942 3.12 4,578 1.45
-------- ----- -------- ------ ------- ------ -------- ------ -------- ------
Total loans ............. 416,310 100.00% 401,849 100.00% 397,751 100.00% 382,668 100.00% 316,676 100.00%
====== ====== ====== ====== ======
Less:
Net deferred loan
origination fees and
costs ................... (18) (214) (532) (447) (246)
Allowance for loan
losses .................. (3,533) (3,105) (3,249) (3,133) (3,011)
-------- -------- ------- ------- --------
Total loans, net ........ $412,759 $398,530 $393,970 $379,088 $313,419
======== ======== ======== ======== ========
</TABLE>
44
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------
1998 1997 1996
------------------ ------------------ -----------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed Rate Loans
Real estate:
One- to four-family real estate ............. $ 88,389 21.23% $ 21,365 5.32% $ 15,975 4.02%
Multi-family and commercial real estate ..... 42,274 10.15 51,859 12.90 64,369 16.18
-------- ------ -------- ------ -------- ------
Total real estate loans ................... 130,663 31.38 73,224 18.22 80,344 20.20
Consumer:
Home equity lines of credit ................. -- -- -- -- -- --
Conventional second mortgages ............... 15,093 3.63 14,069 3.50 11,111 2.79
Automobile loans ............................ 9,783 2.35 9,290 2.31 9,982 2.51
Credit cards ................................ 1,655 0.40 2,152 0.54 2,767 0.70
Other consumer loans ........................ 1,184 0.28 1,438 0.36 1,776 0.45
-------- ------ -------- ------ -------- ------
Total consumer loans ...................... 27,715 6.66 26,949 6.71 25,636 6.45
Commercial business loans ..................... 5,651 1.36 3,700 0.92 3,280 0.82
-------- ------ -------- ------ -------- ------
Total fixed-rate loans .................... 164,029 39.40 103,873 25.85 109,260 27.47
Adjustable-Rate Loans
Real estate:
One- to four-family real estate ............. 170,010 40.84 222,255 55.31 218,925 55.04
Multi-family and commercial real estate ..... 50,955 12.24 42,120 10.48 32,254 8.11
-------- ------ -------- ------ -------- ------
Total real estate loans ................... 220,965 53.08 264,375 65.79 251,179 63.15
Consumer:
Home equity lines of credit ................. 21,976 5.28 25,205 6.27 27,342 6.87
Conventional second mortgages ............... -- -- -- -- -- --
Automobile loans ............................ -- -- -- -- -- --
Credit cards ................................ -- -- -- -- -- --
Other consumer loans ........................ -- -- -- -- -- --
-------- ------ -------- ------ -------- ------
Total consumer loans ...................... 21,976 5.28 25,205 6.27 27,342 6.87
Commercial business loans ..................... 9,340 2.24 8,396 2.09 9,970 2.51
-------- ------ -------- ------ -------- ------
Total adjustable-rate loans ............... 252,281 60.60 297,976 74.15 288,491 72.53
------- ------ -------- ------ -------- ------
Total loans ............................... 416,310 100.00% 401,849 100.00% 397,751 100.00%
====== ====== ======
Less:
Net deferred loan origination fees and costs .. (18) (214) (532)
Allowance for loan losses ..................... (3,533) (3,105) (3,249)
-------- -------- --------
Total loans receivable, net ............... $412,759 $398,530 $393,970
======== ======== ========
</TABLE>
45
<PAGE>
The following table illustrates the contractual maturity of the Bank's loan
portfolio at June 30, 1998. Mortgages which have adjustable or renegotiable
interest rates are shown as maturing in the period in 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
--------------------------- ---------------------------------------------
One- to four- Multi-family Commercial Home equity Conventional Automobile
family commercial business loans lines of credit second mortgages Loans
------------- ------------ -------------- --------------- ---------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts Due:
0 months to 1 year ..... $ 14 $18,965 $ 4,975 $ -- $ 165 $ 460
After 1 year:
1 to 2 years ........... 51 7,874 2,825 -- 456 1,703
2 to 3 years ........... 84 6,488 1,380 -- 810 2,582
3 to 5 years ........... 742 5,395 3,068 -- 4,593 4,982
5 to 10 years .......... 9,401 34,418 1,578 221 7,135 26
10 to 15 years ......... 41,247 10,151 200 3,736 1,926 30
Over 15 years .......... 206,860 9,938 965 18,019 8 --
-------- ------- ------- ------- ------- ------
Total due after 1 year ... 258,385 74,264 10,016 21,976 14,928 9,323
-------- ------- ------- ------- ------- ------
Total amount due ......... $258,399 $93,229 $14,991 $21,976 $15,093 $9,783
======== ======= ======= ======= ======= ======
Less:
Net deferred loan
origination fees
and costs ............
Allowance for loan
losses ...............
Total loans
receivable, net ....
</TABLE>
Consumer Loans Total
----------------------- ------------------
Other Weighted
consumer Average
Credit cards loans Amount Rate
------------ -------- -------- --------
(Dollars in Thousands)
Amounts Due:
0 months to 1 year ..... $1,655 $ 68 $ 26,302 8.52%
After 1 year:
1 to 2 years ........... -- 145 13,054 9.40
2 to 3 years ........... -- 224 11,568 8.78
3 to 5 years ........... -- 114 18,894 8.42
5 to 10 years .......... -- 340 53,119 8.48
10 to 15 years ......... -- 100 57,390 7.90
Over 15 years .......... -- 193 235,983 7.87
------ ------ --------
Total due after 1 year ... -- 1,116 390,008 8.06
------ ------ --------
Total amount due ......... $1,655 $1,184 416,310 8.09
====== ======
Less:
Net deferred loan
origination fees
and costs ............ (18)
Allowance for loan
losses ............... (3,533)
--------
Total loans
receivable, net .... $412,759
========
46
<PAGE>
The following table sets forth the dollar amounts in each loan category at
June 30, 1998 that are contractually due after June 30, 1999, and whether such
loans have fixed or adjustable interest rates.
Due after June 30, 1999
----------------------------------
Fixed Adjustable Total
(In Thousands)
Residential real estate ................. $ 85,919 $172,466 $258,385
Commercial real estate .................. 26,412 47,852 74,264
-------- -------- --------
Total real estate loans ....... 112,331 220,318 332,649
Commercial business loans ............... 4,984 5,032 10,016
Consumer loans
Home equity lines of credit ........ -- 21,976 21,976
Conventional second mortgages ...... 14,928 -- 14,928
Automobile loans ................... 9,323 -- 9,323
Credit cards ....................... -- -- --
Other consumer loans ............... 1,116 -- 1,116
-------- -------- --------
Total consumer loans .......... 25,367 21,976 47,343
-------- -------- --------
Total loans ................... $142,682 $247,326 $390,008
======== ======== ========
Residential Real Estate Lending
Cohoes' residential real estate loans consist of primarily one- to
four-family, owner occupied mortgage loans. At June 30, 1998, $258.4 million, or
62.07% of Cohoes' total loans consisted of one- to four-family residential first
mortgage loans. At June 30, 1998, approximately $88.4 million or 21.23% of
Cohoes' one- to four-family residential first mortgage loans provided for fixed
rates of interest and for repayment of principal over a fixed period not to
exceed 30 years. Cohoes does not originate fixed-rate loans for terms longer
than 30 years. Cohoes' fixed-rate one- to four-family residential mortgage loans
are priced competitively with the market. Accordingly, Cohoes attempts to
distinguish itself from its competitors based on quality of service.
Cohoes generally underwrites its fixed-rate one- to four-family residential
first mortgage loans using Fannie Mae guidelines. Until December 1997, the Bank
sold substantially all fixed-rate residential mortgage loans it originated to
the secondary market, and continues to service the loans it sells. Currently,
the Bank generally holds for investment all adjustable and fixed rate one- to
four-family residential first mortgage loans it originates. In underwriting one-
to four-family residential first mortgage loans, Cohoes 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 Cohoes
are appraised by independent fee appraisers approved by the Bank's Board of
Trustees. Cohoes 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 or the replacement cost of the dwelling.
The Bank currently offers one- and five-year residential ARM loans with an
interest rate that adjusts annually after the initial period, based on the
change in the corresponding term 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 ARM loans
are generally qualified at the initial interest rate (however, for one-year
ARMs, borrowers are qualified at the maximum rate after the first adjustment).
The Bank offers one-year ARM loans that are convertible (from the second through
the fifth year of the loan) 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 June 30, 1998, the Bank had not experienced higher default rates
on these loans relative to its other loans. See "--Asset Quality-Non-Performing
Assets."
47
<PAGE>
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, Cohoes 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%. If the loan-to-value ratio exceeds 80%,
Cohoes 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." In addition, on occasion the Bank will
make a loan for the construction of the borrower's primary residence. At June
30, 1998 the Bank had $1.7 million in loans outstanding for the construction of
the borrower's residence.
Multi-Family and Commercial Real Estate Lending
The Bank has engaged in multi-family and commercial real estate lending
secured primarily by apartment buildings, office buildings, nursing homes, strip
shopping centers and mobile home parks located in the Bank's primary market
area. At June 30, 1998, the Bank had $93.2 million of multi-family and
commercial real estate loans, representing 22.39% of the Bank's total loan
portfolio. As of June 30, 1998, $25.8 million of this portfolio was secured by
property located in New York City.
Multi-family and commercial real estate loans generally have terms to
maturity that do not exceed 20 years. Cohoes' current lending guidelines
generally require that the property securing a loan generate net cash flows of
at least 120% of debt service after the payment of all operating expenses,
excluding depreciation, and the loan-to-value ratio not exceed 80% 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
multi-family and commercial real estate loans are generally written as ten-year
balloon loans, which adjust after five years to a margin over the five-year
United States Treasury index, and amortize over a term up to 20 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 secured 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.
Multi-family and 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.
Consumer Lending
The Bank offers a variety of secured and unsecured consumer loans,
including home equity lines of credit and second mortgages and, to a lesser
extent, automobile and credit card loans. Substantially all of the Bank's
consumer loans are originated on property located or for customers residing in
the Bank's primary market area. At June 30, 1998, the Bank's consumer loan
portfolio totaled $49.7 million, or 11.94% of the Bank's total loan portfolio.
48
<PAGE>
The Bank's home equity lines of credit and second mortgages are secured by
a lien on the borrower's residence and generally do not exceed $100,000. Cohoes
uses the same underwriting standards for home equity lines of credit and second
mortgages as it uses for one- to four-family residential mortgage loans. Home
equity lines of credit and second mortgages 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 float at a stated margin over the prime rate
and second mortgages generally 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 25 years. As of June 30, 1998, the Bank had $22.0 million, or 5.28% of
the Bank's total loan portfolio outstanding, in home equity lines of credit,
with an additional $12.9 million of unused home equity lines of credit, and
$15.1 million, or 3.63% of the Bank's total loan portfolio, in second mortgages.
The underwriting standards employed by the Bank for consumer loans other
than home equity lines of credit and second mortgages 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.
The Bank's automobile loans are originated as installment loans with a
fixed interest rate and terms of up to 60 months for new vehicles and up to 60
months for certain used vehicles. The Bank originates its automobile loans
directly and will loan up to 100% of the value of a new automobile and up to 90%
of the value of a used automobile. At June 30, 1998, Cohoes had $9.8 million of
automobile loans.
The Bank does not originate any consumer loans on an indirect basis (i.e.,
where loan contracts are purchased from retailers of goods or services which
have extended credit to their customers).
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
automobile 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 automobile
loans.
Commercial Business Lending
At June 30, 1998, commercial business loans comprised $15.0 million, or
3.60% 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 generally 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
49
<PAGE>
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.
The Bank 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
the Bank'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.
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 personnel, as well as
through established relationships with certain mortgage brokers. The Bank
currently originates substantially all its mortgage loans to conform with the
underwriting standards of Fannie Mae and Freddie Mac. As such, these loans are
saleable to the secondary market.
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 economy and the
interest rate environment. Until December 1997, the Bank sold all its fixed-rate
loans to the secondary market, servicing retained. Currently, the Bank generally
retains its fixed-rate and adjustable-rate real estate loans in its portfolio.
At June 30, 1998, the Bank serviced approximately $233.1 million of loans for
others.
During the year ended June 30, 1998, the Bank originated $180.7 million of
loans, compared to $141.5 million in fiscal 1997.
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.
50
<PAGE>
The following table shows the loan origination and repayment activities of
the Bank for the periods indicated.
Year Ended June 30,
----------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
Loans at beginning of period ............ $401,849 $397,751 $382,668
-------- -------- --------
Originations by type:
Real estate loans:
One- to four-family ................ 107,991 74,641 73,829
Multi-family and commercial
real estate ...................... 33,171 32,132 20,521
-------- -------- --------
Total real estate loans ...... 141,162 106,773 94,350
Consumer loans:
Home equity lines of credit ........ 8,243 9,092 10,108
Conventional second mortgages ...... 5,918 7,069 4,240
Automobile loans ................... 6,766 5,189 6,466
Credit cards ....................... 2,561 3,052 3,408
Other consumer loans ............... 822 814 1,024
-------- -------- --------
Total consumer loans ......... 24,310 25,216 25,246
Commercial business loans .......... 15,195 9,461 10,726
-------- -------- --------
Total loans originated ............. 180,667 141,450 130,322
-------- -------- --------
Less:
Principal repayments ............... 155,969 123,732 98,618
Loan sales ......................... 8,105 9,567 15,747
Charge-offs ........................ 1,038 1,376 239
Transfers to ORE ................... 1,094 2,677 635
-------- -------- --------
Total loan reductions ........... 166,206 137,352 115,239
-------- -------- --------
Net Loan Activity ....................... 14,461 4,098 15,083
-------- -------- --------
Loans at end of period .................. $416,310 $401,849 $397,751
======== ======== ========
51
<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. The
Bank attempts to contact the borrower by telephone to arrange payment of the
delinquency between the 16th and the 30th day. 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, commercial business and multi-family and
commercial real estate loans are similar to efforts on one- to four-family
residential mortgage loans, except that collection efforts on consumer and
multi-family commercial real estate loans generally begin within 15 days after
the payment date is missed. 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.
Delinquent Loans. The following table sets forth information concerning
delinquent loans as June 30, 1998, in dollar amounts and as a percentage of the
Bank's loan portfolio. The amounts presented represent the total remaining
principal balances of the related loans, rather than the actual payment amounts
which are overdue.
<TABLE>
<CAPTION>
June 30, 1998
---------------------------------------------------------------------------------------------------
Total loans delinquent
60-89 days 90 days or more 60 days or more
----------------------------- --------------------------------- --------------------------------
Principal Percent Principal Percent Principal Percent
Number Balance of Loan Number Balance of Loan Number Balance of Loan
of Loans of Loans Category of Loans of Loans Category of Loans of Loans Category
-------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family
real estate .............. 9 $ 757 0.29% 33 $2,635 1.02% 42 $3,392 1.31%
Multi-family and
commercial real estate ... 3 263 0.28 6 823 0.88 9 1,086 1.17
--- ------ --- ------ --- ------
Total real estate loans .. 12 1,020 0.29 39 3,458 0.98 51 4,478 1.27
Consumer loans:
Home equity lines
of credit ................ 1 14 0.06 1 40 0.18 2 54 0.25
Conventional second
mortgages ................ 1 41 0.27 3 35 0.23 4 76 0.50
Automobile loans ........... 3 10 0.10 6 32 0.33 9 42 0.43
Credit cards ............... 9 23 1.39 20 57 3.44 29 80 4.83
Other consumer loans ....... 2 2 0.17 8 33 2.79 10 35 2.96
--- --- --- ----- --- -----
Total consumer loans ..... 16 90 0.18 38 197 0.40 54 287 0.58
Commercial business loans ... -- -- -- 1 65 0.43 1 65 0.43
--- ------ --- ------ --- ------
Total delinquent loans ... 28 $1,110 0.27% 78 $3,720 0.89% 106 $4,830 1.16%
=== ====== ==== === ====== ==== === ====== ====
</TABLE>
52
<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. ORE includes assets acquired in settlement of loans.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
Non-accrual loans:
<S> <C> <C> <C> <C> <C>
One- to four-family real estate ......................... $2,635 $2,835 $1,852 $ 441 $ 891
Multi-family and commercial real estate ................. 823 1,246 3,438 1,820 1,299
Conventional second mortgages ........................... 35 62 48 35 84
Consumer loans .......................................... 105 380 245 40 17
Commercial business loans ............................... 65 217 -- -- --
------ ------ ------ ------ ------
Total non-accrual loans ....................... 3,663 4,740 5,583 2,336 2,291
Loans contractually past due 90 days or more
and still accruing interest:
Multi-family and commercial real estate ................. -- -- -- 308 317
Consumer loans .......................................... 57 42 158 67 18
------ ------ ------ ------ ------
Total loans 90 days or more past
due and still accruing interest ............. 57 42 158 375 335
Troubled debt restructurings ................................. 1,929 1,906 2,052 2,352 2,266
------ ------ ------ ------ ------
Total non-performing loans .................... 5,649 6,688 7,793 5,063 4,892
Real estate owned (ORE) ...................................... 509 1,874 421 396 437
------ ------ ------ ------ ------
Total non-performing assets ................... $6,158 $8,562 $8,214 $5,459 $5,329
====== ====== ====== ====== ======
Allowance for loan losses .................................... $3,533 $3,105 $3,249 $3,133 $3,011
====== ====== ====== ====== ======
Coverage of non-performing loans ............................. 62.54% 46.43% 41.69% 61.88% 61.55%
====== ====== ====== ====== ======
Total non-performing loans as a percentage
of total loans .............................................. 1.36% 1.66% 1.96% 1.32% 1.54%
====== ====== ====== ====== ======
Total non-performing loans as a percentage
of total assets ............................................. 1.05% 1.36% 1.68% 1.10% 1.21%
====== ====== ====== ====== ======
</TABLE>
53
<PAGE>
Non-Accruing Loans. At June 30, 1998, the Bank had approximately $3.7
million in non-accruing loans, which constituted 0.9% of the Bank's total loan
portfolio. As of such date, there were no non-accruing loans or aggregate
non-accruing loans-to-one-borrower in excess of $750,000.
For the year ended June 30, 1998 accumulated interest income on nonaccrual
loans of approximately $214,000 was not recognized as income.
Accruing Loans Contractually Past Due 90 Days or More. As of June 30, 1998,
the Bank had approximately $57,000 in accruing loans contractually past due 90
days or more.
Troubled Debt Restructurings. As of June 30, 1998, the Bank had
approximately $1.9 million of troubled debt restructurings (which involve
forgiving a portion of interest or principal on the loan or restructuring a loan
to a rate materially less than that of market rates). At that date, there were
no troubled debt restructurings in excess of $750,000.
ORE. As of June 30, 1998, the Bank had $509,000 of ORE. At that date, ORE
consisted of 14 residential and one commercial property located in the Bank's
primary market area. 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 ORE until sold. When property is classified as ORE, 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 ORE is
expensed as incurred.
Other Loans of Concern. As of June 30, 1998, there was $636,000 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. 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 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 June 30, 1998, the Bank had a total allowance for loan losses of
$3.5 million, representing 62.5% of total non-performing loans.
54
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses at the dates and for the periods indicated.
<TABLE>
<CAPTION>
At or for the fiscal year ended June 30,
------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning period ............. $ 3,105 $ 3,249 $ 3,133 $ 3,011 $ 2,308
Charged-off loans:
Real estate loans
One- to four-family real estate ..................... 432 619 128 79 35
Multi-family and commercial real estate ............. 93 343 21 -- --
------- ------- ------- ------- -------
Total real estate loan charge-offs ............... 525 962 149 79 35
Commercial business loans charge-offs ................. 218 105 4 -- --
Consumer loans
Home equity lines of credit ......................... 84 39 18 -- --
Conventional second mortgages ....................... 16 1 -- -- 7
Automobile loans .................................... 121 55 23 28 1
Credit cards ........................................ 212 353 132 91 1
Other consumer loans ................................ 41 56 75 37 14
------- ------- ------- ------- -------
Total consumer loan charge-offs .................. 474 504 248 156 23
------- ------- ------- ------- -------
Total charged-off loans .......................... 1,217 1,571 401 235 58
Recoveries on loans previously charged-off:
One- to four-family real estate ..................... 78 28 4 -- --
Multi-family and commercial real estate ............. 93 40 13 -- --
------- ------- ------- ------- -------
Total real estate loan recoveries ................ 171 68 17 -- --
Commercial business loan recoveries ................. 35 -- 1 -- --
Consumer loans
Home equity lines of credit ....................... -- 4 -- -- --
Conventional second mortgages ..................... -- -- 3 8 --
Automobile loans .................................. 8 5 -- 3 1
Credit cards ...................................... 23 16 4 2 --
Other consumer loans .............................. 8 9 2 14 10
------- ------- ------- ------- -------
Total consumer loan recoveries .................. 39 34 9 27 11
------- ------- ------- ------- -------
Total recoveries ................................ 245 102 27 27 11
------- ------- ------- ------- -------
Net loans charged-off ................................... (972) (1,469) (374) (208) (47)
Provision for loan losses ............................... 1,400 1,325 490 330 750
------- ------- ------- ------- -------
Allowance for loan losses, end of period ................ $ 3,533 $ 3,105 $ 3,249 $ 3,133 $ 3,011
======= ======= ======= ======= =======
Net charged-off loans to average loans .................. 0.24% 0.37% 0.10% 0.06% 0.01%
======= ======= ======= ======= =======
Allowance for loan losses to total loans ................ 0.85% 0.77% 0.82% 0.82% 0.95%
======= ======= ======= ======= =======
Allowance for loan losses to
nonperforming loans ................................... 62.54% 46.43% 41.69% 61.88% 61.55%
======= ======= ======= ======= =======
Net charged-off loans to allowance
for loan losses ................................. 27.51% 47.31% 11.51% 6.64% 1.56%
======= ======= ======= ======= =======
Recoveries to charged-offs .............................. 20.13% 6.49% 6.73% 11.49% 18.97%
======= ======= ======= ======= =======
</TABLE>
55
<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 to each category does not
restrict the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------------------------
1998 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 Allowance Losses Allowance Allowance Losses Allowance Allowance
--------- ---------- --------- --------- ---------- --------- --------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans
One- to four-family real estate ... $ 649 18.37% 62.07% $ 493 15.88% 60.62% $ 591 18.19% 59.06%
Multi-family and commercial
real estate ..................... 1,438 40.70 22.39 1,339 43.12 23.39 1,848 56.88 24.29
------ ------ ------ ------ ------ ------ ------ ------ ------
Total real estate loans ....... 2,087 59.07 84.46 1,832 59.00 84.01 2,439 75.07 83.35
Consumer loans
Home equity lines of credit ....... 41 1.16 5.28 24 0.77 6.27 158 4.86 6.87
Conventional second mortgages ..... 26 0.74 3.63 22 0.71 3.50 9 0.28 2.79
Automobile loans .................. 74 2.09 2.35 35 1.13 2.31 40 1.23 2.51
Credit cards ...................... 154 4.36 0.40 132 4.25 0.54 183 5.63 0.70
Other consumer loans .............. 45 1.27 0.28 56 1.80 0.36 102 3.14 0.45
------ ------ ------ ------ ------ ------ ------ ------ ------
Total consumer loans .......... $ 340 9.62 11.94 269 8.66 12.98 492 15.14 13.32
Commercial business loans ........... 164 4.64 3.60 215 6.93 3.01 227 6.99 3.33
Unallocated ......................... 942 26.67 -- 789 25.41 -- 91 2.80 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total ......................... $3,533 100.00% 100.00% $3,105 100.00% 100.00% $3,249 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Allowance Category Allowance Allowance Category
for Loan to Total to Total for Loan to Total to Total
Losses Allowance Allowance Losses Allowance Allowance
--------- ---------- --------- --------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans
One- to four-family real estate ... $ 861 27.48% 59.38% $ 292 9.70% 56.78%
Multi-family and commercial
real estate ..................... 1,426 45.52 22.65 1,610 53.47 24.52
------ ------ ------ ------ ------ ------
Total real estate loans ....... 2,287 73.00 82.03 1,902 63.17 81.30
Consumer loans
Home equity lines of credit ....... -- -- 8.05 -- -- 10.02
Conventional second mortgages ..... 75 2.39 2.81 15 0.50 3.30
Automobile loans .................. 66 2.11 2.56 15 0.50 2.28
Credit cards ...................... 382 12.19 0.88 263 8.73 0.98
Other consumer loans .............. 158 5.04 0.55 71 2.36 0.67
------ ------ ------ ------ ------ ------
Total consumer loans .......... 681 21.73 14.85 364 12.09 17.25
Commercial business loans ........... 102 3.26 3.12 -- -- 1.45
Unallocated ......................... 63 2.01 -- 745 24.74 --
------ ------ ------ ------ ------ ------
Total ......................... $3,133 100.00% 100.00% $3,011 100.00% 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
56
<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 mortgage-backed securities)
with short and intermediate terms (five years or less) to maturity. At June 30,
1998, the weighted average term to maturity or repricing of the security
portfolio was 3.8 years. This did not take into account securities which may be
called prior to their contractual maturity or repricing. See Notes 5 and 6 of
the Notes to Consolidated Financial Statements for information regarding the
maturities of the Bank's investment and mortgage-backed 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 stock in the FHLB of New York 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.
57
<PAGE>
The following table sets forth the composition of the Bank's securities
available for sale and investment securities at the dates indicated.
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
-------- ------- -------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale, at fair value:
Debt securities
US Government and Agency obligations ...... $23,237 47.69% $18,437 51.97% $ 7,302 34.96%
Other obligations ......................... 276 0.57 493 1.39 764 3.65
Mortgage-backed securities ................ 16,946 34.78 6,762 19.06 -- --
Collateralized mortgage obligations ....... 4,003 8.22 6,302 17.77 9,404 45.03
------- ------ ------- ------ ------- ------
Total debt securities ................... 44,462 91.26 31,994 90.19 17,470 83.64
Equity securities ........................... 4,258 8.74 3,481 9.81 3,416 16.36
------- ------ ------- ------ ------- ------
Total securities available for sale ..... $48,720 100.00 $35,475 100.00 $20,886 100.00
======= ====== ======= ====== ======= ======
Investment securities at amortized cost:
US Government and Agency obligations ...... $22,025 48.49 6,049 23.93 10,339 39.81
Other obligations ......................... 388 0.85 848 3.36 1,923 7.41
Mortgage-backed securities ................ 23,011 50.66 18,376 72.71 12,073 46.49
Industrial and financial .................. -- -- -- -- 1,634 6.29
------- ------ ------- ------ ------- ------
Total investment securities ............. $45,424 100.00% $25,273 100.00% $25,969 100.00%
------- ====== ------- ====== ------- ======
Investment securities at fair value ......... $45,547 $25,186 $25,520
======= ======= =======
</TABLE>
58
<PAGE>
The following table sets forth information regarding the scheduled
maturities, amortized cost, and weighted average yields for the Bank's
securities portfolios at June 30, 1998 by contractual maturity. The table does
not take into consideration the effects of scheduled repayments or possible
prepayments.
<TABLE>
<CAPTION>
At June 30, 1998
----------------------------------------------------------------------------------
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:
US Government and Agency obligations .... $ -- --% $23,296 6.05% $ -- --% $ -- --%
Other obligations ....................... -- -- 71 5.09 200 6.60 -- --
Mortgage-backed securities .............. -- -- 16,855 6.39 -- -- -- --
Collateralized mortgage obligations ..... 179 6.91 2,432 5.85 1,408 6.65 -- --
Other equity securities ................. -- -- -- -- -- -- 708 5.63
---- ---- ------- ---- ------- ---- ------ ----
Sub-total ............................. 179 6.91 42,654 6.17 1,608 6.64 708 5.63
FHLB stock .............................. -- -- -- -- -- -- 3,552 7.45
---- ---- ------- ---- ------- ---- ------ ----
Total securities available for sale ... $179 6.91 $42,654 6.17 $ 1,608 6.64 $4,260 7.15
==== ==== ======= ==== ======= ==== ====== ====
Investment securities:
US Government and Agency obligations .... $ 25 7.38 $22,000 6.08 $ -- -- $ -- --
Other obligations ....................... -- -- 271 6.40 117 7.25 -- --
Mortgage-backed securities .............. 657 6.85 10,452 6.68 11,519 6.23 383 7.05
---- ---- ------- ---- ------- ---- ------ ----
Total investment securities ........... $682 6.87% $32,723 6.27% $11,636 6.24% $ 383 7.05%
==== ==== ======= ==== ======= ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998
----------------------------
Total Securities
----------------------------
Weighted
Amortized Average Fair
Cost Yield Value
--------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Securities available for sale:
US Government and Agency obligations .... $23,296 6.05% $23,237
Other obligations ....................... 271 6.20 276
Mortgage-backed securities .............. 16,855 6.39 16,946
Collateralized mortgage obligations ..... 4,019 6.18 4,003
Other equity securities ................. 708 5.63 706
------- ---- -------
Sub-total ............................. 45,149 6.18 45,168
FHLB stock .............................. 3,552 7.45 3,552
------- ---- -------
Total securities available for sale ... $48,701 6.27 $48,720
======= ==== =======
Investment securities:
US Government and Agency obligations .... $22,025 6.08 $21,999
Other obligations ....................... 388 6.66 389
Mortgage-backed securities .............. 23,011 6.47 23,159
------- ---- -------
Total investment securities ........... $45,424 6.28% $45,547
======= ==== =======
</TABLE>
59
<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. The Bank offers a variety of deposit accounts having a range of
interest rates and terms. The Bank's deposits consist of savings accounts,
school savings accounts (the largest "Save For America" school savings program
in the U.S., a volunteer program in which students are given the opportunity to
open and maintain a savings account while at school in order to teach wise money
management), money market accounts, demand deposit accounts and time deposits
currently ranging in terms from three months to five years. The Bank only
solicits deposits from its primary market area and does not currently solicit
brokered deposits. The Bank relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits. At June
30, 1998, the Bank's deposits totaled $450.0 million, of which $413.4 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 savings, school savings, money market and
demand deposit 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.
60
<PAGE>
The following table sets forth the distribution and deposit activity of the
Bank's deposit accounts for the periods indicated.
<TABLE>
<CAPTION>
School Money Demand Time Total Number
Savings Savings Market Deposits Deposits Total of Accounts
--------- ------- -------- -------- -------- -------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1995 ... $127,333 $ 6,813 $18,966 $33,432 $212,419 $398,963 74,668
Net deposits (withdrawals) .... (2,094) 3,499 (2,886) 5,001 (15,575) (12,055)
Interest credited ............. 3,722 310 487 250 12,862 17,631
-------- ------- ------- ------- -------- --------
Balance as of June 30, 1996 ... 128,961 10,622 16,567 38,683 209,706 404,539 79,283
Net deposits (withdrawals) .... (8,780) 2,698 (1,565) 6,887 7,990 7,230
Interest credited ............. 3,700 589 448 274 12,610 17,621
-------- ------- ------- ------- -------- --------
Balance as of June 30, 1997 ... 123,881 13,909 15,450 45,844 230,306 429,390 86,741
Net deposits (withdrawals) .... (1,898) 2,558 5,653 7,806 (12,778) 1,341
Interest credited ............. 3,629 788 569 303 13,521 18,810
-------- ------- ------- ------- -------- --------
Balance as of June 30, 1998 ... $125,612 $17,255 $21,672 $53,953 $231,049 $449,541 89,370
======== ======= ======= ======= ======== ========
</TABLE>
61
<PAGE>
The following table 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 June 30,
---------------------------------------------------------------
1998 1997 1996
------------------- -------------------- -------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Savings accounts (3.0%) ................. $125,612 27.94% $123,881 28.85% $126,951 31.38%
School savings accounts (5.5%) .......... 17,255 3.84 13,909 3.24 10,622 2.63
Money market accounts (2.75% to 3.93%) .. 21,672 4.82 15,450 3.60 16,567 4.10
Demand deposits (0% to 1.75%) ........... 53,953 12.00 45,844 10.68 40,693 10.06
Time deposits:
2.00-2.99% ............................ -- -- -- -- 5 0.00
3.00-3.99% ............................ 2 0.00 14 0.00 3,470 0.86
4.00-4.99% ............................ 4,105 0.91 10,325 2.40 47,062 11.63
5.00-5.99% ............................ 190,539 42.39 166,966 38.88 81,589 20.17
6.00-6.99% ............................ 17,664 3.93 25,244 5.88 47,513 11.74
7.00-7.99% ............................ 18,709 4.16 27,727 6.46 30,067 7.43
8.00-8.99% ............................ 30 0.01 30 0.01 -- --
-------- ------ -------- ------ -------- ------
Total time deposits ................. 231,049 51.40 230,306 53.63 209,706 51.83
-------- ------ -------- ------ -------- ------
Total deposits .......................... $449,541 100.00% $429,390 100.00% $404,539 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
62
<PAGE>
The following table shows rate and maturity information for the Bank's time
deposits as of June 30, 1998.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------------------------------------
12 months 12 months 12 months 12 months 12 months
ended ended ended ended ended
June 30, 1999 June 30, 2000 June 30, 2001 June 30, 2002 June 30, 2003 Thereafter Total
------------- ------------- ------------- ------------- ------------- ---------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate
3.00-3.99% .... $ -- $ -- $ -- $ -- $ 2 $ -- $ 2
4.00-4.99% .... 4,080 -- -- -- -- 25 4,105
5.00-5.99% .... 140,476 32,594 6,540 3,073 7,856 -- 190,539
6.00-6.99% .... 8,284 5,681 1,308 1,865 526 -- 17,664
7.00-7.99% .... 6,680 11,768 135 126 -- -- 18,709
8.00-8.99% .... 30 -- -- -- -- -- 30
-------- ------- ------ ------ ------ ---- --------
Total ....... $159,550 $50,043 $7,983 $5,064 $8,384 $ 25 $231,049
======== ======= ====== ====== ====== ==== ========
</TABLE>
The following table indicates the amount of the Bank's time deposits by the
time remaining until maturity as of June 30, 1998.
<TABLE>
<CAPTION>
Maturity
---------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------- ------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Time deposits less than $100,000 ..... $38,586 $45,097 $54,798 $61,440 $199,921
Time deposits $100,000 or more ....... 5,204 7,791 8,074 10,059 31,128(1)
------- ------- ------- ------- --------
Total time deposits .............. $43,790 $52,888 $62,872 $71,499 $231,049
======= ======= ======= ======= ========
</TABLE>
- ----------
(1) Substantially all time deposits of $100,000 or more are maintained at
negotiated rates.
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.
Cohoes' borrowings historically have consisted primarily of advances from
the FHLB of New York and securities sold under agreements to repurchase. FHLB
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
$49.2 million on lines of credit with the FHLB of New York. At June 30, 1998,
the Bank had outstanding $19.9 million in other borrowings from the FHLB of New
York. See Note 12 of the Notes to Consolidated Financial Statements.
63
<PAGE>
The following table sets forth the maximum month-end balance and average
balance of FHLB advances and other borrowings for the periods indicated.
Year Ended June 30,
------------------------
1998 1997 1996
------- ------- ------
(In Thousands)
Maximum Balance:
FHLB advances ..................................... $19,983 $16,145 $7,100
Securities sold under agreements to repurchase .... -- -- 6,054
Other borrowings .................................. -- 12 59
Average Balance:
FHLB advances ..................................... $ 5,467 $ 2,390 $1,955
Securities sold under agreements to repurchase .... -- -- 2,700
Other borrowings .................................. -- 2 39
The following table sets forth the amount and rate of the Bank's borrowings
at the dates indicated.
June 30,
------------------------
1998 1997 1996
------- ------- ------
(Dollars in Thousands)
FHLB advances ....................................... $19,897 $ -- $2,100
Other borrowings .................................... -- -- 16
------- ------- ------
Total borrowings ................................ $19,897 $ -- $2,116
======= ======= ======
Weighted average interest rate of FHLB advances ..... 6.07% 5.56% 5.78%
==== ==== ====
Weighted average interest rate of securities sold
under agreements to repurchase .................... -- -- 6.67%
==== ==== ====
Weighted average interest rate of other borrowings .. -- 9.50% 9.50%
==== ==== ====
64
<PAGE>
Subsidiary and Other Activities
The Bank maintains three wholly-owned subsidiaries: CSB Financial Services,
Inc., CSB Funding, Inc. and CSB Services Agency, Inc. CSB Financial Services,
Inc. earns commission income through the sale of securities, mutual funds,
annuities and other insurance products. During the fiscal year ended June 30,
1998, CSB Financial Services had revenues of $348,000 and net income of $16,000.
As of June 30, 1998, CSB Funding, Inc. was inactive.
CSB Services Agency, Inc. owns a 50 percent interest in Community Bank
Insurance Brokers of New York, which is a joint venture formed for the purpose
of selling property and casualty insurance to the Bank's customers and to the
general public. The joint venture was formed in July 1998. The joint venture has
entered into a service agreement with the insurance agency which owns the other
50% joint venture interest in Community Bank Insurance Brokers of New York. Such
agency will provide administrative services and support directly to the joint
venture.
Competition
Cohoes 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 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 June 30, 1998, the Bank had 169 full-time employees and 53 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 16 other banking
offices. The following table sets forth information relating to each of the
Bank's offices as of June 30, 1998. The net book value of the Bank's premises
and equipment (including land, building and leasehold improvements and
furniture, fixtures and equipment) at June 30, 1998 was $7.3 million. See Note 9
of the Notes to Consolidated Financial Statements.
65
<PAGE>
<TABLE>
<CAPTION>
Net Book Value
Original Total of Property or
Leased Year Date of Approximate Leasehold
or Leased or Leased Square Improvements at
Locations Owned Acquired Expiration Footage June 30, 1998
- ------------------------------- ------ --------- ---------- ----------- ---------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Cohoes Loan Center Owned 1992 N/A 10,500 $ 683
50 Mohawk Street
Cohoes, NY 12047
Annex Owned 1981 N/A 3,723 174
60 Remsen Street
Cohoes, NY 12047
Operation Center Owned 1987 N/A 11,190 332
244 North Mohawk Street
Cohoes, NY 12047
Community Outreach Center Leased 1995 01/16/99 200 --
Urban League Headquarters
95 Livingston Avenue
Albany, NY
Building Adjacent Latham Office Owned 1986 N/A 3,024 80
Storage Facility
771 New Loudon Road
Latham, NY 12110
Branch Offices:
Main Office Owned 1924 N/A 15,223 332
75 Remsen Street
Cohoes, NY 12047
Cohoes/I-787 Office (2) Owned 1976 N/A 988 141
New Courtland Street
Cohoes, NY 12047
Latham Office Owned 1967 N/A 9,041 533
Corner of Pine & Route 9
Latham, NY 12110
Clifton Park Office Owned 1972 N/A 5,297 334
525 Visher Ferry Road
Clifton Park, NY 12065
Delmar Office Owned 1994 N/A 4,768 1,476
197 Delaware Avenue
Delmar, NY 12182
Lansingburgh Office Owned 1976 N/A 3,216 270
820 Second Avenue
Troy, NY 12182
Loudonville Office Leased 1996 07/31/01 4,000 2
475 Albany-Shaker Road
Loudonville, NY 12211
Guilderland Office Leased 1995 10/31/05 3,500(1) 1
1973 Western Avenue
Albany, NY 12203
</TABLE>
- ----------
(1) 3,500 square feet of which 1,265 square feet is subleased by Noreast Real
Estate.
(2) The public accommodation office is expected to become a branch office in
October, 1998.
66
<PAGE>
PROPERTIES (Continued)
<TABLE>
<CAPTION>
Net Book Value
Original Total of Property or
Leased Year Date of Approximate Leasehold
or Leased or Leased Square Improvements at
Locations Owned Acquired Expiration Footage June 30, 1998
- ------------------------------- ------ --------- ---------- ----------- ---------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Supermarket Branches:
Glenville Leased 1993 10/31/03 323 $ 72
290 Saratoga Road
Scotia, NY 12302
Rotterdam Leased 1993 03/31/03 350 82
1879 Altamont Avenue
Schenectady, NY 12303
Colonie Leased 1993 09/30/03 336 77
1892 central Avenue
Colonie, NY 12205
Westgate Leased 1995 04/30/00 565 80
911 Central Avenue
Albany, NY 12206
Brunswick Leased 1996 10/31/01 304 83
716 Hoosick Road
Brunswick, NY 12180
Bethlehem Leased 1997 05/31/02 312 76
1395 New Scotland Road
Slingerlands, NY 12159
Malta Leased 1996 05/31/01 524 123
1 Kendall Way
Malta, NY 12020
Niskyuna Leased 1996 06/30/01 544 123
2333 Nott Street East
Niskayuna, NY 12309
Queensbury (1) Leased 1998 05/31/03 360 1
677 Upper Glen Street
Queensbury, NY 12804
</TABLE>
- ----------
(1) Opened in July, 1998.
Legal Proceedings
The Bank 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 the Bank in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Bank's results of operations.
67
<PAGE>
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
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 Holding 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 NYBB and the
SEC. As a subsidiary of a savings and loan holding company, the Bank will be
subject to certain restrictions in its dealings with the Holding 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 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 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
68
<PAGE>
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 divest
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 are residential housing related assets. The 1996 amendments to
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 June 30, 1998, approximately 82.5% of the Bank's
assets were invested in QTLs, 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 Holding 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 June 30, 1998, 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.
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
69
<PAGE>
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 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 Holding Company has filed with the SEC a
registration statement under the Securities Act, for the registration of the
Holding Company Common Stock to be issued pursuant to the Conversion. Upon
completion of the Conversion, the Holding Company Common Stock will be
registered with the SEC under Section 12(g) of the Securities Exchange Act of
1934, as amended. The Holding 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 Holding
Company Common Stock to be issued in the Conversion does not cover the resale of
such shares. Shares of Holding Company Common Stock purchased by persons who are
not affiliates of the Holding Company may be sold without registration. Shares
purchased by an affiliate of the Holding Company will be subject to the resale
restrictions of Rule 144 under the Securities Act. If the Holding Company meets
the current public information requirements of Rule 144 under the Securities
Act, each affiliate of the Holding 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
Holding 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 Department, 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 Holding 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
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 Holding 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.
70
<PAGE>
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 June 30, 1998 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 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 June 30, 1998 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 Banking Law,
savings banks are authorized to elect to invest under a "prudent person"
standard in a wider range of debt and equity securities as compared to the types
of investments permissible under such specific investment authority. However, in
the event a savings bank elects to utilize the "prudent person" standard, it
will be unable to avail itself of the other provisions 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
71
<PAGE>
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 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 Superintendent may issue an
order to a New York-chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Superintendent that
any director, trustee or officer of any banking organization has violated any
law, or has continued unauthorized or unsafe practices in conducting the
business of the banking organization after having been notified by the
Superintendent to discontinue such practices, such director, trustee or officer
may be removed from office by the Superintendent 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 directors or officers. The Superintendent also may take
possession of a banking organization under specified statutory criteria.
Prompt Corrective Action. Section 38 of the 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 a 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%
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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 June 30, 1998, 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. 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 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 Bank had $992,000 in brokered deposits
outstanding at June 30, 1998. However, it is not currently soliciting brokered
deposits.
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
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institutions and assign to them a CRA rating of "outstanding," "satisfactory,"
"needs improvement" or "unsatisfactory." The Bank's current federal CRA rating
is "satisfactory."
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 Holding Company is a legal entity
separate and distinct from the Bank. The Holding 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 Holding 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 Holding 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 Holding Company or its non-bank subsidiaries. The Bank also is
subject to certain restrictions on most types of transactions with the Holding
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.
FHLB 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 $19.9 million of FHLB
advances at June 30, 1998.
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 from the FHLB of
New York, whichever is greater. At June 30, 1998, the Bank had approximately
$3.6 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 June 30, 1998, the Bank was in compliance with applicable requirements.
However, because required
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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 Holding 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 December 31, 1994.
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 June 30 for filing its consolidated federal income
tax returns. 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 June 30, 1998 is approximately $1.5
million.
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 of
the Code. 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 June 30, 1998 the Bank's total federal base-year reserve was
approximately $3.7 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 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.
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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
June 30, 1998, the Bank had no net operating loss carryforwards for federal
income tax purposes.
Corporate Dividends-Received Deduction. The Holding 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.
State and Local Taxation
New York State Taxation. The Holding 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 Holding 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 Holding 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
eleven 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
continue to be 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 September 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 Duncan S. Mac Affer, Arthur E. Bowen, Walter H. Speidel, and Harry
L. Robinson has a term of office expiring at the Holding Company's first Annual
Meeting of Stockholders, a second class, consisting of R. Douglas Paton, J.
Timothy O'Hearn, Chester C. DeLaMater, and Peter G. Casabonne has a term of
office expiring at the Holding Company's second Annual Meeting of Stockholders,
and a third class, consisting of Michael L. Crotty, Donald A. Wilson, and
Frederick G. Field, Jr., 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 Harry L. Robinson, President and Chief
Executive Officer and Richard A. Ahl, Executive Vice President, Chief Financial
Officer 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 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
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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
stockholders or disinterested directors or otherwise.
These provisions may have the effect of deterring stockholder
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
Board of Trustees of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings bank, was vested in its Board of
Trustees. Upon Conversion of the Bank to stock form, each of the trustees of the
Bank will continue to serve as directors of the converted Bank. The Board of
Trustees of the Bank currently consists of eleven members. Each Trustee of the
Bank has served as such at least since January, 1992, except for Frederick G.
Field, Jr., who was appointed in September, 1995. The trustees serve until their
72nd birthday. Because the Holding Company will own all of the issued and
outstanding shares of capital stock of the Bank after the Conversion, the
directors of the Holding Company will elect the directors of the Bank.
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The following table sets forth certain information regarding the
trustees of the Bank.
<TABLE>
<CAPTION>
Director
Name Position(s) Held With the Bank Age(1) Since
---- ------------------------------ ------ -----
<S> <C> <C> <C>
Duncan S. Mac Affer Trustee 63 1964
Arthur E. Bowen Trustee 59 1966
Walter H. Speidel Trustee 70 1970
Harry L. Robinson President, Chief Executive Officer and Trustee 58 1973
R. Douglas Paton Trustee 62 1980
J. Timothy O'Hearn Trustee 57 1983
Chester C. DeLaMater Trustee 58 1983
Peter G. Casabonne Trustee 66 1985
Michael L. Crotty Trustee 52 1986
Donald A. Wilson Trustee 54 1991
Frederick G. Field, Jr. Trustee 66 1995
</TABLE>
- ----------
(1) At June 30, 1998.
The business experience of each trustee of the Bank for at least the
past five years is set forth below.
Duncan S. Mac Affer. Mr. Mac Affer is a licensed attorney practicing in
the State of New York. He is currently a Village Justice in the Village of
Menands, New York and recently retired after serving as counsel to the New York
Senate Finance Committee.
Arthur E. Bowen. Mr. Bowen is the President and Funeral Director with
Bowen Funeral Home, Inc.
Walter H. Speidel. Mr. Speidel is a retired past President of Cohoes
Savings Bank Bank.
Harry L. Robinson. Mr. Robinson is a licensed attorney. He is, also,
President and Chief Executive Officer of Cohoes Savings Bank Bank.
R. Douglas Paton. Mr. Paton is a retired Stockbroker.
J. Timothy O'Hearn. Mr. O'Hearn is President of the Century House,
Inc., a restaurant, food catering and lodging company.
Chester C. DeLaMater. Mr. DeLaMater is a retired Executive Vice
President and Secretary of Cohoes Savings Bank Bank.
Peter G. Casabonne. Mr. Casabonne is a Managing Partner of Fuller
Realty, Inc., a company which leases manufacturing and office space.
Michael L. Crotty. Mr. Crotty is President of Capitol Equipment, Inc.,
which is a seller of heavy construction and recycling equipment.
Donald A. Wilson. Mr. Wilson, a Certified Public Accountant, is
President of Wilson & Stark CPA, PC.
Frederick G. Field, Jr. Mr. Field is a retired Supervisor of the Town
of Colonie. He is currently President of Capitol Hill Management, Inc., a
company providing lobbying and management services to associations.
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Executive Officers Who Are Not Directors. Each of the executive
officers of the Bank will retain his or her office in the converted Bank.
Officers are elected annually by the Board of Trustees of the Bank. The business
experience of the executive officers who are not also trustees is set forth
below.
Richard A. Ahl, age 50. Mr. Ahl is currently serving as Executive Vice
President and Chief Financial Officer. Mr. Ahl joined the Bank in 1996. Mr. Ahl
is a CPA with 20 years of financial and banking experience.
Albert J. Picchi, age 36. Mr. Picchi is currently serving as Vice
President and Senior Loan Officer. Mr. Picchi joined the Bank in January of
1994. Mr. Picchi has 14 years of experience in the financial services industry.
Meetings and Committees of the Board of Trustees of the Bank
The Bank's Board of Trustees meets on a monthly basis. The Board of
Trustees met 13 times during fiscal 1998. During fiscal 1998, 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 Bank has standing Executive, Loan Review, Nominating, Salary,
Trustee Qualification and Examining Committees.
The Executive Committee provides oversight of Board-related matters
in-between regularly scheduled Board Meetings. In addition, the Committee has
the authority to make investments, acquire or sell real estate and to take any
other action not otherwise reserved for the Board of Trustees. The Executive
Committee is comprised of five Trustees, which membership rotates each month.
This committee did not meet during fiscal 1998.
The Loan Review Committee is comprised of two trustees which rotates
each month and Harry L. Robinson. This Committee oversees and reviews real
estate loans between $500,001 and $749,000, and commercial business loans
between $200,001 and $300,000.
The Nominating Committee proposes nominations for Chairman and Vice
Chairman of the Board, Officers, Trustee Emeriti and the appointment of the
Bank's legal counsel. This committee is comprised of three trustees serving for
a three year term, meeting once each year. The current members of the committee
are Donald A. Wilson (Chairman), Frederick G. Field, Jr., and Duncan S. Mac
Affer.
The Salary Committee is comprised of three trustees serving for a three
year term meeting once a quarter to review compensation and benefit practices of
the Bank to ensure internal and external market competitiveness. The current
members of the committee are J. Timothy O'Hearn (Chairman), Chester C.
DeLaMater, and Peter G. Casabonne.
The Trustee Qualification Committee is comprised of the three senior
Trustees meeting as necessary to review candidates for the vacancies on the
Board. The current members of the committee are Duncan S. Mac Affer (Chairman),
Arthur E. Bowen, and Walter H. Speidel.
The Examining Committee is comprised of three trustees serving for a
three year term, meeting once a quarter to provide oversight to the Bank's
Internal Audit Department and for the review of the Bank's annual audit report
prepared by the Bank's independent auditors. The current members of the
committee are Peter G. Casabonne (Chairman), Michael L. Crotty, and Donald A.
Wilson.
Trustee Compensation
Trustees of the Bank are paid a monthly fee for each board meeting
attended of $2,625. Trustees receive $500 for each committee 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
Emeriti are not, however, entitled to vote or meet as a separate body. Robert L.
Knoop and Charles R. Crotty currently serve as Trustees Emeritus of the Bank.
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 1998 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 ($)(1) (#)(1) Compensation($)
- -------------------------------- ---- ---------- --------- -------------- ---------------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harry L. Robinson, President and 1998 $295,072(2) $59,063(2) $--- N/A N/A $17,243(3)
Chief Executive Officer
Richard A. Ahl, Executive Vice 1998 146,224(2) 31,250(2) --- N/A N/A 4,212(3)
President, Chief Financial
Officer and Secretary
</TABLE>
- ----------
(1) As a mutual institution, the Bank does not have any stock options or
restricted stock plans.
(2) $27,323 and $21,220 was deferred under the Bank's deferred salary
arrangement for Mr. Robinson and Mr. Ahl, respectively. Both Mr.
Robinson and Mr. Ahl elected to have their entire bonuses deferred.
(3) Includes 401(k) and profit-sharing contributions of $6,043 and $11,200,
respectively, for Mr. Robinson and $2,849 and $1,363 respectively, for
Mr. Ahl.
Employment Agreements
Upon the Conversion, the Bank intends to enter into employment agreements
with Harry L. Robinson, Richard A. Ahl and Albert J. Picchi of the Bank
(individually, the "Executive") and the Holding Company intends to enter into
employment agreements with Harry L. Robinson and Richard A. Ahl. The employment
agreements are intended to ensure that the Bank and the Holding Company will be
able to maintain a stable and competent management base after the Conversion.
The continued success of the Bank and the Holding 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 Harry L. Robinson and Richard A. Ahl will be $400,000
and $200,000, respectively. In addition to the base salary, the employment
agreements provide for, among other things, participation in stock benefits
plans and other fringe benefits applicable to executive personnel. The
agreements provide for termination by the Bank or the Holding Company for cause,
as defined in the employment agreements, at any time. In the event the Bank or
the Holding 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 Holding 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 Holding Company; or (v) a breach of the agreement
by the Bank or the Holding 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 Holding Company during
the remaining term of
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the agreement. The Bank and the Holding 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 Holding Company, the executive
or, in the event of the executive's death, his beneficiary, would be entitled to
the payment of base salary, plan contributions and other forms of compensation
to which the executive is entitled for the remaining term of the Employment
Agreement, plus 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 Holding
Company would also continue the executive's life, health, and disability
coverage for thirty-six months in the case of Messrs. Robinson and Ahl and
twenty-four months in the case of Mr. Picchi. 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 Holding 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 Holding Company in the event that payments or benefits are not
paid by the Bank. Payment under the Holding Company's Employment Agreement would
be made by the Holding Company. The Holding Company's Employment Agreement also
provides that the Holding 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 Holding
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 the Holding Company shall indemnify the executive to
the fullest extent allowable under New York and Delaware law, respectively.
Assuming a change in control of the Bank or the Holding Company occurred
effective June 30, 1998, 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
$3.0 million.
Change in Control Agreements
Upon Conversion, the Bank intends to enter into one-year Change in Control
agreements with four 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 Change in Control agreements may be
renewed by the Board of Directors of the Bank for an additional year. The Bank's
Change in Control agreements will provide that in the event voluntary or
involuntary termination follows a change in control of the Holding Company or
the Bank, the officer would be entitled to receive a severance payment equal to
the officer's current annual compensation. The Bank would also continue and pay
for the officer's life, health and disability coverage for twelve months
following termination. Under the Change in Control 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 Holding Company or the Bank, the total
payments that would be due under the Change in Control agreements, based solely
on the current annual compensation paid to the officers covered by the Change in
Control agreements and excluding any benefits under any employee benefit plan
which may be payable, would be approximately $250,000.
Employee Severance Compensation Plan
The Bank's Board of Directors intends to, upon Conversion, establish the
Severance Plan which will provide eligible employees selected by the Board of
Directors with severance pay benefits in the event of a change in control of the
Bank or the Holding Company following Conversion. Management personnel with
employment agreements or Change in Control 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
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severance plan, in the event of a change in control of the Bank or the Holding
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 two weeks of
annual compensation for each year of service up to a maximum of six months 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 $202,000. 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.
Independent Compensation Expert
Pursuant to NYBB regulations, an independent compensation expert must
review the total compensation for the executive officers and trustees of the
Bank as a whole and on an individual basis and determine whether such
compensation is reasonable and proper in comparison to the compensation provided
to executive officers, directors or trustees of similar publicly-traded
financial institutions. William M. Mercer, Incorporated has conducted such
review on behalf of the Bank and determined 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 Holding Company Common Stock to be reserved under the ESOP,
and expected to be reserved under the RRP and the Stock Option and Incentive
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 medical, dental and life insurance, subject to certain deductibles and
copayments by employees.
401(k) Savings and Profit-Sharing Plan. The Bank has a qualified,
tax-exempt savings and profit-sharing 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 15% 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 3% of such participant's annual salary 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 in multiples
of 10%. Changes in investment directions among the funds are permitted on a
continuous 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
June 30, 1998, the Bank's contributions to the 401(k) Plan on behalf of Messrs.
Robinson and Ahl were $17,243 and $4,212, respectively.
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Employee Stock Ownership Plan. The Board of Trustees of the Bank and the
Board of Directors of the Holding Company have approved the adoption of an ESOP
for the benefit of eligible employees of the Bank. 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 ERISA, and, as such, the ESOP is
empowered to borrow in order to finance purchases of the Holding Company 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 Holding Company 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 Holding Company 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 Holding Company 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 Holding
Company 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 employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete on year of service with the Bank. 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
Holding Company 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 the Bank. 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 and Incentive 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 Holding Company anticipates reserving an amount equal to 10% of the
shares of Holding Company Common Stock issued in the Conversion, including
shares issued to the Foundation (or 829,150 shares based upon the issuance of
8,291,500 shares), for issuance under the Stock Option and Incentive 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
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plan implemented within one year after the Conversion must equal or exceed the
market price of the Holding Company 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 and Incentive 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"), and (ii) options for all plan participants that do not qualify as
incentive stock options ("Non-Statutory Stock Options") . All such awards will
be granted at no cost to the recipient. Unless sooner terminated, the Stock
Option and Incentive Plan will remain in effect for a period of fifteen years
from the later of adoption by the Board of Directors or approval by the Holding
Company's stockholders.
The Stock Option and Incentive 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
Compensation Committee will determine which directors, officers and employees
may receive 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.
Options granted pursuant to the Stock Option and Incentive Plan will remain
exercisable for the lesser of (a) three years following such termination of
service or (b) until the expiration of the Option by its terms, 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 Compensation
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 Compensation 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 Holding Company 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 Holding Company intends to adopt a RRP for
directors, officers and employees. The objective of the RRP will be to enable
the Holding Company to provide directors, officers and employees with a
proprietary interest in the Holding Company as an incentive to contribute to its
success. Awards made pursuant to the RRP will be granted to eligible
participants based on their position and responsibilities to the Holding Company
or the Bank, the value of their services to the Holding Company and the Bank,
length of service and other factors the compensation committee may deem relevant
at the time such awards are made. The Holding 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 or from authorized but unissued shares, following
stockholder ratification of such plan, an amount of stock equal to 4% of the
shares of Holding Company Common Stock issued in the Conversion, including
shares issued to the Foundation (representing 331,660 shares in the aggregate,
having a value of $3,316,600 based on the Offering Price per share of $10.00).
Although no specific award determinations have been made, the Holding Company
anticipates that it will provide stock awards at no cost to participants, 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%
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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 Holding Company Common Stock held by the
RRP. Awards are non-transferable and non-assignable. Recipients will earn (i.e.,
become vested in), in equal installments over a five year period, the shares of
Holding Company Common Stock covered by the Award.
Benefit Restoration Plan. The Holding Company also maintains a
non-qualified deferred compensation plan, known as the Benefit Restoration Plan.
The Benefit Restoration Plan provides certain officers and highly compensated
executives of the Holding Company and the Bank with supplemental retirement
income when such amounts cannot be paid from the tax-qualified 401(k) Plan or
ESOP. Participants in the Benefit Restoration Plan receive a benefit equal to
the amount they would have received under the 401(k) Plan and the ESOP, but for
reductions in such benefits imposed by operation of Sections 401(a)(17), 401(m),
401(k)(3), 402(g) and 415 of the Code. In addition, the Benefit Restoration Plan
is intended to make up benefits lost under the ESOP allocation procedures to
certain Participants named by the Compensation Committee who retire prior to the
complete repayment of the ESOP loan. At the retirement of a Participant, the
restored ESOP benefits under the Benefit Restoration Plan are determined by
first: (i) projecting the number of shares that would have been allocated to the
Participant under the ESOP if they had been employed throughout the period of
the ESOP loan (measured from the Participant's first date of ESOP
participation); and (ii) first reducing the number determined by (i) above by
the number of shares actually allocated to the Participant's account under the
ESOP; and second, by multiplying the number of shares that represent the
difference between such figures by the average fair market value of the Common
Stock over the preceding five years. Benefit Restoration Plan Participant's
benefits are payable upon the retirement or other termination of service of the
Participant in the form of a lump sum. Payment of a deceased Participant's
benefits will be made to his or her designated beneficiary.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's employees and
residential loans and mortgages to officers. The loans to executive officers and
trustees are made in the ordinary course of business and on the same terms and
conditions as those of comparable transactions prevailing at the time, in
accordance with the Bank's underwriting guidelines and do not involve more than
the normal risk of collectibility or present other unfavorable features. All
loans to executive officers cannot exceed $25,000 or 5% of the Bank's capital
and unimpaired surplus, whichever is greater, unless a majority of the Board of
Trustees approves the credit in advance and the individual requesting the credit
abstains from voting. Under the Bank's policy the Bank will not make preferred
rate loans to executive officers, directors, or employees. All loans by the Bank
to its directors and executive officers are subject to regulations restricting
loans and other transactions with affiliated persons of the Bank. Federal law
currently requires that all loans to directors and executive officers be made on
terms and conditions comparable to those for similar transactions with
non-affiliates. At June 30, 1998 there were no loans outstanding to any trustee
or executive officer of the Bank.
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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 ($59,500,000) and maximum ($80,500,000) 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 Range(1) Estimated Valuation Range(1)
---------------------------- ----------------------------
Number of As a Percent of Number of As a Percent of
Name Amount Shares Shares Offered Shares Shares Offered
- ------------------------------- ---------- --------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Duncan S. Mac Affer ............. $ -- --% -- --% --
Arthur E. Bowen ................. 180,000 18,000 0.3 18,000 0.2
Walter H. Speidel ............... 200,000 20,000 0.3 20,000 0.2
Harry L. Robinson ............... 500,000 50,000 0.8 50,000 0.6
Donald A. Wilson ................ 75,000 7,500 0.1 7,500 0.1
Frederick G. Field, Jr .......... 80,000 8,000 0.1 8,000 0.1
R. Douglas Paton ................ 300,000 30,000 0.5 30,000 0.4
J. Timothy O'Hearn .............. 250,000 25,000 0.4 25,000 0.3
Chester C. DeLaMater ............ 250,000 25,000 0.4 25,000 0.3
Peter G. Casabonne .............. -- -- -- -- --
Michael L. Crotty ............... 125,000 12,500 0.2 12,500 0.2
Richard A. Ahl .................. 300,000 30,000 0.5 30,000 0.4
Albert J. Picchi ................ 150,000 15,000 0.3 15,000 0.2
---------- ---------- --- ----------- ---
All directors and executive
officers as a group (13 persons) $2,410,000 241,000 4.1% 241,000 3.0%
========== ========== === ========== ===
</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 Holding Company Common Stock sold or 178,500
and 241,500 shares at the minimum and the maximum, respectively of the
Estimated Valuation Range, Holding Company Common Stock which may be awarded
under the RRP to be adopted equal to 4% of the Holding Company Common Stock
issued in the Conversion, including shares issued to the Foundation (or
245,140 shares and 331,660 shares at the minimum and the maximum,
respectively, of the Estimated Valuation Range), and Holding Company Common
Stock which may be purchased pursuant to options which may be granted under
the Stock Option and Incentive Plan equal to 10% of the number of shares of
Common stock issued in the Conversion, including shares issued to the
Foundation (or 612,850 shares or 829,150 shares at the minimum and the
maximum, respectively, of the Estimated Valuation Range.)
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THE CONVERSION
THE BOARD OF TRUSTEES OF THE BANK AND THE SUPERINTENDENT OF BANKS OF
THE STATE OF NEW YORK HAVE APPROVED THE PLAN OF CONVERSION, SUBJECT TO APPROVAL
BY THE BANK'S DEPOSITORS ENTITLED TO VOTE ON THE PLAN 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 May 21, 1998, 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. 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 voting 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 Conversion Shares 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 Holding Company Common Stock 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 Holding Company 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
Department 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 Department, the Bank will
issue and sell the common stock of the Bank and subscribers will be notified of
the elimination of a holding company and will be solicited (i.e., be permitted
to affirm their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their funds will be promptly refunded with interest at the Bank's passbook rate
of interest; or be permitted to modify or rescind their subscriptions), and
notified of the time period within which the subscriber must affirmatively
notify the Bank of such subscriber's intention to affirm, modify or rescind such
subscriber's subscription. The following description of the Plan assumes that a
holding company form of organization will be used in the Conversion. In the
event that a holding company form of organization is not used, all other
pertinent terms of the Plan as described below will apply to the Conversion of
the Bank from the mutual to stock form of organization and the sale of the
Bank's common stock.
The Plan provides generally that (i) the Bank will convert from a
mutual savings bank to a capital stock savings bank and (ii) the Holding Company
will offer shares of Holding Company Common Stock for sale in the Subscription
Offering to the Bank's Eligible Account Holders, Employee Plans, including the
ESOP and Supplemental Eligible
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Account Holders. 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 Holding Company 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 Holding Company Common Stock to be
issued in the Conversion within the Estimated Valuation Range, currently
estimated to be between $59,500,000 and $80,500,000 is based upon an independent
appraisal of the estimated pro forma market value of the Holding Company Common
Stock prepared by RP Financial, a consulting firm experienced in the valuation
and appraisal of savings institutions. All shares of Holding Company 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 Holding
Company 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.
Purposes of Conversion
The Bank, as a New York mutual savings bank, does not have stockholders
and has no authority to issue capital stock. By converting to the capital stock
form of organization, the Bank will be structured in the form used by commercial
banks, other business entities and a growing number of savings institutions. The
Conversion will be important to the future growth and performance of the Bank by
providing a larger capital base on which the Bank may operate, enhanced future
access to capital markets, enhanced ability to diversify into other financial
services related activities and enhanced ability to render services to the
public.
The holding company form of organization, if used, would provide
additional flexibility to diversify the Bank's business activities through
newly-formed subsidiaries, or through acquisitions of or Mergers with both
mutual and stock institutions, as well as other companies. Although there are no
current arrangements, understandings or agreements, written or oral, regarding
any such opportunities, the Holding Company will be in a position after the
Conversion, subject to regulatory limitations and the Holding 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 holding 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 $53.3 million, or 10.13% of
assets, at June 30, 1998. Assuming that $78,572,400 million of net proceeds are
realized from the sale of Holding Company 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
$59,500,000 to a maximum of $80,500,000 (see "Pro Forma Data" for the basis of
this assumption)) and assuming that $39,286,200 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
15.35% after the Conversion. The investment of the net proceeds from the sale of
the Holding Company 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.
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After completion of the Conversion, the unissued common and preferred
stock authorized by the Holding Company's Certificate of Incorporation will
permit the Holding 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 and
Incentive Plan or the possible issuance of authorized but unissued shares
pursuant to the RRP. Following the Conversion, the Holding 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 an 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 Holding Company" and "Management of the
Bank."
Deposit Accounts and Loans. Under the Plan, each depositor in the Bank
and 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 Holding Company 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 capital stock
of the Bank, will have exclusive voting rights with respect to any matters
concerning the Bank requiring stockholder approval, including the election of
directors of the Bank.
After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Holding Company
Common Stock will have exclusive voting rights with respect to any matters
concerning the Holding Company. Each holder of Holding Company 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 stockholders, 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
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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 stockholders of the Bank,
whether or not such Eligible Account Holder or Supplemental Eligible Account
Holder purchased Holding Company Common Stock in the Conversion. Each Eligible
Account Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account, 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 March
31, 1997 (with respect to an Eligible Account Holder) and September 30, 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 March 31, 1997 (with respect to an Eligible Account Holder),
or September 30, 1998 (with respect to a Supplemental Eligible Account Holder),
or any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. For purposes of the liquidation account, time deposit
accounts shall be deemed to be closed upon maturity regardless of renewal. In
addition, no interest in the liquidation account would ever be increased despite
any subsequent increase in the related deposit account. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to the Holding
Company as the sole stockholder of the Bank.
Tax Aspects. Consummation of the Conversion is expressly conditioned
upon the receipt by the Bank of either a favorable ruling from the IRS 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 Holding 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 Holding Company and the Bank, that for federal income tax
purposes, among other matters: (i) the Bank's change in form from mutual to
stock ownership will constitute a reorganization under section 368(a)(1)(F) of
the Code, (ii) neither the Bank nor the 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
Holding Company 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
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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 Holding Company Common Stock, provided, that the amount to be paid for
the Holding Company Common Stock is equal to the fair market value of such
stock; and (viii) the tax basis to the stockholders of the Holding Company
Common Stock purchased in the Conversion pursuant to the subscription rights
will be the amount paid therefor and the holding period for the shares of
Holding Company Common Stock purchased by such persons will begin on the date on
which their subscription rights are exercised.
Arthur Andersen 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 Arthur Andersen have been filed as exhibits
to the Registration Statement of which this Prospectus is a part.
Unlike private rulings, opinions of counsel or other professionals 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 letter of RP Financial that subscription rights issued in
connection with the Conversion will have no value. In the letter 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 Holding Company 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 Holding Company 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 Cohoes Savings Foundation
General. In furtherance of the Bank's commitment to its local
community, the Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Holding Company will incorporate the Foundation under Delaware law as a
non-stock corporation and will fund the Foundation with Holding Company Common
Stock, as further described below. The Holding Company and the Bank believe that
the funding of the Foundation with Holding Company Common Stock 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
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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 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 a charitable
foundation is consistent with the Bank's commitment to community service. The
Board further believes that the funding of the Foundation with Holding Company
Common Stock 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.
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 mutual to stock
Conversion is a relatively new concept that has been implemented by only a few
other converting institutions. 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. The Board of Directors of
the Foundation will consist of four individuals who are officers or trustees of
the Bank, and two individuals who are 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 Holding Company Common Stock held by the
Foundation. However, as a condition to receiving the non-objection of the 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 Holding Company Common Stock held by the
Foundation will be voted in the same ratio as all other shares of the Holding
Company Common Stock on all proposals considered by stockholders 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
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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 Holding Company Common Stock held by the Foundation.
However, the Superintendent may, in the case of a waiver, impose additional
conditions regarding the composition of the Board of Directors. As of the date
hereof, no event has occurred which would require the Holding Company to seek a
waiver of the voting restriction.
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 Holding
Company Common Stock in an amount equal to 3% of the total amount of Holding
Company 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 178,500, 210,000 and 241,500 shares, which would
have a market value of $1.8 million, $2.1 million and $2.4 million,
respectively, assuming the Purchase Price of $10.00 per share. The Holding
Company and the Bank determined to fund the Foundation with Holding Company
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 stockholder, 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.
The Foundation will receive working capital from any dividends that may
be paid on the Holding Company Common Stock in the future, and subject to
applicable federal and state laws, loans collateralized by the Holding Company
Common Stock or from the proceeds of the sale of any of the Holding Company
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 Holding Company
Common Stock by the Holding Company is that the amount of Holding Company 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 6,128,500, 7,210,000and
8,291,500 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
stockholders 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 of the
contribution of Holding Company Common Stock to the Foundation, see "Pro Forma
Data."
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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 Holding Company Common Stock held by the
Foundation must be voted in the same ratio as all other outstanding shares of
Holding Company Common Stock on all proposals considered by stockholders 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 Holding
Company would request a waiver from the FDIC and the Superintendent of 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.
However, no assurance can be given that such waiver would be granted. 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 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 Holding Company Common Stock to the Foundation on the amount of Holding
Company 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
Holding Company Common Stock at the maximum of the Estimated Valuation Range,
the Holding Company would have pro forma consolidated capital of $87.1 million
or 15.1% of pro forma consolidated assets and the Bank's pro forma leverage and
risk-based capital ratios would be 11.01% and 21.20%, respectively. See
"Regulation - The Bank - Capital Requirements," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Stock Contribution."
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
June 30, 1998, the Holding Company would have been entitled to a charitable
contribution deduction in its taxable year ended December 31, 1998 of
approximately $674,000 and would have been able to carry forward and deduct
approximately $1.7 million over its next succeeding five taxable years (based on
the Bank's estimated pre-tax income for 1998 and a contribution in 1998 of
Holding Company Common Stock equal to $2.4 million). Assuming the close of the
Offering at the maximum 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 stockholders and
depositors of the Holding Company and the Bank, and the financial condition and
operations of the Foundation.
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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, 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 the 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 Holding Company Common Stock
held by the Foundation must be voted in the same ratio as all other outstanding
shares of Holding Company Common Stock on all proposals considered by
stockholders 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 Department 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 Holding Company Common Stock held by the
Foundation as determined by the Department to be appropriate. In no event will
the voting restriction survive the sale of shares of the Holding Company Common
Stock held by the Foundation.
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Required Approvals for the Conversion
Various approvals of the Superintendent and the FDIC are required in
order to consummate the Conversion. The Superintendent and the FDIC have
approved the Plan of Conversion, subject to approval by the Bank's voting
depositors. In addition, consummation of the Conversion is subject to OTS
approval of the Holding Company's holding company application to acquire all of
the Bank common stock . Applications for these approvals have been filed and are
currently pending.
Pursuant to Department and FDIC regulation, the Plan of Conversion must
be approved by at least a majority of the total number of votes eligible to be
cast by the Bank's voting depositors and by at least seventy-five percent (75%)
in amount of deposit liabilities of Voting Depositors represented in person or
by proxy at the special meeting to be held on _____________________, 1998 (the
"Special Meeting").
The Holding Company is required to make certain filings with state
securities regulatory authorities in connection with the issuance of Holding
Company Common Stock in the Conversion.
Certain Restrictions on Purchase or Transfer of Shares After the Conversion
All Conversion Shares owned by any director or executive officer of the
Holding Company and/or 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 of such director or executive officer or pursuant to a Merger
or similar transaction approved by the Department and the FDIC. 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 Holding
Company Common Stock issued at a later date within this one year period as a
stock dividend, stock split or otherwise with respect to such restricted stock
will be subject to the same restrictions.
Purchases of Holding Company Common Stock by directors, executive
officers and their associates during the three-year period following completion
of the Conversion may be made only through a broker or dealer registered with
the SEC, except with the prior written approval of the Department and the FDIC.
This restriction does not apply, however, to negotiated transactions involving
more than 1% of the outstanding Holding Company Common Stock or to certain
purchases of stock pursuant to an employee stock benefit plan.
Pursuant to FDIC regulations, the Holding Company will generally be
prohibited from repurchasing any shares of the Holding Company Common Stock
within one year following the consummation of the Conversion, although the FDIC
under its current policies may approve a request to repurchase shares of Holding
Company Common Stock following the six-month anniversary of the Conversion.
During the second and third years following consummation of the Conversion, the
Holding Company may not repurchase any shares of its Holding Company Common
Stock other than pursuant to (i) an offer to all stockholders on a pro rata
basis which is approved by the FDIC; (ii) the repurchase of qualifying shares of
a director, if any; (iii) purchases in the open market by a tax-qualified or
non-tax-qualified employee stock benefit plan in an amount reasonable and
appropriate to fund the plan; or (iv) purchases that are part of an open-market
stock repurchase program not involving more than 5% of its outstanding capital
stock during a 12- month period, if the repurchases do not cause the Bank to
become undercapitalized and the Bank provides to the FDIC written notice
containing a full description of the program to be undertaken and such program
is not disapproved by the FDIC. The FDIC may permit stock repurchases in excess
of such amounts prior to the third anniversary of the Conversion if exceptional
circumstances are shown to exist.
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Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor of the Bank would receive his 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 his or her 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 of the Bank,
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, his
or her claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He or she would not have an interest in the value or
assets of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "Liquidation Account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the Bank's net worth as of the date of its latest statement of financial
condition contained in the final prospectus utilized in the Conversion. As of
June 30, 1998, the initial balance of the liquidation account would be
approximately $53.3 million. Each Eligible Account Holder and Supplemental
Eligible Account Holder, if he or she were to continue to maintain his or her
deposit account at the Bank, would be entitled, upon a complete liquidation of
the Bank after the Conversion, to an interest in the liquidation account prior
to any payment to the Holding Company as the sole stockholder of the Bank. 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, NOW accounts, money market deposit accounts, and certificates
of deposit, held in the Bank at the close of business on March 31, 1997 or
September 30, 1998, as the case may be. Each Eligible Account Holder and
Supplemental Eligible Account Holder will have a pro rata interest in the total
liquidation account for each of his or her deposit accounts based on the
proportion that the balance of each such deposit account on the March 31, 1997
Eligibility Record Date (or the September 30, 1998 Supplemental Eligibility
Record Date, as the case may be) bore to the balance of all deposit accounts in
the Bank on such dates.
If, however, on any June 30 annual closing date of the Bank, commencing
June 30, 1999, the amount in any deposit account is less than the amount in such
deposit account on March 31, 1997 or September 30, 1998, as the case may be, or
any other annual closing date, then the interest in the liquidation account
relating to such deposit account would be reduced by the proportion of any such
reduction, and such interest will cease to exist if such deposit account is
closed. 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 claims of general creditors (including the claims of
all depositors to the withdrawal value of their accounts) and the above
liquidation rights of the Eligible Account Holders and Supplemental Eligible
Account Holders are satisfied would be distributed to the Holding Company as the
sole stockholder of the Bank.
THE OFFERING
Stock Pricing
The Plan of Conversion requires that the purchase price of the Holding
Company Common Stock must be based on the appraised pro forma market value of
the Holding Company 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 $47,500, 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 Financial's liability results from its negligence or bad faith.
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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 Holding Company 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 September 4, 1998, and as
updated as of October 23, 1998, the estimated pro forma market value of the
Holding Company Common Stock ranged from a minimum of $59,500,000 to a maximum
of $80,500,000 with a midpoint of $70,000,000. 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 Holding
Company 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 Holding Company Common Stock established by the Board of Trustees,
the Board of Trustees has established the Estimated Valuation Range of
$59,500,000 to $80,500,000, with a midpoint of $70,000,000, and the Holding
Company expects to issue between 5,950,000 and 8,050,000 shares of Holding
Company Common Stock. The Estimated Valuation Range may
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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 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 Holding Company Common Stock to be issued
in the Conversion may be increased to 9,257,500 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 Holding Company 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 Holding Company
Common Stock at the price so determined is incompatible with its estimate of the
pro forma market value of the Holding Company 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
Holding Company 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 Holding Company 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 9,257,500 shares or no less than 5,950,000 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 Holding Company 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 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 Holding Company 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
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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 Holding Company 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 Holding Company 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 Holding Company Common Stock at the Purchase Price is
incompatible with its estimate of the pro forma market value of the Holding
Company 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.
Copies of the appraisal report of RP Financial, including any
amendments thereto, and the detailed memoran dum 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 5,950,000 or
greater than 8,050,000 (or 9,257,500 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 conditions, persons
who subscribed for the maximum number of shares will not be given the
opportunity to subscribe for an
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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 stockholders' equity on a per share basis while increasing pro
forma net earnings and stockholders' equity on an aggregate basis. A decrease in
the number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Holding Company's pro forma net earnings
and stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholders' 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 Holding Company Common Stock in the
Conversion will be increased by a number of shares equal to 3% of the Holding
Company 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 241,500 shares of its Holding Company 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 Holding Company Common Stock outstanding of 8,291,500 shares. Funding
the Foundation with authorized but unissued shares will have the effect of
diluting the ownership and voting interests of persons purchasing shares in the
Conversion by 2.9% since a greater number of shares will be outstanding upon
completion of the Conversion than would be if the Foundation were not
established. See "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Holding Company 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 March 31, 1997 ("Eligible Account Holders"); (2) the
Employee Plans, including the ESOP; and (3) depositors whose deposits in
qualifying accounts in the Bank totaled $100 or more on September 30, 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"). All subscriptions
received will be subject to the availability of Holding Company Common Stock
after satisfaction of all subscriptions of all persons having prior rights in
the Subscription Offering and to the maximum and minimum purchase limitations
set forth in the Plan of Conversion 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 Holding Company 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 $250,000 of the Holding Company
Common Stock offered, (ii) one-tenth of one percent (0.10%) of the total
offering of shares of Holding Company Common Stock or (iii) fifteen times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Holding Company Common Stock to be issued by a
fraction the numerator of which is the amount of the Eligible Account Holder's
qualifying deposit and the denominator of which is the total amount of
qualifying deposits of all Eligible Account Holders ($______________________ ),
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 Holding Company 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 490,280 shares and
663,320 shares, based on the issuance of 6,128,500 shares and 8,291,500 shares,
respectively, at the minimum and the maximum of the Estimated Valuation Range,
including the shares of Holding Company Common Stock to be issued to the
Foundation. Subscriptions by the ESOP will not be aggregated with shares of
Holding Company Common Stock purchased directly by or which are otherwise
attributable to any other participants in the Subscription and Community
Offerings, including subscriptions of any of the Bank's trustees, officers,
employees or associates thereof. See "Management of the Bank--Benefit
Plans--Employee Stock Ownership Plan."
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 Holding Company 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 $250,000 of
the Holding Company Common Stock offered, (ii) one-tenth of one, percent (0.10%)
of the total offering of shares of Holding Company Common Stock or (iii) fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Holding Company Common Stock to be
issued by a fraction of which the numerator is the amount of the Supplemental
Eligible Account Holder's qualifying deposit and the denominator is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders
($______________________), 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 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.
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 an
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 Holding Company
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
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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 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 and the Supplemental Eligible
Account Holders, 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, with a preference given to those natural
persons residing in the Local Community, the geographic area encompassing
counties in which the Bank has offices, 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 Holding Company 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 Holding Company Common Stock at the discretion of the
Holding Company and the Bank. The opportunity to subscribe for shares of Holding
Company 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 2% of the shares offered in the Conversion.
Syndicated Community Offering
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Holding Company 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 KBW acting as agent of the
Holding Company. There are no known agreements between KBW 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 KBW
nor any registered broker-dealer shall have any obligation to take or purchase
any shares of the Holding Company Common Stock in the Syndicated Community
Offering; however, KBW has agreed to use its best efforts in the sale of shares
in the Syndicated Community Offering.
The price at which Holding Company 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
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Offering for more than 1% of the Holding Company Common Stock offered in the
Conversion; provided, however, that shares of Holding Company 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 Holding Company Common Stock offered.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his or her shares with funds held by or deposited with a
selected dealer. If an order form is executed and forwarded to the selected
dealer or if the selected dealer is authorized to execute the order form on
behalf of a purchaser, the selected dealer is required to forward the order form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the order form or execution of the order
form by the selected dealer. Alternatively, selected dealers may solicit
indications of interest from their customers to place orders for shares. Such
selected dealers shall subsequently contact their customers who indicated an
interest and seek their confirmation as to their intent to purchase. Those
indicating an intent to purchase shall execute order forms and forward them to
their selected dealer or authorize the selected dealer to execute such forms.
The selected dealer will acknowledge receipt of the order to its customer in
writing on the following business day and will debit such customer's account on
the third business day after the customer has confirmed his or her intent to
purchase ("debit date") and on or before noon of the next business day following
the debit date, will send order forms and funds to the Bank for deposit in a
segregated account. Although purchasers' funds are not required to be in their
accounts with selected dealers until the debit date, in the event that such
alternative procedure is employed once a confirmation of an intent to purchase
has been received by the selected dealer, the purchaser has no right to rescind
his or her order.
Certificates representing shares of Holding Company 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 Holding Company 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.
Marketing and Underwriting Arrangements
The Bank and the Holding Company have engaged KBW as a financial and
marketing advisor in connection with the offering of the Holding Company Common
Stock and KBW has agreed to use its best efforts to assist the Holding Company
with the solicitation of subscriptions and purchase orders for shares of Holding
Company Common Stock in the Offerings. Based upon negotiations between the Bank
and the Holding Company, KBW will receive a fee for services provided in
connection with the Offerings equal to 1.20% of the aggregate Purchase Price of
Holding Company Common Stock sold in the Offerings. No fees will be paid to KBW
with respect to any shares of Holding Company Common Stock purchased by any
trustee, director, executive officer or employee of the Bank or the Holding
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, KBW 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 KBW with certain dealers; provided,
however, that the aggregate fees payable to KBW and any selected dealers in
connection with any Syndicated Community Offering will not exceed 5.5% of the
aggregate Purchase Price of the Holding Company Common Stock sold in the
Syndicated Community Offering. Fees to KBW and to any other broker-dealer may be
deemed to be underwriting fees and KBW and such broker-dealer may be deemed to
be underwriters. KBW will also be reimbursed for its reasonable out-of pocket
expenses, including legal fees and expenses, up to a
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maximum of $75,000. Notwithstanding the foregoing, in the event the Offerings
are not consummated or KBW ceases, under certain circumstances after the
subscription solicitation activities are commenced, to provide assistance to the
Holding Company, KBW 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 KBW for costs and expenses in connection with certain claims
or liabilities related to or arising out of the services to be provided by KBW
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 KBW are estimated to be $__________
million and $__________ 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.
Directors, trustees and executive officers of the Holding Company and
the Bank may participate in the solicitation of offers to purchase Holding
Company 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 Holding Company Common Stock or provide advice
regarding the purchase of Holding Company Common Stock. The Holding Company will
rely on Rule 3a4-1 under the Exchange Act, and sales of Holding Company 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
Holding Company 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 Holding Company Common Stock.
Procedure for Purchasing Shares in Subscription and Community Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
prior to the respective expiration dates for the Offerings, in accordance with
Rule 15c2-8 of the Exchange Act, no Prospectus will be mailed later than five
days prior to such date or hand delivered any later than two days prior to such
date. Execution of the stock order form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock order forms will only be distributed with a
Prospectus and a certification form requiring each prospective investor to
acknowledge, among other things, that the shares of Holding Company 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 Holding
Company 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 and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priorities, depositors must list all accounts on the stock order form giving all
names 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
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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
Holding Company Common Stock for which they subscribe in the Community Offering
at any time prior to 48 hours before the completion of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from such subscriber's deposit account, the Bank will do so as of
the effective date of the Conversion. The Bank will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum balance
requirement at the time that the funds actually are 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 Holding Company
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 IRAs may use the assets of such IRAs to
purchase shares of Holding Company Common Stock in the Subscription and
Community Offerings. Persons with IRAs maintained at the Bank must have their
accounts transferred to an unaffiliated institution or broker to purchase shares
of Holding Company Common Stock in the Subscription and Community Offerings. In
addition, the provisions of ERISA and IRS regulations require that officers,
trustees and ten percent stockholders who use self-directed IRA funds to
purchase shares of Holding Company Common Stock in the Subscription and
Community Offerings make such purchases for the exclusive benefit of the IRAs.
Certificates representing shares of Holding Company 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 Holding Company Common Stock. Any certificates
returned as undeliverable will be disposed of in accordance with applicable law.
Restrictions on Transfer of Subscription Rights
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 Holding Company Common Stock to be
issued upon their exercise. Certificates representing shares of Holding Company
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 an intent to make an offer to purchase such
subscription rights or shares of Holding Company Common Stock prior to the
completion of the Conversion.
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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.
Limitations on Holding Company Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Holding Company Common Stock which may be purchased in the Conversion:
(1) No subscription for fewer than 25 shares will be accepted;
(2) Each Eligible Account Holder may subscribe for and purchase Holding
Company 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 Holding Company Common Stock offered, (b) one-tenth of
one percent (0.10%) of the total offering of shares of Holding Company Common
Stock or (c) fifteen times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Holding Company 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 Holding Company Common Stock issued in the Conversion and as an
Employee Plan, the ESOP intends to purchase 8% of the shares of Holding Company
Common Stock issued in the Conversion, in each case, including shares to be
issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase Holding Company 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 Holding Company Common Stock offered, (b)
one-tenth of one percent (0.10%) of the total offering of shares of Holding
Company Common Stock or (c) fifteen times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Holding
Company 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) Persons purchasing shares of Holding Company Common Stock in the
Community Offering, together with associates of and groups of persons acting in
concert with such persons, may purchase Holding Company Common Stock in the
Community Offering in an amount up to $250,000 of the Holding Company Common
Stock offered in the Conversion subject to the overall limitation in (8) below;
(6) Persons purchasing shares of Holding Company Common Stock in the
Syndicated Community Offering, together with associates of and persons acting in
concert with such persons, may purchase Holding Company Common Stock in the
Syndicated Offering in an amount up to $250,000 of the shares of Holding Company
Common Stock offered in the Conversion subject to the overall limitation in (8)
below; provided, that shares of Holding Company 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;
(7) 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 Holding Company Common Stock
subscribed for or purchased in all categories of the
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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
Holding Company Common Stock offered for sale in the Conversion; and
(8) The directors and officers of the Bank and their associates in the
aggregate, excluding purchases by the Employee Plans, may purchase up to 25% of
shares offered for sale in the Conversion.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the 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 Holding Company 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 Holding Company
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; (ii) to fill the Employee Plans' subscription of up to
8% 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; (iv) in the event that
there is an oversubscription by Other Depositors, to fill unfulfilled
subscriptions of Other Depositors; and (v) to fill unfilled subscriptions in the
Community Offering, each to the extent possible.
The term "Associate" of a person is defined to mean: (i) any
corporation or organization (other than the 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 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."
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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.
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 and the Merger 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
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 stockholders. 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
stockholders may deem to be in their best interests or in which stockholders may
receive substantial premiums for their shares over then current market prices.
As a result, stockholders 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 Holding
Company 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
Holding Company Common Stock ("Limit") shall be entitled or permitted to only
one one-hundredth (1 /100) of a vote with respect of each share held in excess
of the Limit. Beneficial ownership of shares includes shares beneficially owned
by such person or any of his affiliates, shares which such person or his
affiliates have the right to acquire upon the exercise of Conversion rights or
options and shares as to which such person and his affiliates have or share
investment or voting power, but shall not include shares beneficially owned by
the ESOP or shares that are subject to a revocable proxy and that are not
otherwise
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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 Stockholders 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
amendment is proposed by or on behalf of an Interested Stockholder or a director
who is an Affiliate or Associate of an Interested Stockholder, 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 Stockholder 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 stockholder group to fully use
its voting power to gain control of the Board of Directors without the consent
of the incumbent Board of Directors of the 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 stockholders of the Holding 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 Holding Company. The Certificate of Incorporation
also provides that any action required or permitted to be taken by the
stockholders of the Holding Company may be taken only at an annual or special
meeting and prohibits stockholder action by written consent in lieu of a
meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of thirty million (30,000,000) shares of capital stock, consisting of
twenty-five million (25,000,000) shares of Holding Company Common Stock and five
million (5,000,000) shares of preferred stock ("Preferred Stock"). The shares of
Holding Company Common Stock and Preferred Stock were authorized in an amount
greater than that to be issued in the Conversion to provide the Holding
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 Holding 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 Holding 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 stockholders for approval at a meeting of stockholders to
be held no earlier than six months after completion of the Conversion.
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Stockholder Vote Required to Approve Business Combinations with
Principal Stockholders. 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 Stockholder (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 Holding Company Common Stock and any other
affected class of stock. Under the Certificate of Incorporation, at least 80%
approval of stockholders is required in connection with any transaction
involving an Interested Stockholder 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
Stockholder and were directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares in which case, if a
stockholder vote is required, approval of only a majority of the outstanding
shares of voting stock would be sufficient. The term "Interested Stockholder" 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 Stockholder or Affiliate (as defined in
the Certificate of Incorporation) of an Interested Stockholder-, (ii) any sale,
lease, exchange, mortgage, pledge, transfer, or other disposition to or with any
Interested Stockholder 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 Stockholder 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 stockholders; (iv) the adoption of any
plan for the liquidation or dissolution of the Holding Company proposed by or on
behalf of any Interested Stockholder 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
Holding Company Common Stock or any class of equity or convertible securities of
the Holding Company owned directly or indirectly by an Interested Stockholder or
Affiliate thereof-, and (vi) the acquisition by the Holding Company or its
subsidiary of any securities of an Interested Stockholder or its Affiliates or
Associates.
The trustees and executive officers of the Bank are purchasing in the
aggregate approximately 4.0% of the shares of the Holding Company Common Stock
at the maximum of the Estimated Valuation Range. In addition, the ESOP intends
to purchase 8% of the Holding Company 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 Holding Company
expects to acquire 4% of the Holding Company 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 Holding Company 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 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 herein
above,
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 Stockholders 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
Stockholder or a director who is an Affiliate or Associate of an Interested
Stockholder, 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 Stockholder or
an Affiliate or Associate thereof. Amendment of the provision relating to
business
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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 Stockholder or Affiliate or
Associate thereof, voting together as a single class. 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 stockholders. However, this authorization neither divests the
stockholders 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 Holding Company also
require a stockholder who intends to nominate a candidate for election to the
Board of Directors, or to raise new business at an annual stockholder meeting to
give approximately 90 days notice in advance of the anniversary of the prior
year's annual stockholders' meeting to the Secretary of the Holding Company. The
notice provision requires a stockholder who desires to raise new business to
provide certain information to the Holding Company concerning the nature of the
new business, the stockholder and the stockholder's interest in the business
matter. Similarly, a stockholder wishing to nominate any person for election as
a director must provide the Holding Company with certain information concerning
the nominee and the proposing stockholder.
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 and Incentive Plan to be established may also discourage
takeover attempts by increasing the costs to be incurred by the Bank and the
Holding 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 - RRP."
The 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 Holding Company and its stockholders. 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
stockholders 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 other transaction at a price that reflects the true value of the Holding
Company and that otherwise is in the best interests of all stockholders.
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 Stockholder") may not consummate a Merger or other
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business combination transaction with such corporation at any time during the
three-year period following the date such "Person" became a DGCL Interested
Stockholder. The term "business combination" is defined broadly to cover a wide
range of corporate transactions including Mergers, sales of assets, issuances of
stock, transactions with subsidiaries and the receipt of disproportionate
financial benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
a DGCL Interested Stockholder, the Board of Directors approved either the
business combination or the transaction which resulted in the stockholder
becoming a DGCL Interested Stockholder; (ii) any business combination involving
a person who acquired at least 85% of the outstanding voting stock in the
transaction in which he became a DGCL Interested Stockholder, 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 Stockholder 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 Stockholder; and (iv) certain
business combinations that are proposed after the corporation had received other
acquisition proposals and which are approved or not opposed by a majority of
certain continuing members of the Board of Directors. A corporation may exempt
itself from the 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 stockholders from any
hostile takeover. Such provisions may, indirectly, inhibit a change in control
of the Holding Company, as the Bank's sole stockholder. See "Risk Factors -
Certain Anti-Takeover Provisions."
In the event that the Holding Company is not formed and the
subscription rights are deemed to be subscriptions to purchase the common stock
of the Bank, the provisions contained in the Restated Organization Certificate
and Bylaws of the Bank, to be effective on the effective date of the Conversion,
will govern corporate procedure and certain rights of stockholders. The
anti-takeover effects of such provisions are generally similar to those
described above for the Holding 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 stockholders, 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 Holding Company Common Stock seek, among other things, to elect
one-third or more of the Holding Company's Board of Directors, to cause the
Holding Company's stockholders 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,
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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 stockholders. It is unclear, however, whether this provision, if
asserted, would be successful against such persons in a proxy contest which
could result in a change in control of the Bank indirectly through a change in
control of the 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 of these provisions is to assure
stability and continuity of management of the Bank in the years immediately
following the Conversion. In addition, stockholders 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 stockholders
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
stockholders.
Stockholder Vote Required for Certain Business Combinations. The Bank's
Restated Organization Certificate contains provisions requiring a higher
stockholder 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 - Stockholder Vote Required to Approve Business
Combinations with Principal Stockholders."
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 stockholders 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 stockholders, 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 stockholders and (2) the effects that
the Bank's actions may have in the short-term or in the long-term upon any of
the following: (i) the prospects for potential growth, development, productivity
and profitability of the Bank; (ii) the Bank's current employees; (iii) the
Bank's retired employees and other beneficiaries receiving or entitled to
receive retirement, welfare or similar benefits from or pursuant to any plan
sponsored, or agreement entered into, by the Bank; (iv) the Bank's customers and
creditors; and (v) the ability of the Bank to provide, as a going concern,
goods, services, employment opportunities and employment benefits and otherwise
to contribute to the communities in which is does business. By having these
standards in the Restated Organization Certificate, the Board of Directors of
the Bank may be in a stronger position to oppose such a transaction if the Board
concludes that the transaction would
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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 Stockholders
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 Stockholder or a director who is an Affiliate or
Associate of an Interested Stockholder, 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
Stockholder 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 Holding Company 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 Holding Company 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 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 Holding 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 Holding 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
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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 Holding Company
New York State Change in Control Regulation. Prior approval of the NYBB
is also required before any action is taken that causes any company to acquire
direct or indirect control of a banking institution. Control is presumed to
exist if any company directly or indirectly owns, controls or holds with power
to vote 10% or more of the voting stock of a banking institution or of any
company that owns, controls or holds with power to vote 10% or more of the
voting stock of a banking institution. Accordingly, prior approval of the NYBB
would be required before any company could acquire 10% or more of the Holding
Company Common Stock.
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.
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
General
The Holding Company is authorized to issue thirty million (30,000,000)
shares of Holding Company Common Stock having a par value of $.0l per share and
twenty-five million (25,000,000) shares of Preferred Stock having a par value of
$.0l per share. In connection with the Conversion, the Holding Company currently
expects to issue 8,050,000 shares of Holding Company Common Stock (or 9,257,500
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 Holding Company Common Stock will have the same relative rights as, and will
be identical in all respects with, each other share of Holding Company Common
Stock. Upon payment of the Purchase Price for the Holding Company Common Stock,
in accordance with the Plan, all such stock will be duly authorized, fully paid
and non-assessable. The Holding Company Common Stock will represent
non-withdrawable capital, will not be an account of an insurable type, and will
not be insured by the FDIC.
Holding Company 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 Holding Company is subject to
limitations which are imposed by law and applicable regulation. See "Dividend
Policy" and "Regulation and Supervi sion." The holders of Holding Company Common
Stock 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 Holding Company Common Stock
with respect to dividends.
Voting Rights. Upon Conversion, the holders of Holding Company Common
Stock 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 Holding Company 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 stockholder vote. See "Restrictions on Acquisition
of the Holding Company and the Bank."
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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 Holding Company Common Stock will not have
direct control of the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the 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 Holding Company 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 Holding Company Common Stock in the
event of the liquidation or dissolution of the Holding Company.
Preemptive Rights. Holders of the Holding Company Common Stock will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Holding Company 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 stockholder approval, issue preferred stock with
voting, dividend, liquidation and Conversion rights which could dilute the
voting strength of the holders of the Holding Company Common Stock and may
assist management in impeding an unsolicited takeover or attempted change in
control.
117
<PAGE>
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
twenty-five million (25,000,000) 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
Holding 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 Holding Company Common Stock up to the
amount authorized by the Restated Organization Certificate without the approval
of the Bank's stockholders, 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 Holding Company as the Bank's sole stockholder. The capital
stock of the Bank will represent non-withdrawable capital, will not be an
account of an insurable type, and will not be insured by the FDIC.
Holding Company Common Stock
Dividends. The holders of the Bank's common stock (the Holding 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.
118
<PAGE>
Voting Rights. Immediately after the Conversion, the holders of the
Bank's common stock (the Holding 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 Holding
Company and the Bank - Anti-Takeover Effects of the Holding 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 stockholder approval, issue preferred stock with
voting, dividend, liquidation and Conversion rights.
EXPERTS
The consolidated financial statements of the Bank as of June 30, 1998
and 1997 and for each of the years in the three-year period ended June 30, 1998,
included in this Prospectus have been audited by Arthur Andersen LLP independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
RP Financial has consented to the publication herein of the summary of
its report to the Bank and Holding Company setting forth its opinion as to the
estimated pro forma market value of the Holding Company Common Stock upon
Conversion and its opinion with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Holding Company 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 Holding Company. The New York State income tax
consequences of the Conversion will be passed upon for the Bank and the Holding
Company by Wertime, Ries and Van Ullen, P.C. Certain legal matters will be
passed upon for KBW by Serchuk & Zelermyer, White Plains, New York.
119
<PAGE>
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a registration statement
under the Securities Act with respect to the Holding Company Common Stock
offered hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all the information set forth in the registration
statement. Such information, including the Conversion Valuation Appraisal
Report, which is an exhibit to the Registration Statement, can be examined
without charge at the public reference facilities of the SEC located at 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. In addition, the SEC maintains a web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC, including the Holding Company. The Conversion Valuation Appraisal
Report may also be inspected by Eligible Account Holders at the offices of the
Bank during normal business hours. Copies of the appraisal may also be requested
by Eligible Account Holders or Supplemental Eligible Account Holders; provided,
however, that such Eligible Account Holders or Supplemental Eligible Account
Holders shall be responsible for all costs associated with the copying and
transmittal of such appraisal. This Prospectus contains a description of the
material terms and features of all material contracts, reports or exhibits to
the registration statement required to be described; however, the statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Bank has filed an application for approval of conversion with the
Superintendent and the FDIC. Pursuant to the rules and regulations of the
Superintendent, this Prospectus omits certain information contained in that
application. The application may be examined at the principal office of the
Superintendent, Two Rector Street, New York, New York, 10006.
The Holding Company has filed with the OTS an Application to Form a
Holding Company. This prospectus omits certain information contained in such
Application. Such Application may be inspected at the offices of the OTS, 1700 G
Street, N.W., Washington, D.C. 20552.
In connection with the Conversion, the Holding Company will register
its Holding Company Common Stock with the SEC under Section 12(g) of the
Exchange Act, and, upon such registration, the Holding Company and the holders
of its stock will become subject to the proxy solicitation rules, reporting
requirements and restrictions on stock purchases and sales by directors,
officers and greater than 10% stockholders, the annual and periodic reporting
and certain other requirements of the Exchange Act. Under the Plan, the Holding
Company has undertaken that it will not terminate such registration for a period
of at least three years following the Conversion. In the event that the Bank
amends the Plan to eliminate the concurrent formation of the Holding Company as
part of the Conversion, the Bank will register its stock with the FDIC under
Section 12(g) of the Exchange Act and, upon such registration, the Bank and the
holders of its stock will become subject to the same obligations and
restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the
Holding Company and the Restated Organization Certificate and Bylaws of the Bank
are available without charge from the Bank. See "Restrictions on Acquisition of
the Holding Company and the Bank," "Description of Capital Stock of the Holding
Company" and "Description of Capital Stock of the Bank." The Bank's principal
office is located at 75 Remsen Street, Cohoes, New York 12047-2892, and its
telephone number is (518) 233-6500.
120
<PAGE>
GLOSSARY
AICPA American Institute of Certified Public Accountants.
AMTI Alternative Minimum Taxable Income.
APB Accounting Practice Bulletin.
ARM Adjustable Rate Mortgage.
Associate The term "Associate" of a person is defined to mean (i) any
corporation or organization (other than the Bank or its subsidiaries
or the Holding Company) of which such person is a director, officer,
partner or 10% shareholder;
(ii) any trust or other estate in which such person has a
substantial beneficial interest or serves as trustee or in a similar
fiduciary capacity; provided, however that such term shall not
include any employee stock benefit plan of the Holding Company or
the Bank in which such a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity,
and
(iii) any relative or spouse of such person, or relative of such
spouse, who either has the same home as such person or who is a
director or officer of Lincoln Federal or its subsidiaries or the
Holding Company.
ATM Automated Teller Machine.
Bank Cohoes Savings Bank.
Board of
Directors Board of Directors of Cohoes Bancorp, Inc.
Board of Trustees Board of Trustees of Cohoes Savings Bank.
Bylaws Bylaws of Cohoes Bancorp, Inc.
Code The Internal Revenue Code of 1986, as amended.
Conversion Simultaneous conversion of Cohoes Savings Bank to stock form, the
issuance of Cohoes Savings Bank's outstanding capital stock to
Cohoes Bancorp and Cohoes Bancorp's offer and sale of Holding
Company Common Stock.
Conversion
Shares Shares of Cohoes Bancorp, Inc. offered to complete conversion of
Cohoes Savings Bank to stock form.
CRA Community Reinvestment Act.
Department The New York State Banking Department.
DCGL Delaware General Corporations Law.
Eligible
Account
Holders Savings account holders of Cohoes Savings Bank with account balances
of at least $100 as of the close of business on March 31, 1998.
ERISA Employee Retirement Income Security Act of 1974, as amended.
121
<PAGE>
Estimated
Valuation
Range Estimated pro forma market value of the Common Stock ranging from
$59,500,000 to $80,500,000.
ESOP Cohoes Bancorp, Inc. Employee Stock Ownership Plan.
Exchange
Act Securities Exchange Act of 1934, as amended.
FASB Financial Accounting Standards Board.
FDIA Federal Deposit Insurance Act.
FDIC Federal Deposit Insurance Corporation.
FHLB Federal Home Loan Bank.
FHLMC Federal Home Loan Mortgage Corporation.
FNMA Federal National Mortgage Association.
Foundation The Cohoes Savings Bank Charitable Foundation, Inc.
FRB Federal Reserve Board.
Freddie
Mac Federal Home Loan Mortgage Corporation.
GAAP Generally Accepted Accounting Practices.
HOLA Home Owners' Loan Act.
Holding
Company Cohoes Bancorp, Inc.
Holding
Company
Common
Stock Shares of Cohoes Bancorp, Inc.
IRS Internal Revenue Services.
KBW Keefe, Bruyette & Woods, Inc.
Merger Merger of SFS Bancorp with and into Cohoes Bancorp, Inc.
NASD National Association of Securities Dealers, Inc.
Nasdaq National Association of Securities Dealers Automated Quotation
System--National Market.
NPV Net portfolio value.
NYBB New York Banking Board.
OCC Office of the Comptroller of the Currency.
Offering The offering of between 5,950,000 and 8,050,000 shares of Cohoes
Bancorp, Inc. common stock at $10.00 per share in the Conversion.
122
<PAGE>
ORE Other Real Estate Owned.
OTS Office of Thrift Supervision.
Plan or
Plan of
Conversion Plan of Cohoes Savings Bank to convert from a New York chartered
mutual savings bank to a New York chartered stock savings bank and
the issuance of all of Cohoes Savings Bank 's outstanding capital
stock to Cohoes Bancorp, Inc. and the issuance of Cohoes Bancorp,
Inc.'s Common Stock to the public.
QTL Qualified thrift lender.
ROA Return On Average Assets.
ROE Return On Average Equity.
RP
Financial RP Financial, LC., independent appraiser.
RRP Recognition and Retention Plan to be submitted for approval at a
meeting of the Holding Company's shareholders to be held at least
six months after the completion of the Conversion.
SAIF Savings Association Insurance Fund of the FDIC.
SEC Securities and Exchange Commission.
Securities
Act Securities Act of 1933, as amended.
SFAS Statement of Financial Accounting Standard.
Stock
Contribution Shares contributed to Cohoes Savings Foundation.
Stock Option
and Incentive
Plan The Cohoes Bancorp, Inc. Stock Option and Incentive Plan for
directors and officers to be submitted for approval at a meeting of
the Holding Company's shareholders to be held at least six months
after the completion of the Conversion.
Subscription
Offering Offering of non-transferable rights to subscribe for the Common
Stock, in order of priority, to Eligible Account Holders, the ESOP,
and Supplemental Eligible Account Holders.
Superintendent Superintendent of Banks of the New York State Banking Department.
Voting
Record
Date The close of business on March 31, 1998, the date for determining
voting depositors entitled to vote at the Special Meeting.
123
<PAGE>
COHOES SAVINGS BANK AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
Page
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ................................ F-1
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1998 AND 1997 .......................................... F-2
CONSOLIDATED STATEMENTS OF OPERATIONS FOR EACH OF THE YEARS
IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 ..........................
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS AND UNDIVIDED PROFITS
FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 .... F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR EACH OF THE YEARS
IN THE THREE-YEAR PERIOD ENDED JUNE 30, 1998 .......................... F-4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .............................. F-6
NOTE: All schedules are omitted because the required information
applicable is included in the consolidated financial statements or
related notes.
The financial statements of Cohoes Bancorp, Inc. have been omitted
because the Company has not yet issued any stock, has no assets, no
liabilities and has not conducted any business other than of an
organizational nature.
124
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Examining Committee of
the Board of Trustees of
Cohoes Savings Bank:
We have audited the accompanying consolidated statements of financial condition
of Cohoes Savings Bank and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, changes in surplus and undivided
profits and cash flows for each of the years in the three-year period ended June
30, 1998. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cohoes Savings Bank and
subsidiaries as of June 30, 1998 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1998, in conformity with generally accepted accounting principles.
New York, New York
August 12, 1998
F-1
<PAGE>
COHOES SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1998 AND 1997
(000's omitted)
ASSETS 1998 1997
- ------ ---- ----
CASH AND CASH EQUIVALENTS:
Cash and due from banks ................................ $ 8,653 $ 10,795
Federal funds sold ..................................... 5,000 5,770
Interest-bearing deposits with banks ................... 576 99
-------- --------
Total cash and cash equivalents ................... 14,229 16,664
MORTGAGE LOANS HELD FOR SALE ............................. 38 175
SECURITIES AVAILABLE FOR SALE, amortized cost of $48,701
and $35,621 at June 30, 1998 and 1997,
respectively (Note 5) .................................. 48,720 35,475
INVESTMENT SECURITIES, approximate fair value of $45,547
and $25,186 at June 30, 1998 and 1997,
respectively (Note 6) .................................. 45,424 25,273
NET LOANS RECEIVABLE (Note 7) ............................ 412,759 398,530
ACCRUED INTEREST RECEIVABLE (Note 8) ..................... 3,482 3,210
BANK PREMISES AND EQUIPMENT (Note 9) ..................... 7,303 7,657
OTHER REAL ESTATE OWNED .................................. 509 1,874
MORTGAGE SERVICING RIGHTS (Note 10) ...................... 1,042 1,146
OTHER ASSETS ............................................. 2,210 1,696
-------- --------
Total assets ...................................... $535,716 $491,700
======== ========
LIABILITIES, SURPLUS AND UNDIVIDED PROFITS
LIABILITIES:
Due to depositors (Note 11) ............................ $449,541 $429,390
Mortgagors' escrow deposits ............................ 8,994 9,062
Borrowings (Note 12) ................................... 19,897 --
Other liabilities ...................................... 4,002 4,156
-------- --------
Total liabilities ................................. 482,434 442,608
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 16) .........
SURPLUS AND UNDIVIDED PROFITS (Note 14):
Surplus ................................................ 10,378 10,378
Undivided profits ...................................... 42,892 38,805
Net unrealized gain (loss) on securities available
for sale, net of income taxes ........................ 12 (91)
-------- --------
Total surplus and undivided profits .............. 53,282 49,092
-------- --------
Total liabilities, surplus and undivided profits . $535,716 $491,700
======== ========
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
COHOES SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SURPLUS AND UNDIVIDED PROFITS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(000's omitted)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Securities
Available for
Undivided Sale, Net of
Surplus Profits Income Taxes Total
------- ------- ------------ -----
<S> <C> <C> <C> <C>
BALANCE, June 30, 1995 ........................ $ 10,378 $ 29,767 $ (15) $ 40,130
Change in unrealized gain (loss) on
securities available for sale, net
of income taxes ........................ -- -- (234) (234)
Net income for the year ended June 30, 1996 -- 4,395 -- 4,395
-------- -------- -------- --------
BALANCE, June 30, 1996 ........................ 10,378 34,162 (249) 44,291
Change in unrealized gain (loss) on
securities available for sale, net
of income taxes ........................ -- -- 158 158
Net income for the year ended June 30, 1997 -- 4,643 -- 4,643
-------- -------- -------- --------
BALANCE, June 30, 1997 ........................ 10,378 38,805 (91) 49,092
Change in unrealized gain (loss) on
securities available for sale, net
of income taxes ........................ -- -- 103 103
Net income for the year ended June 30, 1998 -- 4,087 -- 4,087
-------- -------- -------- --------
BALANCE, June 30, 1998 ........................ $ 10,378 $ 42,892 $ 12 $ 53,282
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
COHOES SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(000's omitted)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 4,087 $ 4,643 $ 4,395
------------- ------------- -------------
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation .................................................. 1,117 1,101 1,015
Amortization of purchased and originated mortgage servicing
rights .................................................... 185 169 165
Provision for loan losses ..................................... 1,400 1,325 490
Provision for real estate owned losses ........................ - - 153
Provision for deferred tax (benefit) expense .................. (317) 1 (252)
Net gain on investment securities redeemed .................... - (3) -
Net (gain) loss on securities available for sale redeemed ..... 1 (37) (10)
Net premium amortization of investment securities ............. 33 49 69
Net premium (discount) amortization of securities available
for sale .................................................. 4 (16) (14)
Net gain on sale of mortgage loans ............................ (81) (106) 20
Proceeds from sale of loans held for sale ..................... 8,304 7,265 24,379
Loans originated for sale ..................................... (8,087) (6,745) (24,719)
Increase in interest receivable ............................... (272) (87) (311)
(Increase) decrease in other assets, net of deferred tax
(benefit) expense ......................................... (197) (547) 1,310
Increase (decrease) in other liabilities ...................... (154) 856 (1,479)
Net loss on sale/writedowns of other real estate owned ........ 644 55 31
------------- ------------- -------------
Total adjustments ................................... 2,580 3,280 847
------------- ------------- -------------
Net cash provided by operating activities ........... 6,667 7,923 5,242
------------- ------------- -------------
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of investment securities ..................... $ 1,000 $ 3,559 $ 113
Proceeds from investment securities called .......................... 12,000 3,065 3,669
Purchase of investment securities ................................... (40,591) (10,194) (14,774)
Proceeds from the maturity of securities available for sale ......... 550 - 2,000
Proceeds from securities available for sale called .................. 23,100 - 1,000
Proceeds from the sale of securities available for sale ............. 60 287 10,024
Purchase of securities available for sale ........................... (42,305) (18,552) (8,512)
Proceeds from principal reduction in investment securities .......... 7,408 4,219 6,242
Proceeds from principal reduction in securities available for sale .. 5,448 3,887 3,588
Net loans made to customers ......................................... (16,723) (8,418) (15,893)
Originated mortgage servicing rights ................................ (81) (104) -
Proceeds from sale of other real estate owned ....................... 1,815 1,239 380
Capital expenditures ................................................ (763) (1,827) (704)
------------- ------------- -------------
Net cash used in investing activities ............... (49,082) (22,839) (12,867)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in mortgagors' escrow deposits ......................... (68) (71) (276)
Net increase (decrease) in borrowings ............................... 19,897 (2,100) (3,954)
Net increase in deposits ............................................ 20,151 24,851 5,576
------------- ------------- -------------
Net cash provided by financing activities ........... 39,980 22,680 1,346
------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents ..................................... (2,435) 7,764 (6,279)
CASH AND CASH EQUIVALENTS, beginning of year ............................ 16,664 8,900 15,179
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year .................................. $ 14,229 $ 16,664 $ 8,900
============= ============= =============
ADDITIONAL DISCLOSURE RELATIVE TO CASH FLOWS:
Interest paid .................................................... $ 19,235 $ 17,664 $ 17,819
Taxes paid ....................................................... 2,780 3,113 2,457
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Transfer of loans to other real estate owned ..................... $ 1,094 $ 2,677 $ 635
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
COHOES SAVINGS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
(000's omitted)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of Cohoes Savings Bank and
subsidiaries (the "Bank") conform, in all material respects, to generally
accepted accounting principles and to general practice within the savings bank
industry. The Bank utilizes the accrual method of accounting for financial
reporting purposes.
Principles of Consolidation
The consolidated financial statements include the accounts of the Bank, its
wholly owned financial services subsidiary and its wholly owned insurance
subsidiary. Intercompany accounts and transactions have been eliminated.
Use of Estimates
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported assets and liabilities
as of the date of the consolidated statements of financial condition. The same
is true of revenues and expenses reported for the period. Actual results could
differ from those estimates.
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 acquired in connection with foreclosures. In
connection with the determination of the allowance for loan losses and the
valuation of other real estate owned, management obtains appraisals for
significant properties.
Investment Securities and Securities
Available for Sale
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," management
determines the appropriate classification of securities, including
mortgage-backed securities, at the time of purchase. If management has the
positive intent and ability to hold debt securities to maturity, they are
classified as investment securities held to maturity and 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 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 surplus and undivided profits.
Gains and losses on disposition of all investment securities are based on the
adjusted cost of the specific security sold. At June 30, 1998 and 1997, the Bank
did not hold any securities considered to be trading securities.
F-6
<PAGE>
Unrealized losses on securities which reflect a decline in value which is other
than temporary, if any, are charged to income and reported as a component of
"net (loss) gain on securities transactions" in the consolidated statements of
operations.
The cost of securities is adjusted for amortization of premium and accretion of
discount, which is calculated on an effective interest method.
Loans Receivable and Loan Fees
Loans receivable are reported at the principal amount outstanding, net of
unearned discount, net deferred loan fees and an allowance for possible loan
losses. Discounts on loans are accreted to income using a method which
approximates the level yield interest method. Interest income on loans is not
recognized when considered doubtful of collection by management.
The Bank accounts for fees and costs associated with loan originations in
accordance with SFAS No. 91, "Accounting for Nonrefundable Fees and Costs
Associated with Originating and Acquiring Loans and Initial Direct Costs of
Leases." Fees received from loan originations and certain related costs are
deferred and are amortized into income so as to provide for a level-yield of
interest on the underlying loans.
Allowance for Loan Losses
A substantial portion of the Bank's loans are secured by real estate located in
the Albany, New York area and the Metropolitan New York City area. In addition,
a substantial portion of the other real estate owned is located in those same
markets. 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 are dependent upon market conditions
in these market areas.
Management believes that the allowance for loan losses is adequate and that
other real estate owned is recorded at its fair value less an estimated cost to
sell these properties. While management uses available information to recognize
losses on loans and other real estate owned, future additions to the allowance
or write-downs of other real estate owned 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. Such agencies may require the Bank to
recognize additions to the allowance or write down other real estate owned based
on their judgments about information available to them at the time of their
examination, which may not be currently available to management.
The allowance for loan losses is established 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.
The allowance is an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on evaluations of
the collectibility of loans and prior loan loss experience. 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.
F-7
<PAGE>
SFAS No. 114 defines an impaired loan as a loan for which it is probable, based
on current information, that the lender will not collect all amounts due under
the contractual terms of the loan agreement. The Bank applies the impairment
criteria to all loans, except for large groups of smaller balance homogenous
loans that are collectively evaluated for impairment, such as residential
mortgages and consumer installment loans. Income recognition and charge-off
policies were not changed as a result of this statement.
Mortgage Loans Held for Sale
Management determines the appropriate classification of mortgage loans at the
time that rate lock agreements are entered into with the customer. If management
has the intent and the Bank has the ability at the time of rate lock to hold the
loans to maturity, they are classified as mortgage loans and carried at the
amount of unpaid principal, net of deferred fees, reduced by the allowance for
loan losses. Mortgage loans not intended to be held to maturity are classified
as "held for sale" and carried at the lower of aggregate cost or fair value as
determined by outstanding commitments from investors or current market prices
for loans with no commitments.
Loan servicing revenues and expenses are recognized when service fees are earned
and expenses are incurred. The mortgage loans being serviced are not included in
these consolidated financial statements as they are not assets of the Bank.
Purchased mortgage servicing rights represent the costs of acquiring the rights
to service mortgage loans originated by other institutions; such costs are
capitalized and amortized into servicing fee income over the estimated period of
net servicing income, adjusted for significant prepayments and payoffs of the
underlying serviced loans.
Gains or losses on sales of mortgage loans held for sale are recognized based
upon the difference between the selling price and the carrying value of the
related mortgage loans sold. Such gains and losses are increased or decreased by
the amount of excess servicing fees recorded, if any. Net deferred origination
fees are recognized at the time of sale in the gain or loss determination. Gains
and losses are decreased or increased for commissions and legal fees on loan
closings, and direct employee costs related to loan originations. These costs
amounted to $36, $34 and $104, for the years ended June 30, 1998, 1997 and 1996,
respectively.
Bank Premises and Equipment
Bank 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.
Other Real Estate Owned
Other real estate owned includes foreclosed real estate properties. Other real
estate owned is recorded at the lower of cost or the fair value of the asset
acquired less an estimate of the costs to sell the asset. Fair value of other
real estate owned is generally determined through independent appraisals. At the
time of foreclosure, the excess, if any, of the loan value over the estimated
fair value of the asset received less costs to sell, is charged to the allowance
for loan losses. Subsequent declines in the fair value of such assets, or
increases in the estimated costs to sell the properties and net operating
expenses of such assets, are charged directly to other noninterest expense. At
June 30, 1998 and 1997, these properties consisted of residential and commercial
mortgage properties located in the Albany, New York area.
F-8
<PAGE>
Income Taxes
For federal income and New York State franchise tax purposes, the Bank utilizes
the accrual basis method of accounting.
The Bank utilizes the asset and liability method of accounting for income taxes
required under SFAS No. 109, "Accounting for Income Taxes." Under the asset and
liability method of SFAS No. 109, deferred tax assets 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 basis. To the extent that current available evidence about the
future raises doubt about the realization of a deferred tax asset, a valuation
allowance must be established. 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.
Statutory Transfer of Surplus
A required quarterly transfer of 10% of net income is to be made to the surplus
fund in accordance with New York State Banking Regulations. No transfer is
required if net worth as a percent of deposits exceeds 10% at the end of each
quarter.
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 letters of credit. The Bank's policy is to record
such instruments when funded.
Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, cash and cash
equivalents consist of cash, due from banks, federal funds sold and
interest-bearing deposits with banks.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130 "Reporting Comprehensive Income." This statement is effective for fiscal
years beginning after December 31, 1997 and restatement of financial statements
or information for earlier periods provided for comparative purposes is
required. The provisions of this statement will not affect the Bank's results of
operations or financial condition.
F-9
<PAGE>
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures About
Pensions and Other Postretirement Benefits." SFAS No. 132 supersedes the
disclosure requirements for pension and other postretirement plans as set forth
in SFAS No. 87 "Employers' Accounting for Pension," SFAS No. 88 "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits," and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 132 does not address
measurement or recognition for pension and other postretirement benefit plans.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available, in which case the
notes to the financial statements shall include all available information and a
description of the information not available.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
The accounting for changes in the fair value of a derivative depends on the
intended use of the derivative and the resulting designation. SFAS No. 133 will
not impact the Bank's accounting or disclosures.
Reclassifications
Amounts in the prior year's consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
2. CONVERSION TO STOCK FORM OF OWNERSHIP
On May 21,1998, the Board of Trustees adopted a Plan of Conversion ("Plan") to
convert the Bank from a New York mutual savings bank to a New York stock savings
bank and to become a wholly owned subsidiary of a new Delaware corporation
("Company") to be organized at the direction of the Bank. Pursuant to the Plan,
the Company will issue and offer for sale shares of its common stock and use up
to 50% of the net proceeds of such sale to acquire all of the capital stock of
the Bank. The proposed transaction is subject to the approval of the
Superintendent of Banks of New York State and of the Federal Deposit Insurance
Corporation, as well as to a vote of the Bank's voting depositors. In addition,
the Company will file a registration statement with the Securities and Exchange
Commission ("SEC") with respect to the offering of its common stock and will
seek the permission of the Office of Thrift Supervision ("OTS") to acquire the
stock of the Bank to be issued upon the Bank's conversion.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to the retained income of the Bank as of the date of the most
recent financial statements contained in the final conversion prospectus. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held.
The Company may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause stockholders' equity to
be reduced below applicable regulatory capital maintenance requirements, the
amount required for the liquidation account, or if such declaration and payment
would otherwise violate regulatory requirements.
F-10
<PAGE>
Pursuant to the Plan, the Company intends to establish a Charitable Foundation,
Employee Stock Ownership Plan (ESOP), Stock Option Plan, Recognition and
Retention Plan and Employment and Retention Agreements as discussed below.
The Company proposes to fund the Charitable Foundation by contributing to the
Charitable Foundation, immediately following the conversion, a number of shares
of authorized but unissued shares of the Common Stock equal to approximately 3%
of Common Stock sold in the Offering. Such contribution, once made, will not be
recoverable by the Company or the Bank. The Company will recognize the full
expense equal to the fair value of the stock, in the amount of the contribution
in the quarter in which it occurs. Such expense will reduce earnings and have a
material impact on the Company's and the Bank's earnings for such quarter and
for the year.
The Company plans to set up an ESOP, a tax-qualified benefit plan for officers
and employees of the Company and the Bank. It is anticipated that an amount
equal to 8% of the shares of Common Stock sold in the Offering (including shares
issued to the Foundation) will be purchased by the ESOP with funds loaned by the
Company. The Company and the Bank intend to make annual contributions to the
ESOP in an amount equal to the principal and interest requirement of the debt.
Following consummation of the conversion, the Company intends to adopt a Stock
Option Plan and a Recognition and Retention Plan, pursuant to which the Company
intends to reserve a number of shares of Common Stock equal to an aggregate of
10% and 4%, respectively, of the Common Stock issued in the conversion for
issuance pursuant to stock options and stock appreciation rights and stock. The
Stock Option Plan and Recognition and Retention Plan will not be implemented
prior to receipt of stockholder approval of the Plan.
Upon consummation of the conversion, the Company and the Bank intend to enter
into employment agreements with certain senior management personnel and change
in control agreements with other key employees.
Conversion costs will be deferred and reduce the proceeds from the shares sold
in the conversion. If the conversion is not completed, all costs will be charged
as an expense. As of June 30, 1998, approximately $59 conversion costs had been
incurred.
The conversion will not affect the terms of any loans held by borrowers of the
Bank or the balances, interest rates, federal deposit insurance or maturities of
deposit accounts at the Bank.
3. SUBSEQUENT EVENT - MERGER
On July 31, 1998, Cohoes Savings Bank and SFS Bancorp, Inc. ("SFS"), parent of
Schenectady Federal Savings Bank, executed an Agreement and Plan of Merger
pursuant to which SFS will merge into a newly formed holding company of the Bank
to be organized in connection with the Bank's conversion from a mutual to a
stock institution. Under the terms of the agreement, each share of SFS will be
exchanged for a number of shares of common stock of the holding company equal to
the lesser of $26.50 divided by the initial public offering price of the holding
company common stock or $35.00 divided by the average closing price of that
stock for the first ten trading days. The transaction is expected to constitute
a tax-free reorganization under the Internal Revenue Code, so that shareholders
of SFS who receive holding company common stock will not recognize gain or loss
in connection with the exchange. This merger will be accounted for as a
pooling-of-interest transaction. Refer to footnote 18 for updated unaudited
information.
F-11
<PAGE>
Consummation of the merger is subject to the approval of the shareholders of
SFS, the conversion of the Bank and the receipt of all required regulatory
approvals. The transaction is anticipated to close in the fourth quarter of
1998.
4. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance sheet items calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of June 30, 1998, that the Bank
meets all capital adequacy requirements to which it is subject.
As of June 30, 1998, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based,
Tier 1 leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also presented in the following
table:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total capital (to risk weighted
assets) $ 56,803 17.1% $ 26,601 greater than 8.0% $ 33,251 greater than 10.0%
Tier 1 Capital (to risk weighted
assets) 53,270 16.0 13,300 greater than 4.0 19,951 greater than 6.0
Tier 1 Capital (to average assets) 53,270 10.6 20,063 greater than 4.0 25,079 greater than 5.0
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1997:
Total capital (to risk weighted
assets) $ 52,288 16.4% $ 25,519 greater than 8.0% $ 31,898 greater than 10.0%
Tier 1 Capital (to risk weighted
assets) 49,183 15.4 12,759 greater than 4.0 19,139 greater than 6.0
Tier 1 Capital (to average assets) 49,183 10.1 19,455 greater than 4.0 24,319 greater than 5.0
</TABLE>
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Adequacy Under Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1996:
Total capital (to risk weighted
assets) $ 47,789 15.1% $ 25,310 greater than 8.0% $ 31,637 greater than 10.0%
Tier 1 Capital (to risk weighted
assets) 44,540 14.1 12,655 greater than 4.0 18,982 greater than 6.0
Tier 1 Capital (to average assets) 44,540 9.7 13,842 greater than 3.0 23,070 greater than 5.0
</TABLE>
5. SECURITIES AVAILABLE FOR SALE
The amortized cost of securities available for sale and their related estimated
fair values at June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Amortized Cost Gains Losses Value
-------------- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government and agencies ......... $ 23,296 $ - $ (59) $ 23,237
Other obligations .................... 271 5 - 276
Mortgage-backed securities ........... 16,855 91 - 16,946
Collateralized mortgage obligations .. 4,019 8 (24) 4,003
------------- ------------- ------------- -------------
Total debt securities ...... 44,441 104 (83) 44,462
Equity securities .................... 4,260 - (2) 4,258
------------- ------------- ------------- -------------
Total securities available
for sale ................ $ 48,701 $ 104 $ (85) $ 48,720
============= ============= ============= =============
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997
-------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Amortized Cost Gains Losses Value
-------------- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government and agencies ......... $ 18,551 $ 9 $ (123) $ 18,437
Other obligations .................... 488 7 (2) 493
Mortgage-backed securities ........... 6,724 38 - 6,762
Collateralized mortgage obligations .. 6,377 14 (89) 6,302
------------- ------------- ------------- -------------
Total debt securities ...... 32,140 68 (214) 31,994
Equity securities .................... 3,481 - - 3,481
------------- ------------- ------------- -------------
Total securities available
for sale ................. $ 35,621 $ 68 $ (214) $ 35,475
============= ============= ============= =============
</TABLE>
The equity investment securities at June 30, 1998 and 1997 consist primarily of
common stock of the Federal Home Loan Bank of New York. These securities are
nonmarketable and are, therefore, stated at cost.
A summary of maturities of debt securities available for sale at June 30, 1998
is as follows:
Estimated Fair
Amortized Cost Value
-------------- -----
Within one year ...................... $ 179 $ 178
From one to five years ............... 42,654 42,669
After five years to ten years ........ 1,608 1,615
After ten years ...................... - -
------------- -------------
$ 44,441 $ 44,462
============= =============
During the years ended June 30, 1998 and 1997, there were no sales of debt
securities available for sale. During the year ended June 30, 1996, proceeds of
sales of debt securities available for sale totaled $10,024. Gross gains of $34
and gross losses of $24 were realized on those sales.
6. INVESTMENT SECURITIES
The carrying values of securities held for investment and their related
estimated fair values at June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
June 30, 1998
-------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Amortized Cost Gains Losses Value
-------------- ----- ------ -----
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies ...... $ 22,025 $ 6 $ (32) $ 21,999
Other obligations ................. 388 1 - 389
Mortgage-backed securities ........ 23,011 153 (5) 23,159
------------- ------------- ------------- -------------
Total investment securities $ 45,424 $ 160 $ (37) $ 45,547
============= ============= ============= =============
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated Fair
Amortized Cost Gains Losses Value
-------------- ----- ------ -----
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies ...... $ 6,049 $ 3 $ (52) $ 6,000
Other obligations ................. 848 - (2) 846
Mortgage-backed securities ........ 18,376 53 (89) 18,340
-------------- -------------- ----------- --------------
Total investment securities $ 25,273 $ 56 $ (143) $ 25,186
=============== ============== =========== ==============
</TABLE>
A summary of maturities of debt securities held for investment at June 30, 1998
is as follows:
Estimated Fair
Amortized Cost Value
-------------- --------------
Within one year ................... $ 682 $ 687
From one to five years ............ 32,723 32,801
After five years to ten years ..... 11,636 11,672
After ten years ................... 383 387
-------------- --------------
$ 45,424 $ 45,547
============== ==============
There were no sales of securities held for investment during the three years
ended June 30, 1998.
7. NET LOANS RECEIVABLE
A summary of loans at June 30, 1998 and 1997 is as follows:
1998 1997
---- ----
Mortgage loans on real estate:
Residential adjustable rate loans . $ 170,010 $ 222,255
Commercial real estate ............ 93,229 93,979
Residential fixed rate loans ...... 87,715 20,470
FHA and VA insured loans .......... 674 895
----------- -----------
351,628 337,599
----------- -----------
Other loans:
Conventional second mortgages ... 15,093 14,069
Home equity lines of credit ...... 21,976 25,205
Commercial business loans ........ 14,991 12,096
Home improvement loans ........... 547 662
Auto loans ....................... 9,783 9,290
Credit card loans ................ 1,655 2,152
Personal loans, secured and unsecured 409 576
Other loans ...................... 228 200
------------ ------------
64,682 64,250
------------ ------------
Less:
Deferred loan origination fees and costs (18) (214)
Allowance for loan losses ......... (3,533) (3,105)
------------ ------------
Net loans ............... $ 412,759 $ 398,530
============ ============
F-15
<PAGE>
Changes in the allowance for loan losses for the years ended June 30, 1998 and
1997 were as follows:
1998 1997 1996
---- ---- ----
Allowance for loan losses at
beginning of year ................ $ 3,105 $ 3,249 $ 3,133
Provision charged to operations .. 1,400 1,325 490
Loans charged-off, net ........... (972) (1,469) (374)
-------- -------- --------
Allowance for loan losses at year-end $ 3,533 $ 3,105 $ 3,249
======== ======== ========
The following table sets forth the information with regard to nonperforming
mortgage loans at June 30, 1998 and 1997:
1998 1997
---- ----
Loans on nonaccrual status and in the process
of foreclosure ............................... $ 2,545 $ 3,382
Loans on nonaccrual status but not in the process
of foreclosure ............................... 997 1,063
Loans past due 90 days or more and still
accruing interest ............................ - -
Loans restructured as to payment terms and/or
interest rates ............................... 1,929 1,906
---------- ----------
Total nonperforming mortgage loans .. $ 5,471 $ 6,351
========== ==========
The following table sets forth the information with regard to nonperforming
other loans at June 30, 1998 and 1997:
1998 1997
---- ----
Nonaccrual loans .................................. $ 121 $ 295
Loans past due 90 days or more and still
accruing interest ........................... 57 42
Loans restructured as to payment terms and/or
interest rates .............................. - -
--------- --------
Total nonperforming other loans ..... $ 178 $ 337
======== ========
Accumulated interest income on nonaccrual loans of approximately $214, $262 and
$441 was not recognized as income in the years ended June 30, 1998, 1997 and
1996, respectively. There are no commitments to extend further credit on
nonperforming loans.
F-16
<PAGE>
As of June 30, 1998 and 1997, the Bank's recorded investment in impaired loans
and the related valuation allowance calculated under SFAS No. 114 are as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------- --------------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Valuation allowance required $ 1,638 $ 344 $ 1,261 $ 198
Valuation allowance not required 630 - 645 -
-------------- -------------- -------------- -------------
$ 2,268 $ 344 $ 1,906 $ 198
============== ============== ============== ==============
</TABLE>
This allowance is included in the allowance for loan losses on the consolidated
statements of financial condition.
The average recorded investment in impaired loans for the years ended June 30,
1998 and 1997 was approximately $2,087 and $1,979, respectively.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining investment is doubtful in which case payments
received are recorded as reductions of principal. The Bank recognized interest
of $215, $185 and $189 on impaired loans for the years ended June 30, 1998, 1997
and 1996, respectively. Accumulated interest income on impaired loans of
approximately $15, $18 and $19 was not recognized as income in the years ended
June 30, 1998, 1997 and 1996, respectively.
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at June 30, 1998 and 1997:
1998 1997
---- ----
Loans ................................ $ 2,531 $ 2,558
Investment securities and securities
available for sale ............ 951 652
------------ ------------
$ 3,482 $ 3,210
============ ============
9. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following at June 30, 1998 and 1997:
1998 1997
---- ----
Land ................................... $ 1,529 $ 1,529
Building and leasehold improvements .... 6,553 6,335
Furniture, fixtures and equipment ...... 6,284 5,736
-------------- --------------
14,366 13,600
Less- Accumulated depreciation ......... (7,063) (5,943)
-------------- --------------
$ 7,303 $ 7,657
============== ==============
F-17
<PAGE>
Amount charged to depreciation expense was $1,117, $1,101 and $1,015 for the
years ended June 30, 1998, 1997 and 1996, respectively.
10. MORTGAGE SERVICING RIGHTS
The following is a summary of the mortgage servicing rights activity during the
years ended June 30, 1998 and 1997: 1998 1997 1996
Balance, beginning of year .................... $ 1,146 $ 1,211 $ 1,376
Mortgage servicing rights originated from
unrelated third parties ................ 81 104 -
Amortization of mortgage servicing rights
included as a reduction of servicing fee
income in the consolidated statements of
operations ............................. (185) (169) (165)
-------- -------- --------
Balance, end of year .......................... $ 1,042 $ 1,146 $ 1,211
======== ======== ========
Serviced Loans
The total loans serviced by the Bank for unrelated third parties were
approximately $233.1 million, $256.9 million and $288.2 million at June 30,
1998, 1997 and 1996, respectively.
11. DUE TO DEPOSITORS
Due to depositors account balances as of June 30, 1998 and 1997 are summarized
as follows:
Range of
Interest Rate 1998 1997
------------- ---- ----
Savings accounts 3.0%-5.5% $ 142,867 $ 137,790
Money market accounts 2.8-3.9 21,672 15,450
----------------- -----------------
164,539 153,240
Time deposits 3.8-8.5 231,049 230,306
Commercial deposits 0.0-1.8 15,957 11,250
Demand accounts 0.0-1.8 37,996 34,594
----------------- -----------------
$ 449,541 $ 429,390
================= =================
Time deposits over $100,000 amounted to approximately $31.1 million and $35.2
million at June 30, 1998 and 1997, respectively.
F-18
<PAGE>
The approximate amount of contractual maturities of time deposits for the years
subsequent to June 30, 1998 is as follows:
Years ending June 30:
1999 ........................ $ 159,550
2000 ........................ 50,043
2001 ........................ 7,983
2002 ........................ 5,064
2003 and thereafter ......... 8,409
-----------
$ 231,049
Interest expense on deposits for the years ended June 30, 1998, 1997 and 1996,
is summarized as follows:
1998 1997 1996
---- ---- ----
Savings accounts ...... $ 4,459 $ 4,359 $ 4,177
Money market accounts . 569 447 488
Time deposits ......... 13,484 12,487 12,830
Demand accounts ....... 304 275 246
--------------- --------------- ---------------
$ 18,816 $ 17,568 $ 17,741
=============== =============== ===============
12. BORROWINGS
Information concerning borrowings, which primarily consist of Federal Home Loan
Bank ("FHLB") advances, for the years ended June 30, 1998, 1997 and 1996 is
summarized as follows:
1998 1997 1996
---- ---- ----
Average balance during the year $ 5,467 $ 2,392 $ 4,682
Average interest rate during the year 6.07% 5.56% 6.34%
Maximum month-end balance during the year $ 19,983 $ 16,157 $ 13,213
Interest expense on borrowings $ 332 $ 133 $ 297
FHLB advances are made at fixed rates with remaining maturities of approximately
ten years as of June 30, 1998.
FHLB advances are collateralized by all FHLB stock owned by the Bank in addition
to a blanket pledge of eligible assets in an amount required to be maintained so
that the estimated fair value of such eligible assets exceeds, at all times,
110% of the outstanding advances.
13. EMPLOYEE BENEFITS
401(k) Retirement Savings Plan
The Bank sponsors a 401(k) Retirement Savings Plan which is available to all
full-time employees who have been employed by the Bank for a minimum of one year
and are at least 21 years of age. The Plan allows employees to defer up to 15%
of their salary on a pretax basis through contributions to the Retirement
Savings Plan. The Bank matches 50% of employee contributions up to a maximum of
6% of the amount deferred by the employee. The maximum contribution an employee
may make which is subject to matching by the Bank is set annually by the Board
of Trustees.
F-19
<PAGE>
Employees may also make additional voluntary after-tax contributions to the
Plan, which are not matched by the Bank, up to an additional 10% of the
employee's salary. Total 401(k) Plan expenses for the years ended June 30, 1998,
1997 and 1996 were approximately $378, $319 and $285, respectively.
Postretirement Medical and Life
Insurance Benefits
The Bank provides postretirement medical and life insurance benefits for
full-time employees. All employees who meet the criteria for either normal or
early retirement and have at least 10 years of service are eligible. Retired
employees are required to contribute toward the cost of coverage as established
by the Bank, based on medical and life insurance costs.
Benefit and premium payments are made when they are due and are not funded in
advance.
The Bank's estimated accrued postretirement obligation at June 30, 1998 and 1997
is as follows:
1998 1997
---- ----
Accrued postretirement obligation:
Retired employees .................................. $ 530 $ 532
Fully eligible active employees .................... 72 67
Other active employees ............................. 114 96
-------- --------
716 695
Unrecognized net gain from actual experience different from
assumed, amortized over 12.3 years ................. 281 327
-------- --------
Total accrued postretirement obligation .. $ 997 $ 1,022
======== ========
Net periodic postretirement benefit cost included the following components:
1998 1997 1996
---- ---- ----
Service cost ............................ $ 12 $ 10 $ 19
Interest cost ........................... 49 48 64
Amortization of net gain from actual
experience different from assumed ... (61) (58) (17)
--------- --------- ---------
$ - $ - $ 66
======== ========= =========
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% as of June 30, 1998 and 1997 and
7.75% as of June 30, 1996. For measurement purposes, the assumed health care
cost trend rate of 10% decreases gradually until an ultimate trend rate of 5.5%
is reached over 10 years. In accordance with the terms of the Postretirement
Medical Benefit Plan, once costs are 150% of the 1993 level, additional
increases become the responsibility of the retiree.
F-20
<PAGE>
The health care cost trend rate assumption has a significant effect on the
amount of obligation and expense reported. To illustrate, increasing the health
care trend rate by one percent each year would increase the accumulated
postretirement benefit obligation as of June 30, 1998 and 1997 by approximately
$2 and $2, respectively, and would have no material effect on the net periodic
postretirement benefit cost for the three years ended June 30, 1998.
14. SURPLUS AND UNDIVIDED PROFITS
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.
The balance in surplus includes approximately $5.2 million at December 31, 1997,
the latest date from which this calculation is available, which has been
designated as a reserve for bad debts under federal income tax regulations and
has resulted in income tax deductions in prior years. Any use of this amount
other than as provided for in those regulations would result in taxable income
at the then current rate.
15. INCOME TAX EXPENSE
The components of the income tax expense (benefit) are as follows:
1998 1997 1996
Current tax expense:
Federal .................... $ 2,450 $ 2,440 $ 2,601
State ...................... 517 531 533
Deferred tax expense (benefit) . (317) 1 (252)
------------ ------------ ------------
$ 2,650 $ 2,972 $ 2,882
============ ============ ============
The provision for income taxes differs from that computed at the federal
statutory rate as follows:
1998 1997 1996
---- ---- ----
Tax at federal statutory rate ...... $ 2,291 $ 2,589 $ 2,474
State taxes, net of federal benefit. 341 350 352
Other, net ......................... 18 33 56
----------- ----------- -----------
Total income tax expense ... $ 2,650 $ 2,972 $ 2,882
=========== =========== ===========
Effective rate ..................... 39.34% 39.03% 39.60%
===== ===== =====
F-21
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 1998 and
1997 are presented below:
1998 1997
---- ----
Deferred tax assets:
Differences in reporting the provision for loan losses $ 1,519 $ 1,335
Differences in reporting certain accrued expenses .... 789 771
Other ................................................ 297 167
--------- ---------
Total gross deferred tax assets ............ 2,605 2,273
--------- ---------
Deferred tax liabilities:
Differences in reporting the provision for loan losses 385 513
Deferred net loan origination fees ................... 218 92
Differences in reporting depreciation ................ 107 117
Differences in reporting certain accrued expenses .... 296 269
Other ................................................ 4 4
--------- ---------
Total gross deferred tax liabilities ....... 1,010 995
--------- ---------
Net deferred tax asset at end of year ...... 1,595 1,278
Net deferred tax asset at beginning of year .............. 1,278 1,279
--------- ---------
Deferred tax expense (benefit) for the year $ (317) $ 1
========= =========
The total deferred tax asset as of June 30, 1998 and 1997 is considered by the
Bank to be more likely than not realizable based upon the historical level of
taxable income in the prior years as well as the time period during which the
items giving rise to the deferred tax assets are expected to turn around.
In addition to the deferred tax assets and liabilities described above, the Bank
also has a deferred tax liability of approximately $19 and a deferred tax asset
of approximately $146 at June 30, 1998 and 1997, respectively, related to the
net unrealized gain (loss) on securities available for sale.
Under Section 593 of the Internal Revenue Code, thrift institutions such as the
Bank which met certain definitional tests, primarily relating to their assets
and the nature of their business, were permitted to establish a tax reserve for
bad debts and to make annual additions thereto, which additions may, within
specified limitations, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, could have been computed using an
amount based on the Bank's actual loss experience (the "Experience Method"), or
a percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications and
reduced by the amount of any permitted addition to the nonqualifying reserve.
Similar deductions or additions to the Bank's bad debt reserve are permitted
under the New York State Bank Franchise Tax; however, for purposes of these
taxes, the effective allowable percentage under the PTI Method is approximately
32% rather than 8%.
Effective January 1, 1997, Section 593 was amended, and the Bank is unable to
make additions to its tax bad debt reserve, is permitted to deduct bad debts
only as they occur and is additionally required to recapture (that is, take into
taxable income) over a multiyear period, beginning with the Bank's taxable year
beginning on January 1, 1997, the excess of the balance of its bad debt reserves
as of December 31, 1995 over the balance of such reserves as of December 31,
1987, or over a lesser amount if the Bank's loan portfolio has decreased since
December 31, 1987. Such recapture requirements would be deferred for each of the
two successive taxable years beginning January 1, 1997, in which the Bank
originates a minimum amount of certain residential loans based upon the average
of the principal amounts of such loans originated by the Bank during its six
taxable years preceding January 1, 1997. This amendment has no impact on the
Bank's results of operations for federal income tax purposes. The New York State
tax law has been amended to prevent a similar recapture of the Bank's bad debt
reserve, and to permit continued future use of the bad debt reserve method for
purposes of determining the Bank's New York State tax liability.
F-22
<PAGE>
In addition, the Bank has accumulated bad debt reserves for tax purposes of $3.7
million under Section 593 through December 31, 1987 for which no deferred taxes
have been provided. Under the tax laws as amended, the event that would result
in taxation of these reserves is the failure of the Bank to maintain a specified
qualifying-assets ratio or meet other thrift definition tests for New York State
tax purposes.
16. COMMITMENTS AND CONTINGENT LIABILITIES
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 on the consolidated statements of financial condition.
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.
Contract amounts of financial instruments that represent credit risk as of June
30, 1998 and 1997 at fixed and variable interest rates are as follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------
Fixed Variable Total
----- -------- -----
<S> <C> <C> <C>
Financial instruments whose contract amounts represent
credit risk (including unused lines of credit and
unadvanced funds):
Commercial business loans ......................... $ - $ 14,897 $ 14,897
Conventional mortgages ............................ 11,971 1,338 13,309
Commercial mortgage loans ......................... - 11,991 11,991
Construction loans ................................ - 890 890
Credit card loans ................................. - 2,996 2,996
Consumer loans .................................... 203 12,886 13,089
------------- ------------- -------------
$ 12,174 $ 44,998 $ 57,172
============= ============= =============
</TABLE>
F-23
<PAGE>
<TABLE>
<CAPTION>
1997
--------------------------------------------------
Fixed Variable Total
----- -------- -----
<S> <C> <C> <C>
Financial instruments whose contract amounts represent
credit risk (including unused lines of credit and
unadvanced funds):
Commercial business loans ......................... $ - $ 10,172 $ 10,172
Conventional mortgages ............................ 1,531 4,315 5,846
Commercial mortgage loans ......................... - 4,622 4,622
Construction loans ................................ - 830 830
Credit card loans ................................. - 3,300 3,300
Consumer loans .................................... 393 12,438 12,831
---------------- ------------- -------------
$ 1,924 $ 35,677 $ 37,601
============= ============= =============
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since 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
credit-worthiness 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. Mortgage and construction loan commitments
are secured by a first lien on real estate.
Commitments to extend credit may be written on a fixed rate basis, thus exposing
the Bank to interest rate risk, given the possibility that market rates may
change between commitment and actual extension of credit.
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 4.5% to 6.75%. These caps expose the
Bank to interest rate risk should market rates increase above these limits. As
of June 30, 1998 and 1997, $221.0 million and $262.4 million, respectively, of
mortgage loans had interest rate caps.
The Bank generally enters into rate lock agreements at the time that loan
applications are made. 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 credit have been made, as well as with
individuals who have not yet received a commitment. At June 30, 1998 and 1997,
the Bank had rate lock agreements related to commitments to extend credit as
well as uncommitted loan applications amounting to approximately $841 and $900,
respectively.
In order to reduce the interest rate risk associated with these items as well as
its portfolio of loans held for sale, the Bank enters into agreements to sell
loans in the secondary market to unrelated investors. At June 30, 1998 and 1997,
the Bank has $0 and $175, respectively, of commitments to sell loans to
unrelated investors.
Concentrations of Credit
The Bank primarily grants consumer and residential loans to customers located in
the New York State counties of Albany, Rensselaer, Schenectady and Saratoga.
Although the Bank has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts are dependent upon the real estate and
construction-related sectors of the economy.
F-24
<PAGE>
Borrowing Arrangements
The Bank has lines of credit available with a correspondent bank totaling
approximately $49.2 million. These lines of credit expire on October 28, 1998.
As of June 30, 1998, there was no outstanding balances on these lines.
Leases
The Bank leases certain branches, equipment and automobiles under various
noncancelable operating leases. The future minimum payments by year and the
aggregate, under all significant noncancelable operating leases with initial or
remaining terms of one year or more, are as follows:
Operating
Leases
------
Year ending June 30:
1999 ........................... $ 395
2000 ........................... 413
2001 ........................... 341
2002 ........................... 248
2003 and thereafter ............ 127
-----------
$ 1,524
===========
Total lease expense was approximately $383, $298 and $176 for the years ended
June 30, 1998, 1997 and 1996, respectively.
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 statement of financial
condition.
17. DISCLOSURES ABOUT THE FAIR
VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About the Fair Value of Financial Instruments,"
requires that the Bank disclose estimated fair values for financial instruments.
Fair value estimates, methods and assumptions are set forth below.
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. The fair value estimates of a significant portion of the Bank's
financial instruments were based on judgments regarding future expected net cash
flow, current economic conditions, risk characteristics of various financial
instruments and other factors. These
F-25
<PAGE>
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 estimate of fair value
under SFAS No. 107.
Short-Term Financial Instruments
The fair value of certain financial instruments is estimated to approximate
their carrying values because the remaining term to maturity of the financial
instruments is less than 90 days or the financial instrument reprices in 90 days
or less. Such financial instruments include cash and due from banks, federal
funds sold, interest-bearing deposits with banks and accrued interest
receivable.
Securities Available for Sale
and Investment Securities
Fair values are 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.
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 and other 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 nonperforming 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 calculated by either using
quoted market rates or, in the case where a firm commitment has been made to
sell the loan, the firm committed price was used. At June 30, 1998 and 1997, the
estimated fair value of loans held for sale approximated their book value.
F-26
<PAGE>
Deposit Liabilities
The estimated fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, savings and money market accounts, is
regarded to be the amount payable on demand as of June 30, 1998 and 1997. The
estimated fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates currently
offered for deposits of similar remaining maturities. 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.
Borrowings
The estimated fair value of FHLB borrowings is based on the discounted value of
their contractual cash flows. The discount rate used in the present value
computation is estimated by comparison to the current interest rates charged by
the FHLB for advances of similar remaining maturities.
Table of Financial Instruments
The carrying values and estimated fair values of financial instruments as of
June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------- -----------------------------------
Estimated Fair Estimated Fair
Carrying Value Value Carrying Value Value
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents ............ $ 14,229 $ 14,229 $ 16,664 $ 16,664
Mortgage loans held for sale ......... 38 38 175 175
Securities available for sale ........ 48,720 48,720 35,475 35,475
Investment securities ................ 45,424 45,547 25,273 25,186
Loans ................................ 416,292 425,774 401,635 401,855
Less- Allowance for loan losses ... (3,533) - (3,105) -
--------------- --------------- --------------- --------------
Net loans receivable ....... 412,759 425,774 398,530 401,855
--------------- --------------- --------------- ---------------
Accrued interest receivable .............. 3,482 3,482 3,210 3,210
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
1998 1997
---------------------------------- -----------------------------------
Estimated Fair Estimated Fair
Carrying Value Value Carrying Value Value
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Financial liabilities:
Due to depositors-
Demand, savings and money market
accounts ........................ $ 218,492 $ 218,492 $ 199,084 $ 199,084
Time deposits ...................... 231,049 246,220 230,306 231,081
Mortgagors' escrow deposits ........ 8,994 8,994 9,062 9,062
Borrowings ......................... 19,897 18,858 - -
</TABLE>
Commitments to Extend Credit,
Unused Lines of Credit
and Standby Letters of Credit
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 creditworthiness 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 and unused lines of credit, there are no significant unrealized gains or
losses associated with these financial instruments.
18. MERGER TERMINATION (UNAUDITED)
On October 23, 1998, Cohoes Savings Bank and SFS terminated the merger. In
connection with the termination Cohoes Savings Bank paid an agreed-upon breakup
fee of $2.0 million.
F-28
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus in connection with the
offering made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Holding
Company or the Bank. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Holding Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof.
TABLE OF CONTENTS
Page
----
Summary...................................................
Selected Consolidated Financial and
Other Data of Cohoes Savings Bank......................
Risk Factors..............................................
Cohoes Bancorp, Inc.......................................
Cohoes Savings Bank.......................................
Use of Proceeds...........................................
Dividends.................................................
Market for Common Stock...................................
Regulatory Capital........................................
Capitalization............................................
Pro Forma Data ...........................................
Comparison of Valuation and Pro Forma Information
With No Foundation ....................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations
of Cohoes Savings .....................................
Business of the Holding Company...........................
Business of the Bank......................................
Regulation................................................
Taxation..................................................
Management of the Holding Company.........................
Management of the Bank....................................
The Conversion ...........................................
The Offering..............................................
Restrictions on Acquisitions of the Holding Company
and the Bank...........................................
Description of Capital Stock of the Holding Company.......
Description of Capital Stock of the Bank..................
Experts...................................................
Legal and Tax Opinions....................................
Additional Information....................................
Glossary..................................................
Index to Consolidated Financial Statements................
Until the later of __________________, 1998 or 25 days after commencement of the
offering of Holding Company Common Stock, all dealers effecting transactions in
the registered securities, whether or not participating in this distribution,
may be required to deliver a prospectus. This is in addition to the obligation
of dealers to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
================================================================================
<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................................................. 37,698
NASD fee.............................................................. 18,841
Nasdaq registration fee............................................... 84,875
New York State Banking Department filing fee.......................... 5,000
Counsel fees and expenses............................................. 200,000
Accounting fees and expenses.......................................... 100,000
Appraisal and business plan fees and expenses......................... 70,000
Conversion agent fees and expenses.................................... 30,000
Marketing agent's expenses............................................ 50,000
Marketing agent's fees (1)............................................ 826,000
Printing, postage and mailing......................................... 360,000
Blue sky fees and expenses............................................ 10,000
Other expenses........................................................ 33,586
---------
TOTAL............................................................ 1,826,000
- ----------
(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 Cohoes Savings Bank 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
2.1 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 Cohoes Savings Bank
in stock form*
3.4 Bylaws of Cohoes Savings Bank in stock form*
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to
legality of stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to
Federal income tax consequences of the Conversion
8.2 Opinion of Wertime, Ries and Van Ullen, P.C. with respect to
New York income tax consequences of the Conversion
8.3 Letter of RP Financial LC. with respect to Subscription Rights*
10.1 Form of proposed Employment Agreement between Cohoes Savings
Bank and certain executive officers*
10.2 Form of proposed Employment Agreement between Cohoes Bancorp, Inc.
and certain executive officers*
10.3 Form of Change-In-Control Severance Agreement with certain officers
of Cohoes Savings Bank*
10.4 Cohoes Savings Bank Employee Severance Compensation Plan*
10.5 Employee Stock Ownership Plan*
10.6 Form of Cohoes Savings Bank 401(k) Savings Plan
10.7 Benefit Restoration Plan*
10.8 Stock Option and Incentive Plan
10.9 Recognition and Retention Plan*
21 Subsidiaries of Cohoes Bancorp, Inc.*
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Arthur Andersen
23.3 Consent of RP Financial*
23.4 Conset of Wertime, Ries and Van Ullen, P.C.
24 Power of Attorney (set forth on signature page)
27 Financial Data Schedule*
99.1 Appraisal and Appraisal Update**
99.2 Draft of Cohoes Savings Bank Foundation Gift Instrument*
99.3 Marketing Materials
99.4 Stock Order Form
99.6 Form of Proxy Statement and Proxy Card
* Previously filed.
** Exempt under rule 202 of Regulation S-T.
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 prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
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 Cohoes, New York on
September 14, 1998.
COHOES BANCORP, INC.
By: /s/ Harry L. Robinson
--------------------------------
Harry L. Robinson, President
and Chief Executive Officer
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harry L. Robinson 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/ Harry L. Robinson /s/ Duncan S. Mac Affer
- -------------------------------------- -----------------------------
Harry L. Robinson, Director, President Duncan S. Mac Affer, Director
and Chief Executive Officer
(Principal Executive and Operating Officer)
Date: October 30, 1998 Date: October 30, 1998
------------------------------------- -----------------------
II-6
<PAGE>
/s/ Arthur E. Bowen /s/ Walter H. Speidel
- ----------------------------- -----------------------------
Arthur E. Bowen, Director Walter H. Speidel, Director
Date: October 30, 1998 Date: October 30, 1998
----------------------- -----------------------
/s/ Donald A. Wilson /s/ Frederick G. Field, Jr.
- ----------------------------- -----------------------------
Donald A. Wilson, Director Frederick G. Field, Jr., Director
Date: October 30, 1998 Date: October 30, 1998
----------------------- -----------------------
/s/ R. Douglas Paton /s/ J. Timothy O'Hearn
- ----------------------------- -----------------------------
R. Douglas Paton, Director J. Timothy O'Hearn, Director
Date: October 30, 1998 Date: October 30, 1998
----------------------- -----------------------
/s/ Chester C. DeLaMater /s/ Peter G. Casabonne
- ----------------------------- -----------------------------
Chester C. DeLaMater, Director Peter G. Casabonne, Director
Date: October 30, 1998 Date: October 30, 1998
----------------------- -----------------------
/s/ Michael L. Crotty /s/ Richard A. Ahl
- ----------------------------- -----------------------------
Michael L. Crotty, Director Richard Ahl, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: October 30, 1998 Date: October 30, 1998
----------------------- -----------------------
II-7
<PAGE>
As filed with the Securities and Exchange Commission on October 30, 1998
Registration No.333-63539
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
EXHIBITS TO
AMENDMENT NO. ONE TO
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
--------------------
COHOES BANCORP, INC.
75 Remsen Street
Cohoes, New York 12047
================================================================================
<PAGE>
EXHIBIT INDEX
1.1 Letter Agreement regarding marketing and consulting services*
1.2 Form of Agency Agreement
2.1 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 Cohoes Savings Bank in stock form*
3.4 Bylaws of Cohoes Savings Bank in stock form*
4 Form of Stock Certificate of the Holding Company*
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality of
stock
8.1 Opinion of Silver, Freedman & Taff, L.L.P. with respect to Federal income
tax consequences of the Conversion
8.2 Opinion of Wertime, Ries and Van Ullen, P.C. with respect to New York
income tax consequences of the Conversion
8.3 Letter of RP Financial LC. with respect to Subscription Rights*
10.1 Form of proposed Employment Agreement between Cohoes Savings Bank and
certain executive officers*
10.2 Form of proposed Employment Agreement between Cohoes Bancorp, Inc. and
certain executive officers*
10.3 Form of Change-In-Control Severance Agreement with certain officers of
Cohoes Savings Bank*
10.4 Cohoes Savings Bank Employee Severance Compensation Plan*
10.5 Employee Stock Ownership Plan*
10.6 Form of Cohoes Savings Bank 401(k) Savings Plan
10.7 Benefit Restoration Plan*
10.8 Stock Option and Incentive Plan
10.9 Recognition and Retention Plan*
21 Subsidiaries of Cohoes Bancorp, Inc.*
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Arthur Andersen
23.3 Consent of RP Financial*
23.4 Consent of Wertime, Ries and Van Ullen, P.C.
24 Power of Attorney (set forth on signature page)*
27 Financial Data Schedule*
99.1 Appraisal and Appraisal Update**
99.2 Draft of Cohoes Savings Bank Foundation Gift Instrument*
99.3 Marketing Materials
99.4 Stock Order Form
99.5 Form of Proxy Statement and Proxy Card
- ----------
* Previously filed.
** Exempt under Rule 202 of Regulation S-T.
Exhibit 1.2
Form of Agency Agreement
<PAGE>
Exhibit 1.2
COHOES BANCORP, INC.
8,050,000 Shares
COMMON STOCK
(Par Value $.01 Per Share)
Subscription Price $10.00 Per Share
AGENCY AGREEMENT
, 1998
Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Cohoes Bancorp, Inc., a Delaware corporation (the "Company") and Cohoes
Savings Bank., a New York state chartered mutual savings bank (the "Bank",
references to which include the Bank in the mutual or stock form, as indicated
by the context), with its deposit accounts insured by the Bank Insurance Fund
("BIF") administered by the Federal Deposit Insurance Corporation ("FDIC")),
hereby confirm their agreement with Keefe, Bruyette & Woods, Inc. ("KBW" or "the
Agent"), as follows:
Section 1. The Offering. The Bank, in accordance with its plan of
conversion adopted by its Board of Trustees (the "Plan"), intends to convert
from a New York State chartered mutual savings bank to a New York State
chartered stock savings bank, and will issue all of its issued and outstanding
capital stock to the Company. In addition, pursuant to the Plan, the Company
will offer and sell up to 8,050,000 shares of its common stock, par value, $.01
per share (the "Shares" or "Common Shares"), in a subscription offering (the
"Subscription Offering") to (1) depositors of the Bank with Qualifying Deposits
(as defined in the Bank's Plan) as of March 31, 1997 ("Eligible Account
Holders"), (2) the Tax-Qualified Employee Plans, as defined in the Plan
("Employee Plans"), and (3) depositors of the Bank with Qualifying Deposits as
of September 30, 1998 ("Supplemental Eligible Account Holders"). Subject to the
prior subscription rights of the above-listed parties, the Company may offer for
sale in a community offering (the "Community Offering" and when referred to
together with the Subscription Offering, the "Subscription and Community
Offering") conducted concurrently with or subsequent to the Subscription
Offering, the Shares not so subscribed for or ordered in the Subscription
Offering to members of the general public to whom a copy of the Prospectus (as
hereinafter defined) is delivered ("Other Subscribers"), with a preference given
to natural persons who reside in the Bank's local community which includes
Albany, Saratoga, Schenectady and Rensselaer Counties and a portion of Warren
County in New
<PAGE>
York (all such offerees being referred to in the aggregate as "Eligible
Offerees"). It is anticipated that shares not subscribed for in the Subscription
and Community Offering will be offered to certain members of the general public
on a best efforts basis through a selected dealers arrangement (the "Syndicated
Community Offering") (the Subscription Offering, Community Offering and
Syndicated Community Offering are collectively referred to as the "Offering").
It is acknowledged that the purchase of Shares in the Offering is subject to the
maximum and minimum purchase limitations as described in the Plan and that the
Company and the Bank may reject, in whole or in part, any orders received in the
Community Offering or Syndicated Community Offering. Collectively, these
transactions are referred to herein as the "Conversion." The shares will be sold
in the Offering for a purchase price of $10.00 per Share (the "Purchase Price).
In connection with the Conversion and pursuant to the terms of the Plan
as described in the Prospectus (as defined below), immediately following the
consummation of the Conversion, subject to the approval of the depositors of the
Bank and compliance with certain conditions as may be imposed by regulatory
authorities, the Company will contribute to the Cohoes Savings Foundation, a
charitable foundation (the "Foundation") a number of shares equal to 3% of the
Shares sold in the Offering, or between 178,500 and 241,500 Shares (subject to
increase in certain circumstances to 277,725 Shares). Such Shares are
hereinafter referred to as the "Foundation Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-63539) (the
"Registration Statement") containing a prospectus relating to the Offering for
the registration of the Shares and the Foundation Shares under the Securities
Act of 1933 (the "1933 Act"), and has filed such amendments thereof and such
amended prospectuses as may have been required to the date hereof. The term
"Registration Statement" shall include all exhibits thereto, as amended,
including post-effective amendments. The prospectus, as amended, on file with
the Commission at the time the Registration Statement initially became effective
is hereinafter called the "Prospectus," except that if any Prospectus is filed
by the Company pursuant to Rule 424(b) or (c) of the rules and regulations of
the Commission under the 1933 Act (the "1933 Act Regulations") differing from
the prospectus on file at the time the Registration Statement initially becomes
effective, the term "Prospectus" shall refer to the prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said prospectus is filed with the
Commission.
In accordance with Part 86 of the General Regulations of the Banking
Board of the State of New York (the "Banking Board") and the rules and
regulations of the Federal Deposit Insurance Corporation ("FDIC") governing the
conversion of New York State chartered mutual savings banks to New York State
chartered stock savings banks (the "Conversion Regulations"), the Bank has filed
with the Superintendent of Banks (the "Superintendent") of the New York State
Banking Department (the "Banking Department") an Application for Conversion on
Form 86-AC (the "Conversion Application"), including the Prospectus, the Bank's
Proxy Statement dated _____, 1998 for the solicitation of proxies from
depositors for the special meeting to approve the Plan ("Proxy Statement") and
the Conversion Valuation Appraisal Report prepared by RP Financial, LC (the
2
<PAGE>
"Appraisal") and has filed such amendments thereto as may have been required by
the Banking Department. The Conversion Application has been approved by the
Superintendent, including the Proxy Statement and Prospectus, and the waiver of
certain provisions of regulations specified in such approval with respect to the
establishment of and contribution of the Foundation Shares to the Foundation and
with respect to the differences between the Conversion Regulations and FDIC
policy. The FDIC has issued a letter of intent not to object to the Conversion
Application.
In addition, the Company has filed with the Office of Thrift
Supervision ("OTS") an application for approval of its acquisition of the Bank
on Form [H-(e)1-S] (the "Holding Company Application") to become a registered
savings and loan holding company under the Home Owners' Loan Act as amended
("HOLA") and the regulations promulgated thereunder, and such application has
been approved.
Section 2. Retention of Agent; Compensation; Sale and Delivery of the
Shares. Subject to the terms and conditions herein set forth, the Company and
the Bank hereby appoint the Agent as their exclusive financial advisor and
marketing agent (i) to utilize its best efforts to solicit subscriptions for
Shares of the Company's Common Stock and to advise and assist the Company and
the Bank with respect to the Company's sale of the Shares in the Offering and
(ii) to participate in the Offering in the areas of market making, research
coverage and in syndicate formation (if necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the Agent
accepts such appointment and agrees to consult with and advise the Company and
the Bank as to the matters set forth in the letter agreement ("Letter
Agreement"), dated June 8, 1998 between the Bank and KBW (a copy of which is
attached hereto as Exhibit A). It is acknowledged by the Company and the Bank
that the Agent shall not be required to purchase any Shares or be obligated to
take any action which is inconsistent with all applicable laws, regulations,
decisions or orders.
The obligations of the Agent pursuant to this Agreement (other than
those set forth in Sections 8 and 9 hereof) shall terminate upon the completion
or termination or abandonment of the Plan by the Company or upon termination of
the Offering, but in no event later than the date (the "End Date") which is 45
days after the Closing Date (as hereinafter defined). All fees or expenses due
to the Agent but unpaid will be payable to the Agent in next day funds at the
earlier of the Closing Date (as hereinafter defined) or the End Date. In the
event the Offering is extended beyond the End Date, the Company, the Bank and
the Agent may agree to renew this Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of 5,950,000
Shares (or such lesser amount approved by the Superintendent and the FDIC)
within the period herein provided, this Agreement shall terminate and the
Company shall refund to any persons who have subscribed for any of the Shares,
the full amount which it may have received from them plus accrued interest as
set
3
<PAGE>
forth in the Prospectus; and none of the parties to this Agreement shall have
any obligation to the other parties hereunder, except as set forth in this
Section 2 and in Sections 6, 8 and 9 hereof.
In the event the Offering is terminated, the Agent shall be reimbursed
for its actual accountable out-of-pocket expenses (including its counsel's fees)
due to the date of such termination pursuant to this section.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to release for delivery certificates for such Shares on
the Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan; provided, however, that no funds shall be released
to the Company until the conditions specified in Section 7 hereof shall have
been complied with to the reasonable satisfaction of the Agent and its counsel.
The release of Shares against payment therefor shall be made on a date and at a
place acceptable to the Company, the Bank and the Agent. Certificates for shares
shall be delivered directly to the purchasers in accordance with their
directions. The date upon which the Company shall release or deliver the Shares
sold in the Offering, in accordance with the terms herein, is called the
"Closing Date."
The Agent shall receive the following compensation for its services
hereunder:
(a) A management fee of $40,000 payable in four consecutive monthly
installments of $10,000 (previous receipt of which is hereby acknowledged).
Such fees shall be deemed to have been earned when due. Should the
Conversion be terminated for any reason not attributable to the action or
inaction of the Agent, the Agent shall have earned and be entitled to be
paid fees accruing through the stage at which the termination occurred.
(b) A Success Fee of 1.20% of the aggregate Purchase Price of Common
Shares sold in the Offering (excluding shares purchased by the Bank's
officers, directors, or employees (or members of their immediate families)
plus any employee plans, tax-qualified or stock based compensation plans
(except IRA's) or similar plan created by the Bank for some or all of its
directors or employees. The management fee described in (a) above will be
applied against the Success Fee.
(c) If any of the Shares remain available after the Subscription
Offering, at the request of the Bank, KBW will seek to form a syndicate of
registered broker-dealers to assist in the sale of such Common Shares on a
best efforts basis, subject to the terms and conditions set forth in the
selected dealers agreement. KBW will endeavor to distribute the Common
Shares among dealers in a fashion which best meets the distribution
objectives of the Bank and the Plan. KBW will be paid a fee not to exceed
5.5% of the aggregate Purchase Price of the Shares sold in the Syndicated
Community Offering. KBW will pass onto selected broker-dealers, who assist
in the Syndicated Community offering, an amount competitive with gross
underwriting discounts charged at such time for comparable amounts of stock
sold at a comparable price per share in a similar market
4
<PAGE>
environment. Fees with respect to purchases effected with the assistance of
a broker/dealer other than KBW shall be transmitted by KBW to such
broker/dealer. The decision to utilize selected broker-dealers will be made
by the Bank upon consultation with KBW. In the event, with respect to any
purchases of Shares, fees are paid pursuant to this subparagraph 2(c), such
fees shall be in lieu of, and not in addition to, payment pursuant to
subparagraph 2(a) and 2(b).
(d) The Bank and the Company hereby agree to reimburse the Agent, from
time to time upon the Agent's request, for its reasonable out-of-pocket
expenses, which the Agent shall document, including, without limitation,
legal fees up to a maximum aggregate amount of $75,000. The Bank will bear
the expenses of the Offering customarily borne by issuers including,
without limitation, Banking Department, FDIC, SEC, OTS, "Blue Sky," and
NASD filings and registration fees; the fees of the Bank's accountants,
conversion agent, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing expenses associated with the Conversion;
and the fees set forth under this Section 2.
Full payment of Agent's actual and accountable expenses, advisory fees
and compensation shall be made in next day funds on the earlier of the
Closing Date or a determination by the Bank to terminate or abandon the
Plan.
Section 3. Prospectus; Offering. The Shares are to be initially offered
in the Offering at the Purchase Price as defined and set forth on the cover page
of the Prospectus.
Section 4. Representations and Warranties of the Company and the Bank.
The Company and the Bank jointly and severally represent and warrant to and
agree with the Agent as follows:
(a) The Registration Statement which was prepared by the Company and
the Bank and filed with the Commission was declared effective by the
Commission on November ___, 1998. At the time the Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement), became effective, the Registration Statement contained all
statements that were required to be stated therein in accordance with the
1933 Act and the 1933 Act Regulations, complied in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and the
Registration Statement, including the Prospectus contained therein
(including any amendment or supplement thereto), and any information
regarding the Company or the Bank contained in Sales Information (as such
term is defined in Section 8 hereof) authorized by the Company or the Bank
for use in connection with the Offering, did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and at the
time any Rule 424(b) or (c) Prospectus was filed with the Commission and at
the Closing Date referred to in Section 2, the Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement thereto), and any information regarding the Company or the Bank
contained in Sales Information (as such term is defined in Section 8
5
<PAGE>
hereof) authorized by the Company or the Bank for use in connection with
the Offering will contain all statements that are required to be stated
therein in accordance with the 1933 Act and the 1933 Act Regulations and
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this Section 4(a) shall
not apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company or the Bank by
the Agent or its counsel expressly regarding the Agent for use in the
Prospectus under the caption "The Offering - Marketing and Underwriting
Arrangements" or statements in or omissions from any Sales Information or
information filed pursuant to state securities or blue sky laws or
regulations regarding the Agent.
(b) The Conversion Application which was prepared by the Company and
the Bank and filed with the Banking Department and the FDIC and was
approved by the Superintendent on __________, 1998 and the related
Prospectus and Proxy Statement has been authorized for use by the
Superintendent. At the time of the approval of the Conversion Application,
including the Prospectus (including any amendment or supplement thereto),
by the Superintendent and at all times subsequent thereto until the Closing
Date, the Conversion Application, including the Prospectus (including any
amendment or supplement thereto), will comply in all material respects with
the Conversion Regulations, except to the extent waived in writing by the
Superintendent. The Conversion Application, including the Prospectus
(including any amendment or supplement thereto), does not include any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that the representations and warranties in this Section
4(b) shall not apply to statements or omissions made in reliance upon and
in conformity with written information furnished to the Company or the Bank
by the Agent or its counsel expressly regarding the Agent for use in the
Prospectus contained in the Conversion Application under the caption "The
Offering-Marketing and Underwriting Arrangements". The FDIC has issued a
letter of intent not to object to the Conversion Application, and such
letter remains in full force and effect and no order has been issued by the
FDIC suspending or revoking such letter, and no proceedings therefor have
been initiated or, to the knowledge of the Company and the Bank, threatened
by the FDIC. At the date of such approval by the Superintendent and the
issuance of the letter of intent not to object by the FDIC, and at the
Closing Date, the Conversion Application complied and will comply in all
material respects with the Conversion Regulations.
(c) The Company has filed with the OTS the Holding Company
Application, and such application was approved by the OTS and remains in
full force and effect and no order has been issued by the OTS suspending or
revoking such approval, and no proceedings have been initiated or, to the
knowledge of the Company or the Bank, threatened by the OTS. As of the date
of such approval and the Closing Date, the Holding Company Application
complied and will comply in all material respects with the applicable
provisions of the HOLA and the regulations promulgated thereunder.
6
<PAGE>
(d) At the time of their use, the Proxy Statement and any other proxy
solicitation materials will comply in all material respects with the
applicable provisions of the Conversion Regulations and will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) No order has been issued by the Superintendent or the FDIC
preventing or suspending the use of the Prospectus, and no action by or
before any such government entity to revoke any approval, authorization or
order of effectiveness related to the Conversion is, to the best knowledge
of the Company or the Bank, pending or threatened.
(f) At the Closing Date, the Plan will have been adopted by the Board
of Trustees and Directors, respectively, of the Bank and the Company and
approved by the depositors of the Bank, and the offer and sale of the
Shares will have been conducted in all material respects in accordance with
the Plan, the Conversion Regulations, and all other applicable laws,
regulations, decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed upon the
Company or the Bank by the Superintendent, the Commission, the FDIC, the
OTS or any other regulatory authority and in the manner described in the
Prospectus. No person has sought to obtain review of the final action of
the Superintendent in approving the Plan and the Conversion Application or
the OTS in approving the Holding Company Application pursuant to the HOLA,
or any other statute or regulation.
(g) The Bank, as of the date hereof, has been organized and is a
validly existing New York State chartered savings bank in mutual form of
organization and upon the Conversion will become a duly organized and
validly existing New York chartered savings bank in capital stock form of
organization, in both instances duly authorized to conduct its business and
own its property as described in the Registration Statement and the
Prospectus and to enter into and perform its obligations under this
Agreement. The Bank has obtained all material licenses, permits and other
governmental authorizations currently required for the conduct of its
business; all such licenses, permits and governmental authorizations are in
full force and effect, and the Bank is in all material respects complying
with all laws, rules, regulations and orders applicable to the operation of
its business. The Bank does not own equity securities or any equity
interest in any other business enterprise except as described in the
Prospectus or as would not be material to the operations of the Bank. Upon
completion of the sale by the Company of the Shares contemplated by the
Prospectus, (i) the Bank will be converted pursuant to the Plan to a New
York chartered stock savings bank, (ii) all of the issued and outstanding
capital stock of the Bank will be owned by the Company, and (iii) the
Company will have no direct subsidiaries other than the Bank. The
Conversion will have been effected in all material respects in accordance
with all applicable statutes, regulations, decisions and orders; and,
except with respect to the filing of certain post-sale, post-Conversion
reports, and documents in compliance with the 1933 Act Regulations, the
Superintendent's resolutions or letters of approval and the FDIC's
resolutions or non-objection letters, all terms, conditions, requirements
and provisions with respect to the Conversion imposed by the Commission,
the Superintendent and
7
<PAGE>
the FDIC, if any, will have been complied with by the Company and the Bank
in all material respects or appropriate waivers will have been obtained and
all material notice and waiting periods will have been satisfied, waived or
elapsed.
(h) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus, and at the Closing Date the Company will be qualified to do
business as a foreign corporation in each jurisdiction in which the conduct
of its business requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the condition,
financial or otherwise, or the business, operations or income of the
Company. The Company has obtained all material licenses, permits and other
governmental authorizations currently required for the conduct of its
business; all such licenses, permits and governmental authorizations are in
full force and effect, and the Company is in all material respects
complying with all laws, rules, regulations and orders applicable to the
operation of its business.
(i) Each direct and indirect subsidiary of the Bank has been
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdication of its incorporation, has full
corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and
Prospectus and is duly qualified as a foreign corporation in each
jurisdiction in which such qualification is required, except where the
failure to so qualify would not have a material adverse effect on the
assets or properties, business, results of operations, prospects or
conditions (financial or otherwise) of the Company, the Bank and their
subsidiaries, considered as a whole. The activities of each such subsidiary
are permitted to subsidiaries of a New York State chartered savings bank by
the Banking Law of the State of New York and the rules and regulations
promulgated thereunder (the "Banking Law") and by the rules, regulations,
resolutions and practices of the OTS and the FDIC. All of the issued and
outstanding capital stock of each such subsidiary has been duly authorized
and validly issued, is fully paid and nonassessable and is owned by the
Bank, directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity.
(j) The Bank is a member in good standing of the Federal Home Loan
Bank of New York ("FHLB-New York"). The deposit accounts of the Bank are
insured by the FDIC up to the applicable limits; and no proceedings for the
termination or revocation of such insurance are pending or, to the best
knowledge of the Company or the Bank, threatened. Upon consummation of the
Conversion, the liquidation account for the benefit of Eligible Account
Holders will be duly established in accordance with the requirements of the
Conversion Regulations.
(k) The Company and the Bank have good and marketable title to all
real property and good title to all other assets material to the business
of the Company and the Bank, taken as a whole, and to those properties and
assets described in the Registration Statement and Prospectus as owned by
them, free and clear of all liens, charges, encumbrances or restrictions,
except such as are
8
<PAGE>
described in the Registration Statement and Prospectus, or are not material
to the business of the Company and the Bank, taken as a whole; and all of
the leases and subleases material to the business of the Company and the
Bank, taken as a whole, under which the Company or the Bank hold
properties, including those described in the Registration Statement and
Prospectus, are in full force and effect.
(l) The Company and the Bank have received an opinion of their special
counsel, Silver, Freedman & Taff ("Silver, Freedman") with respect to the
federal income tax consequences of the Conversion and an opinion of Arthur
Andersen LLP ("Arthur Andersen") with respect to New York income tax
consequences of the Conversion; all material aspects of the opinions of
Silver, Freedman and Arthur Andersen are accurately summarized in the
Registration Statement and are accurately summarized in the Prospectus; and
further represent and warrant that the facts upon which such opinions are
based are truthful, accurate and complete.
(m) The Company and the Bank have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue
and sell the Shares to be sold by the Company and contribute the Foundation
Shares to the Foundation as provided herein and as described in the
Prospectus subject to the satisfaction of conditions imposed by the
Superintendent, the FDIC, and the OTS in connection with their respective
approvals of the Conversion Application and the Holding Company Application
as the case may be, and except as may be required under the securities or
"blue sky" laws of various jurisdictions, and, in the case of the Company,
as of the Closing Date, will have such approvals and orders to issue and
sell the Shares to be sold by the Company as provided herein, and, in the
case of the Bank, as of the Closing Date, will have such approvals and
orders to issue and sell the shares of its capital stock to be sold to the
Company as provided in the Plan, subject to the approval of the Bank's
restated organization certificate by the Superintendent. The consummation
of the Conversion, the execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated have
been duly and validly authorized by all necessary corporate action on the
part of the Company and the Bank and this Agreement has been validly
executed and delivered by the Company and the Bank and is the valid, legal
and binding agreement of the Company and the Bank enforceable in accordance
with its terms, except as the enforceability thereof may be limited by (i)
bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or similar laws now or hereafter in effect relating to or
affecting the enforcement of creditors' rights generally or the rights of
creditors of New York State savings institutions and savings and loan
holding companies, (ii) general equitable principles, (iii) laws relating
to the safety and soundness of insured depository institutions, and (iv)
applicable law or public policy with respect to the indemnification and/or
contribution provisions contained herein, and except that no representation
or warranty need be made as to the effect or availability of equitable
remedies or injunctive relief (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and except to the extent if
any, that the provisions of Sections 8 and 9 hereof may be unenforceable as
against public policy.
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(n) None of the Company, the Bank or their subsidiaries are in
violation of any directive received from the Superintendent or the FDIC, or
any other agency to make any material change in the method of conducting
their businesses so as to comply in all material respects with all
applicable statutes and regulations (including, without limitation,
regulations, decisions, directives and orders of the Superintendent and the
FDIC) and, except as may be set forth in the Registration Statement and the
Prospectus, there is no suit or proceeding, labor dispute or charge or
action before or by any court, regulatory authority or governmental agency
or body, pending or, to the best knowledge of the Company or the Bank,
threatened, which might materially and adversely affect the Conversion, the
performance of this Agreement or the consummation of the transactions
contemplated in the Plan and as described in the Registration Statement and
the Prospectus or which might result in any material adverse change in the
condition (financial or otherwise), earnings, capital or properties of the
Company, the Bank or their subsidiaries considered as a whole, or which
would materially affect their properties and assets.
(o) The financial statements, schedules and notes related thereto
which are included in the Prospectus fairly present the consolidated
balance sheet, income statement, statement of changes in equity and cash
flows of the Bank at the respective dates indicated and for the respective
periods covered thereby and comply as to form in all material respects with
the applicable accounting requirements of Title 12 of the Code of Federal
Regulations and generally accepted accounting principles (including those
requiring the recording of certain assets at their current market value).
Such financial statements, schedules and notes related thereto have been
prepared in accordance with generally accepted accounting principles
consistently applied through the periods involved, present fairly in all
material respects the information required to be stated therein and are
consistent with the most recent financial statements and other reports
filed by the Bank with the Banking Department and FDIC. The other
financial, statistical and pro forma information and related notes included
in the Prospectus present fairly the information shown therein on a basis
consistent with the audited and unaudited financial statements of the Bank
included in the Prospectus, and as to the pro forma adjustments, the
adjustments described therein have been properly applied on the basis
described therein.
(p) Since the respective dates as of which information is given in the
Registration Statement including the Prospectus: (i) there has not been any
material adverse change, financial or otherwise, in the condition of the
Company or the Bank and its subsidiaries considered as one enterprise, or
in the earnings, capital or properties of the Company or the Bank, whether
or not arising in the ordinary course of business; (ii) there has not been
any material increase in the long-term debt of the Bank or in the principal
amount of the Bank's assets which are classified by the Bank as
substandard, doubtful or loss or in loans past due 90 days or more or real
estate acquired by foreclosure, by deed-in-lieu of foreclosure or deemed
in-substance foreclosure or any material decrease in retained earnings or
total assets of the Bank nor has the Company or the Bank issued any
securities (other than in connection with the incorporation of the Company)
or incurred any liability or obligation for borrowing other than in the
ordinary course of business; (iii) there have not been any material
transactions entered into by the Company or the Bank; (iv) there has not
been any
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<PAGE>
material adverse change in the aggregate dollar amount of the Bank's
deposits or its consolidated net worth; (v) there has been no material
adverse change in the Company's or the Bank's relationship with its
insurance carriers, including, without limitation, cancellation or other
termination of the Company's or the Bank's fidelity bond or any other type
of insurance coverage; (vi) except as disclosed in the Prospectus there has
been no material change in management of the Company or the Bank, neither
of which has any material undisclosed liability of any kind, contingent or
otherwise; (vii) the Company or the Bank has not sustained any material
loss or interference with its respective business or properties from fire,
flood, windstorm, earthquake, accident or other calamity, whether or not
covered by insurance; (viii) the Company or the Bank is not in default in
the payment of principal or interest on any outstanding debt obligations;
(ix) the capitalization, liabilities, assets, properties and business of
the Company and the Bank conform in all material respects to the
descriptions thereof contained in the Prospectus; and (x) neither the
Company, the Bank nor its wholly owned subsidiary has any material
contingent liabilities, except as set forth in the Prospectus. All
documents made available to or delivered or to be made available to or
delivered by the Bank or the Company or their representatives in connection
with the issuance and sale of the Shares, including records of account
holders, depositors and borrowers of the Bank, or in connection with the
Agent's exercise of due diligence, except for those documents which were
prepared by parties other than the Bank, the Company or their
representatives, to the best knowledge of the Bank and the Company, were on
the dates on which they were delivered, or will be on the dates on which
they are to be delivered, true, complete and correct in all material
respects.
(q) As of the date hereof and as of the Closing Date, neither the
Company nor the Bank is (i) in breach or violation of its certificate of
incorporation or organization certificate, respectively, or bylaws, (and
the Bank will not be in violation of its restated organization certificate
or bylaws in capital stock form upon consummation of the Conversion), or
(ii) in default in the performance or observance of any material
obligation, agreement, covenant, or condition contained in any material
contract, lease, loan agreement, indenture or other instrument to which it
is a party or by which it or any of its property may be bound. The
consummation of the transactions herein contemplated will not: (i) conflict
with or constitute a breach of, or default under, or result in the creation
of any material lien, charge or encumbrance (with the exception of the
liquidation account established in the Conversion) upon any of the assets
of the Company, the Bank or their subsidiaries pursuant to the certificate
of incorporation of the Company and the subsidiaries or the organization
certificate and bylaws of the Bank (in either mutual or capital stock
form), or any material contract, lease or other instrument to which the
Company or the Bank has a beneficial interest, or any applicable law, rule,
regulation or order; (ii) violate any authorization, approval, judgement,
decree, order, statute, rule or regulation applicable to the Company or the
Bank, except for such violations which would not have a material adverse
effect on the financial condition and results of operations of the Company
and the Bank on a consolidated basis; or (iii) with the exception of the
liquidation account established in the Conversion, result in the creation
of any material lien, charge or encumbrance upon any property of the
Company or the Bank.
(r) No default exists, and no event has occurred which with notice or
lapse of time, or
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<PAGE>
both, would constitute a default, on the part of the Company or the Bank in
the due performance and observance of any term, covenant or condition of
any indenture, mortgage, deed of trust, note, bank loan or credit agreement
or any other instrument or agreement to which the Company or the Bank is a
party or by which any of them or any of their property is bound or
affected, except such defaults which would not have a material adverse
affect on the financial condition or results of operations of the Company
and the Bank on a consolidated basis; such agreements are in full force and
effect; and no other party to any such agreements has instituted or, to the
best knowledge of the Company and the Bank, threatened any action or
proceeding wherein the Company or the Bank would or might be alleged to be
in default thereunder.
(s) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be within the range set
forth in the Prospectus under the caption "Capitalization," and no Shares
have been or will be issued and outstanding prior to the Closing Date. The
issuance and sale of the Shares and the contribution of the Foundation
Shares to the Foundation will have been duly and validly authorized for
issuance and, when issued and delivered by the Company pursuant to the Plan
against payment of the consideration calculated as set forth in the Plan
and in the Prospectus, the Shares and the Foundation Shares will be duly
and validly issued, fully paid and non-assessable. Except to the extent
that subscription rights and priorities pursuant thereto exist pursuant to
the Plan, no preemptive or similar rights exist with respect to the Shares
and the Foundation Shares; and the terms and provisions of the Shares and
the Foundation Shares will conform in all material respects to the
description thereof contained in the Registration Statement and the
Prospectus. Upon the issuance of the Shares, good title to the Shares and
the Foundation Shares will be transferred from the Company to the
purchasers thereof against payment therefor, subject to such claims as may
be asserted against the purchasers thereof by third-party claimants. The
certificates representing the Shares and the Foundation Shares will conform
in all material respects with the requirements of all applicable laws and
regulations. The issuance and sale of the capital stock of the Bank to the
Company has been duly authorized by all necessary action of the Bank and
approved by the Superintendent and the FDIC (subject to the satisfaction of
various conditions imposed in connection with the Superintendent's approval
of, and the FDIC's non- objection to, the Conversion Application), and such
capital stock, when issued in accordance with the terms of the Plan, will
be fully paid, nonassessable and free of preemptive or similar rights and
will conform in all material respects to the description thereof contained
in the Prospectus. All such capital stock of the Bank will be owned
beneficially and of record by the Company free and clear of all claims,
encumbrances, security interests and liens against the Bank whatsoever.
Except as disclosed in the Prospectus, there is no outstanding option,
warrant or other right calling for the issuance of, and there is no
commitment, plan or arrangement to issue any share of capital stock of the
Company or the Bank or any security convertible into, or exercisable or
exchangeable, for such capital stock.
(t) No approval of any regulatory or supervisory or other public
authority is required in connection with the execution and delivery of this
Agreement or the issuance of the Shares, except for the approval of the
Commission, the Superintendent, the FDIC and any necessary qualification,
12
<PAGE>
notification, registration or exemption under the securities or blue sky
laws of the various states in which the Shares are to be offered, and
except as may be required under the rules and regulations of the NASD
and/or The Nasdaq Stock Market ("Nasdaq").
(u) Arthur Andersen which has certified the consolidated audited
financial statements and schedules of the Bank included in the Prospectus,
has advised the Company and the Bank in writing that they are, with respect
to the Company and the Bank, independent public accountants within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants and Title 12 of the Code of Federal
Regulations and Section 571.2(c)(3).
(v) RP Financial, LC, which has prepared the Bank's Conversion
Valuation Appraisal Report as of , 1998, as amended or supplemented, (the
"Appraisal"), has advised the Company in writing that it is independent of
the Company and the Bank within the meaning of the Conversion Regulations.
(w) The Company and the Bank have timely filed all required federal,
state and local tax returns; the Company and the Bank have paid all taxes
that have become due and payable in respect of such returns, except where
permitted to be extended, have made adequate reserves for similar future
tax liabilities and no deficiency has been asserted with respect thereto by
any taxing authority.
(x ) The Company and the Bank will comply with any and all material
terms, conditions, requirements and provisions with respect to the
Conversion imposed by the Commission, the Superintendent, the FDIC, the
OTS, the Conversion Regulations, the HOLA and regulations promulgated
thereunder, and by the 1933 Act, the 1933 Act Regulations, the 1934 Act and
the 1934 Act Regulations to be complied with prior to or subsequent to the
Closing Date and when the Prospectus is required to be delivered, the
Company and the Bank will comply, at their own expense, with all material
requirements imposed upon them by the Commission, the Superintendent, the
FDIC, the OTS, the Conversion Regulations, or the HOLA, and by the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations,
in each case as from time to time in force, so far as necessary to permit
the continuance of sales or dealing in shares of Common Stock during such
period in accordance with the provisions hereof and the Prospectus.
(y) The Foundation has been or will be prior to the Closing Date duly
incorporated and validly existing as a non-profit corporation in good
standing under the laws of the State of Delaware with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus. The
Foundation will not be a bank holding company within the meaning of the
HOLA and 12 C.F.R. Part 225 as a result of the issuance of the Foundation
Shares to it in accordance with the terms of the Plan and in the amounts as
described in the Prospectus. All approvals required to establish the
Foundation and to contribute the Foundation Shares thereto have been
received and, except as specifically disclosed in the Prospectus and the
Proxy Statement, there are no agreements or understandings, written or
oral, between the Company or the Bank and the Foundation with respect to
the control, directly or
13
<PAGE>
indirectly, over the voting and the acquisition or disposition of the
Foundation Shares to be contributed by the Company to the Foundation.
(z) The Bank is in compliance in all material respects with the
applicable financial record-keeping and reporting requirements of the
Currency and Foreign Transactions Reporting Act of 1970, as amended, and
the regulations and rules thereunder.
(aa) To the knowledge of the Company and the Bank, neither the
Company, the Bank nor any of their respective employees funds of the
Company or the Bank or otherwise extended credit or made any other payment
of funds prohibited by law, to any person to purchase the Shares, and no
funds have been set aside to be used for any payment prohibited by law.
(bb) Prior to the Conversion, neither the Company nor the Bank has:
(i) issued any securities within the last 18 months (except for notes to
evidence other bank loans and reverse repurchase agreements or other
liabilities in the ordinary course of business or as described in the
Prospectus, and except for any shares issued in connection with the
incorporation of the Company); (ii) had any material dealings within the 12
months prior to the date hereof with any member of the NASD, or any person
related to or associated with such member, other than discussions and
meetings relating to the proposed Offering and routine purchases and sales
of United States government and agency securities; (iii) entered into a
financial or management consulting agreement except as contemplated
hereunder; and (iv) engaged any intermediary between the Agent and the
Company and the Bank in connection with the offering of the Shares, and no
person is being compensated in any manner for such service. Appropriate
arrangements have been made for placing the funds received from
subscriptions for Shares in a special interest-bearing account with the
Bank until all Shares are sold and paid for as provided in the Plan, with
provision for refund to the purchasers in the event that the Conversion is
not completed for whatever reason or for delivery of the funds to the
Company if all Shares are sold.
(cc ) The Company and the Bank have not relied upon the Agent or its
legal counsel or other advisors for any legal, tax or accounting advice in
connection with the Conversion.
(dd) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
(ee) Neither the Company, the Bank nor its subsidiaries, nor any
properties owned or operated by any of them is in violation of or liable
under any Environmental Law (as defined below), except for such violations
or liabilities that, individually or in the aggregate, would not have a
material adverse effect on the financial condition, results of operations
or business affairs of the Company, the Bank and the subsidiaries
considered as one enterprise. There are no actions, suits or proceedings,
or demands, claims, notices, demand letters or requests for information
from any environmental agency instituted or pending, or to the knowledge of
the Company or the Bank, threatened, relating to the liability of any
property owned or operated by the Company or the Bank,
14
<PAGE>
or their respective subsidiaries, under any Environmental Law. For purposes
of this subsection, the term "Environmental Law" means any federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, order, judgment, decree,
injunction or agreement with any regulatory authority relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water, vapor, surface water, groundwater, drinking
water supply, surface soil, subsurface soil, plant and animal life or any
other natural resource), and/or (ii) the use, storage, recycling,
treatment, generation, transportation, processing, handling, labeling,
production, release or disposal of any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive or dangerous, or
otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
(ff) Any certificates signed by an officer of the Company or the Bank
pursuant to the conditions of this Agreement and delivered to the Agent or
their counsel that refers to this Agreement shall be deemed to be a
representation and warranty by the Company or the Bank to the Agent as to
the matters covered thereby with the same effect as if such representation
and warranty were set forth herein.
Section 5. Representations and Warranties of the Agent.
KBW represents and warrants to the Company and the Bank that:
(i) it is a corporation and is validly existing in good standing under
the laws of the State of New York with full power and authority to provide
the services to be furnished to the Bank and the Company hereunder.
(ii) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly and validly
authorized by all necessary action on the part of the Agent, and this
Agreement has been duly and validly executed and delivered by the Agent and
is a legal, valid and binding agreement of the Agent, enforceable in
accordance with its terms.
(iii) Each of the Agent and its employees, agents and representatives
who shall perform any of the services hereunder shall be duly authorized
and empowered, and shall have all licenses, approvals and permits necessary
to perform such services.
(iv) The execution and delivery of this Agreement by the Agent, the
consummation of the transactions contemplated hereby and compliance with
the terms and provisions hereof will not conflict with, or result in a
breach of, any of the terms, provisions or conditions of, or constitute a
default (or an event which with notice or lapse of time or both would
constitute a default) under, the certificate of incorporation of the Agent
or any agreement, indenture or other instrument to which the Agent is a
party or by which it or its property is bound.
15
<PAGE>
(v) No approval of any regulatory or supervisory or other public
authority is required in connection with the Agent's execution and delivery
of this Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before or by
any court, regulatory authority or government agency or body or, to the
knowledge of the Agent, pending or threatened, which might materially
adversely affect the Agent's performance under this Agreement.
Section 5.l Covenants of the Company and the Bank. The Company and the
Bank hereby jointly and severally covenant with KBW as follows:
(a) The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing the Agent and its counsel an
opportunity to review such amendment or supplement or file any amendment or
supplement to which amendment or supplement the Agent or its counsel shall
reasonably object.
(b) The Bank will not, at any time after the Conversion Application is
approved by the Superintendent and not objected to by the FDIC, file any
amendment or supplement to such Conversion Application without providing
the Agent and its counsel an opportunity to review such amendment or
supplement or file any amendment or supplement to which amendment or
supplement the Agent or its counsel shall reasonably object.
(c) The Company will not, at any time before the Holding Company
Application is approved by the OTS, file any amendment or supplement to
such Holding Company Application without providing the Agent and its
counsel an opportunity to review the nonconfidential portions of such
amendment or supplement or file any amendment or supplement to which
amendment or supplement the Agent or its counsel shall reasonably object.
(d) The Company and the Bank will use their best efforts to cause any
post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the
Conversion Application to be approved by the the Superintendent and the
FDIC and will immediately upon receipt of any information concerning the
events listed below notify the Agent: (i) when the Registration Statement,
as amended, has become effective; (ii) when the Conversion Application, as
amended, has been approved by the Superintendent and the FDIC; (iii) of any
comments from the Commission, the Superintendent the FDIC or any other
governmental entity with respect to the Conversion or the transactions
contemplated by this Agreement; (iv) of the request by the Commission, the
Superintendent, the FDIC, the OTS or any other governmental entity for any
amendment or supplement to the Registration Statement, the Conversion
Application or the Holding Company Application or for additional
information; (v) of the issuance by the Commission, the Superintendent, the
FDIC or any other governmental entity of
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<PAGE>
any order or other action suspending the Offering or the use of the
Registration Statement or the Prospectus or any other filing of the Company
or the Bank under the Conversion Regulations, or other applicable law, or
the threat of any such action; (vi) the issuance by the Commission, the
Superintendent, the FDIC or any authority of any stop order suspending the
effectiveness of the Registration Statement or of the initiation or threat
of initiation or threat of any proceedings for that purpose; or (vii) of
the occurrence of any event mentioned in paragraph (h) below. The Company
and the Bank will make every reasonable effort (i) to prevent the issuance
by the Commission, the Superintendent, the FDIC or any state authority of
any such order and, if any such order shall at any time be issued, (ii) to
obtain the lifting thereof at the earliest possible time.
(e) The Company and the Bank will deliver to the Agent and to its
counsel two conformed copies of the Registration Statement, the Conversion
Application, and the Holding Company Application, as originally filed and
of each amendment or supplement thereto, including all exhibits. Further,
the Company and the Bank will deliver such additional copies of the
foregoing documents to counsel to the Agent as may be required for any NASD
and "blue sky" filings.
(f) The Company and the Bank will furnish to the Agent, from time to
time during the period when the Prospectus (or any later prospectus related
to this offering) is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of
such Prospectus (as amended or supplemented) as the Agent may reasonably
request for the purposes contemplated by the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the rules and regulations promulgated under
the 1934 Act (the "1934 Act Regulations"). The Company authorizes the Agent
to use the Prospectus (as amended or supplemented, if amended or
supplemented) in any lawful manner contemplated by the Plan in connection
with the sale of the Shares by the Agent.
(g) The Company and the Bank will comply with any and all material
terms, conditions, requirements and provisions with respect to the
Conversion and the transactions contemplated thereby imposed by the
Commission, the Superintendent, the FDIC or the Conversion Regulations or
the HOLA and regulations promulgated thereunder, and by the 1933 Act, the
1933 Act Regulations, the 1934 Act and the 1934 Act Regulations to be
complied with prior to or subsequent to the Closing Date and when the
Prospectus is required to be delivered, and during such time period the
Company and the Bank will comply, at their own expense, with all material
requirements imposed upon them by the Commission, the Superintendent, the
FDIC or the OTS or the Conversion Regulations, the HOLA and by the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations,
including, without limitation, Rule 10b-5 under the 1934 Act, in each case
as from time to time in force, so far as necessary to permit the
continuance of sales or dealing in the Common Shares during such period in
accordance with the provisions hereof and the Prospectus.
(h) If, at any time during the period when the Prospectus relating to
the Shares and the Foundation Shares is required to be delivered, any event
relating to or affecting the Company or the Bank shall occur, as a result
of which it is necessary or appropriate, in the opinion of counsel for the
Company and the Bank or in the reasonable opinion of the Agent's counsel,
to amend or supplement
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<PAGE>
the Registration Statement or Prospectus in order to make the Registration
Statement or Prospectus not misleading in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, the
Company and the Bank will immediately so inform the Agent and prepare and
file, at their own expense, with the Commission, the Banking Department and
the FDIC and furnish to the Agent a reasonable number of copies of an
amendment or amendments of, or a supplement or supplements to, the
Registration Statement or Prospectus (in form and substance reasonably
satisfactory to the Agent and its counsel after a reasonable time for
review) which will amend or supplement the Registration Statement or
Prospectus so that as amended or supplemented it will not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading. For the purpose of this Agreement, the Company and the Bank
each will timely furnish to the Agent such information with respect to
itself as the Agent may from time to time reasonably request.
(i) The Company and the Bank will take all necessary actions, in
cooperating with the Agent, and furnish to whomever the Agent may direct,
such information as may be required to qualify or register the Shares for
offering and sale by the Company or to exempt such Shares from
registration, or to exempt the Company as a broker-dealer and its officers,
Trustees and employees as broker-dealers or agents under the applicable
securities or blue sky laws of such jurisdictions in which the Shares are
required under the Conversion Regulations to be sold or as the Agent and
the Company and the Bank may reasonably agree upon; provided, however, that
the Company shall not be obligated to file any general consent to service
of process, to qualify to do business in any jurisdiction in which it is
not so qualified, or to register its Trustees or officers as brokers,
dealers, salesmen or agents in any jurisdiction. In each jurisdiction where
any of the Shares shall have been qualified or registered as above
provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such
jurisdiction.
(j) The liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders will be duly established
and maintained in accordance with the requirements of the Banking
Department and FDIC, and such Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their savings accounts in
the Bank will have an inchoate interest in their pro rata portion of the
liquidation account which shall have a priority superior to that of the
holders of the Common Shares in the event of a complete liquidation of the
Bank.
(k) The Company and the Bank will not sell or issue, contract to sell
or otherwise dispose of, for a period of ___ days after the Closing Date,
without the Agent's prior written consent, any Common Shares other than the
Shares or other than in connection with any plan or arrangement described
in the Prospectus, including existing stock benefit plans.
(l) The Company shall register its Common Stock under Section 12(g) of
the 1934 Act on or prior to the Closing Date pursuant to the Plan and shall
request that such registration be
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<PAGE>
effective prior to or upon completion of the Conversion. The Company shall
maintain the effectiveness of such registration for not less than three
years or such shorter period as may be required by the OTS and the Banking
Department.
(m) During the period during which the Company's Common Shares are
registered under the 1934 Act or for three (3) years from the date hereof,
whichever period is greater, the Company will furnish to its stockholders
as soon as practicable after the end of each fiscal year an annual report
of the Company (including a consolidated balance sheet and statements of
consolidated income, shareholders' equity and cash flows of the Company and
its subsidiaries as at the end of and for such year, certified by
independent public accountants in accordance with Regulation S-X under the
1933 Act and the 1934 Act).
(n) During the period of three years from the date hereof, the Company
will furnish to the Agent: (i) as soon as practicable after such
information is publicly available, a copy of each report of the Company
furnished to or filed with the Commission under the 1934 Act or any
national securities exchange or system on which any class of securities of
the Company is listed or quoted (including, but not limited to, reports on
Forms 10-K, 10-Q and 8-K and all proxy statements and annual reports to
stockholders), (ii) a copy of each other non-confidential report of the
Company mailed to its stockholders or filed with the Commission, the
Banking Department any other supervisory or regulatory authority or any
national securities exchange or system on which any class of securities of
the Company is listed or quoted, each press release and material news items
and additional documents and information with respect to the Company or the
Bank as the Agent may reasonably request; and (iii) from time to time, such
other nonconfidential information concerning the Company or the Bank as the
Agent may reasonably request.
(o) The Company and the Bank will use the net proceeds from the sale
of the Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds."
(p) Other than as permitted by the Conversion Regulations, the HOLA,
the 1933 Act, the 1933 Act Regulations, and the laws of any state in which
the Shares are registered or qualified for sale or exempt from
registration, neither the Company nor the Bank will distribute any
prospectus, offering circular or other offering material in connection with
the offer and sale of the Shares.
(q) The Company will use its best efforts to (i) encourage and assist
a market maker to establish and maintain a market for the Shares and (ii)
list and maintain quotation of the Shares on a national or regional
securities exchange or on Nasdaq effective on or prior to the Closing Date.
(r) The Bank will maintain appropriate arrangements for depositing all
funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offering on an interest-bearing basis at the rate described
in the Prospectus until the Closing Date and satisfaction of all conditions
precedent to the release of the Bank's obligation to refund payments
received from persons subscribing for or ordering Shares in the Offering in
accordance with the Plan and as
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described in the Prospectus or until refunds of such funds have been made
to the persons entitled thereto or withdrawal authorizations canceled in
accordance with the Plan and as described in the Prospectus. The Bank will
maintain such records of all funds received to permit the funds of each
subscriber to be separately insured by the FDIC (to the maximum extent
allowable) and to enable the Bank to make the appropriate refunds of such
funds in the event that such refunds are required to be made in accordance
with the Plan and as described in the Prospectus.
(s) The Company will promptly take all necessary action to register as
a savings and loan holding company under the HOLA within 90 days of the
Closing Date.
(t) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for the Agent
to ensure compliance with the NASD's "Interpretation Relating to Free
Riding and Withholding."
(u) Neither the Company nor the Bank will amend the Plan of Conversion
without notifying the Agent prior thereto.
(v) If, at any time during the period when the Prospectus relating to
the Shares is required to be delivered, any event relating to or affecting
the Company, the Bank or a Subsidiary shall occur, as a result of which it
is necessary or appropriate, in the opinion of counsel for the Company and
the Bank to amend or supplement the Registration Statement or Prospectus in
order to make the Registration Statement or Prospectus not misleading in
light of the circumstances existing at the time the Prospectus is delivered
to a purchaser, the Company and the Bank, at their expense, shall prepare
and file with the Commission and the Banking Department, and furnish to KBW
a reasonable number of copies of an amendment or amendments of, or a
supplement or supplements to, the Registration Statement and Prospectus (in
form and substance satisfactory to KBW and its counsel after a reasonable
time for review) which will amend or supplement the Registration Statement
and Prospectus so that as amended or supplemented it will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading. For the purpose of this Agreement, the Company
and the Bank each will timely furnish to KBW such information with respect
to itself as KBW may from time to time reasonably request.
(w) At the Closing Date referred to in Section 2, the Plan will have
been adopted by the Board of Directors of the Company and the Board of
Trustees of the Bank and the offer and sale of the Shares will have been
conducted in all material respects in accordance with the Plan, the
Conversion Regulations, and all other applicable laws, regulations,
decisions and orders, including all terms, conditions, requirements and
provisions precedent to the Conversion imposed upon the Company or the Bank
by the Commission, the Superintendent, FDIC or any other regulatory
authority and in the manner described in the Prospectus.
(x) Upon completion of the sale by the Company of the Shares
contemplated by the
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Prospectus, (i) the Bank will be converted pursuant to the Plan to a stock
chartered stock savings bank, (ii) all of the authorized and outstanding
capital stock of the Bank will be owned by the Company, and (iii) the
Company will have no direct subsidiaries other than the Bank. The
Conversion will have been effected in all material respects in accordance
with all applicable statutes, regulations, decisions and orders; and,
except with respect to the filing of certain post-sale, post- Conversion
reports, and documents in compliance with the 1933 Act Regulations, and all
terms, conditions, requirements and provisions with respect to the
Conversion (except those that are conditions subsequent) imposed by the
Commission and the Superintendent, and FDIC, if any, will have been
complied with by the Company and the Bank in all material respects or
appropriate waivers will have been obtained and all material notice and
waiting periods will have been satisfied, waived or elapsed.
(y) The Foundation is a duly incorporated and validly existing
non-profit corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Registration
Statement and the Prospectus. The Foundation is not a bank holding company
within the meaning of the 12 U.S.C. Section 1467a (a)(1)(D) a result of the
issuance of the Foundation Shares to it in accordance with the terms of the
Plan and in the amounts as described in the Prospectus. All approvals
required to establish the Foundation and to contribute to the Foundation
Shares have been received and, except as specifically disclosed in the
Prospectus and the Proxy Statement, there are no agreements or
understandings, written or oral, between the Company or the Bank and the
Foundation with respect to the control, directly or indirectly, over the
voting and the acquisition or disposition of the Foundation Shares to be
contributed by the Company to the Foundation.
(z) The Company and the Bank will take all necessary actions, in
cooperation with KBW, and furnish to whomever KBW may direct, such
information as may be required to qualify or register the Shares for
offering and sale by the Company or to exempt such Shares from
registration, or to exempt the Company as a broker-dealer and its officers,
directors and employees as broker-dealers or agents under the applicable
securities or blue sky laws of such jurisdiction in which the Shares are to
be offered and sold as KBW and the Company and the Bank may reasonably
agree upon; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify to do business
in any jurisdiction in which it is not so qualified. In each jurisdiction
where any of the Shares shall have been qualified or registered as above
provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such
jurisdiction.
(aa) The Company shall assist the Agent, if necessary, in connection
with the allocation of the Shares in the event of an oversubscription and
shall provide the Agent with any information necessary to assist the
Company in allocating the Shares in such event and such information shall
be accurate and reliable in all material respects.
(bb) Prior to the Closing Date, the Company and the Bank will inform
the Agent of any
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<PAGE>
event or circumstances of which it is aware as a result of which the
Registration Statement and/or Prospectus, as then amended or supplemented,
would contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading.
(cc) Subsequent to the date the Registration Statement is declared
effective by the Commission and prior to the Closing Date, except as
otherwise may be indicated or contemplated therein or set forth in an
amendment or supplement thereto, neither the Company nor the Bank will
have: (i) issued any securities or incurred any liability or obligation,
direct or contingent, for borrowed money, except borrowings from the same
or similar sources indicated in the Prospectus in the ordinary course of
its business, or (ii) entered into any transaction which is material in
light of the business and properties of the Company and the Bank, taken as
a whole.
(dd) The facts and representations provided to Silver Freedman & Taff,
L.L.P. by the Bank and the Company and upon which Serchuk & Zelermyer, LLP
will base its opinion under Section 7(c)(1) are and will be truthful,
accurate and complete.
Section 6. Payment of Expenses. Whether or not the Conversion is
completed or the sale of the Shares by the Company is consummated, the Company
and the Bank jointly and severally agree to pay or reimburse the Agent for: (a)
all filing fees in connection with all filings with the NASD related to the
Offering; (b) any stock issue or transfer taxes which may be payable with
respect to the sale of the Shares; (c) all reasonable expenses of the
Conversion, including but not limited to the Company's and the Bank's, and the
Agent's attorneys' fees and expenses, blue sky fees, transfer agent, registrar
and other agent charges, fees relating to auditing and accounting or other
advisors and costs of printing all documents necessary in connection with the
Conversion; and (d) all reasonable out-of-pocket expenses incurred by the Agent
(exclusive of legal fees not to exceed $75,000). Such out-of-pocket expenses
include, but are not limited to, travel, lodging, meals, communication and
postage. However, such out-of-pocket expenses do not include expenses incurred
with respect to the matters set forth in (a) or (b) above. In the event the
Company is unable to sell a minimum of 5,950,000 Shares or the Conversion is
terminated or otherwise abandoned, the Company and the Bank shall promptly
reimburse the Agent in accordance with Section 2 hereof.
Section 7. Conditions to the Agent's Obligations. The obligations of
the Agent hereunder, as to the Shares to be delivered at the Closing Date, are
subject, to the extent not waived in writing by the Agent, to the condition that
all representations and warranties of the Company and the Bank herein are, at
and as of the commencement of the Offering and at and as of the Closing Date,
true and correct in all material respects, the condition that the Company and
the Bank shall have performed all of their obligations hereunder to be performed
on or before such dates, and to the following further conditions:
(a) At the Closing Date, the Company and the Bank shall have conducted
the Conversion in all material respects in accordance with the Plan, the
Conversion Regulations, and all other applicable laws, regulations,
decisions and orders, including all terms, conditions, requirements and
22
<PAGE>
provisions precedent to the Conversion imposed upon them by the Banking
Department and FDIC.
(b) The Registration Statement shall have been declared effective by
the Commission and the Conversion Application approved by the
Superintendent and not objected to by the FDIC not later than 5:30 p.m. on
the date of this Agreement, or with the Agent's consent at a later time and
date; and at the Closing Date, no stop order suspending the effectiveness
of the Registration Statement shall have been issued under the 1933 Act or
proceedings therefore initiated or threatened by the Commission or any
state authority, and no order or other action suspending the authorization
of the Prospectus or the consummation of the Conversion shall have been
issued or proceedings therefore initiated or, to the Company's or the
Bank's knowledge, threatened by the Commission, the Banking Department, the
FDIC, or any state authority.
(c) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date and
addressed to the Agent and for its benefit, of Silver, Freedman &
Taff, L.L.P., special counsel for the Company and the Bank, in form
and substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation under the laws of the state of
Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Registration Statement and the Prospectus.
(iii) The Bank has been organized and is a validly existing
New York chartered savings bank in capital stock form of
organization, authorized to conduct its business and own its
property as described in the Registration Statement and the
Prospectus. All of the outstanding capital stock of the Bank upon
completion of the Conversion will be duly authorized and, upon
payment therefor, will be validly issued, fully paid and
non-assessable and will be owned by the Company, free and clear
of any liens, encumbrances, claims or other restrictions.
(iv) Each subsidiary of the Bank has been duly incorporated
and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has full
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and is not required to be qualified as a foreign
corporation in any other jurisdiction, or the failure to so
qualify would not have a material adverse effect upon the
financial condition, results of operations or business of the
Bank and the subsidiary taken as a whole; the activities of the
subsidiaries are permitted to subsidiaries of a savings and loan
holding company and of a New York chartered savings bank by the
rules, regulations, resolutions and practices of the Banking
Department and Banking Board; all of the issued and outstanding
capital stock of each of the subsidiaries has been duly
authorized and validly issued, is fully paid and non-assessable
and is owned by the Company free and clear of any security,
interest, mortgage, pledge, lien, encumbrance, claim or equity.
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<PAGE>
(v) The Bank is a member in good standing of the FHLB-New
York. The deposit accounts of the Bank are insured by the FDIC up
to the maximum amount allowed under law and no proceedings for
the termination or revocation of such insurance are pending or,
to such counsel's Actual knowledge, threatened; the description
of the liquidation account as set forth in the Prospectus under
the captions "The Conversion - Liquidation Rights," to the extent
that such information constitutes matters of law and legal
conclusions, has been reviewed by such counsel and is accurately
described in all material respects.
(vi) Upon consummation of the Conversion, the authorized,
issued and outstanding capital stock of the Company will be
within the range set forth in the Prospectus under the caption
"Capitalization," and no shares of Common Stock have been issued
prior to the Closing Date. The issuance and sale of the shares
and the contribution of the Foundation Shares to the Foundation
will have been duly and validly authorized for issuance, and when
issued and delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth in the Plan
and Prospectus, will be duly and validly issued and fully paid
and non-assessable. The issuance of the Shares is not subject to
preemptive rights and the terms and provisions of the Shares and
the Foundation Shares conform in all material respects to the
description thereof contained in the Registration Statement and
Prospectus. To such counsel's actual knowledge, upon the issuance
of the Shares and the Foundation Shares, good title to the Shares
and the Foundation Shares will be transferred from the Company to
the purchasers thereof against payment therefor, subject to such
claims as may be asserted against the purchasers thereof by
third-party claimants. The certificates representing the Shares
and the Foundation Shares will conform in all material respects
with the requirements of all applicable laws and regulations. The
issuance and sale of the capital stock of the Bank to the Company
has been duly authorized by all necessary action of the Bank and
approved by the Superintendent and the FDIC (subject to the
satisfaction of various conditions imposed in connection with the
Superintendent's approval of, and the FDIC's non-objection to,
the Conversion Application), and such capital stock, when issued
in accordance with the terms of the Plan, will be fully paid,
nonassessable and free of preemptive or similar rights and will
conform in all material respects to the description thereof
contained in the Prospectus. All such capital stock of the Bank
will be owned beneficially and of record by the Company free and
clear of all claims, encumbrances, security interests and liens
against the Bank whatsoever. Except as disclosed in the
Prospectus, there is no outstanding option, warrant or other
right calling for the issuance of, and there is no commitment,
plan or arrangement to issue any share of capital stock of the
Company or the Bank or any security convertible into, or
exercisable or exchangeable, for such capital stock.
(viii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary action on the part
of the Company and the Bank; and this Agreement is a valid and
binding obligation of the Company and the Bank, enforceable in
accordance with its terms, except as the enforceability thereof
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, conservatorship,
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<PAGE>
receivership or other similar laws now or hereafter in effect
relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of savings institutions, the
deposits of which are insured by the FDIC and their holding
companies, (ii) general equitable principles, (iii) laws relating
to the safety and soundness of insured depository institutions
and their holding companies, and (iv) applicable law or public
policy with respect to the indemnification and/or contribution
provisions contained herein, including without limitation the
provisions of Sections 23A and 23B of the Federal Reserve Act and
except that no opinion need be expressed as to the effect or
availability of equitable remedies or injunctive relief
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ix) The Conversion Application has been approved by the
Superintendent and the FDIC has issued a letter of non-objection,
and the Prospectus has been authorized for use by the
Superintendent and the FDIC. The OTS has approved the Holding
Company Application and issued its order of approval under the
savings and loan holding company provisions of the HOLA, the
purchase by the Company of all of the issued and outstanding
capital stock of the Bank has been authorized by the
Superintendent and the FDIC. No action has been taken, and, to
such counsel's actual knowledge, none is pending or threatened,
to revoke any such authorization or approval.
(x) The Plan has been duly adopted by the required vote of
the trustees of the Bank and the directors of the Company, and
based upon the certificate of the inspector of election, by the
depositors of the Bank.
(xi) Subject to the satisfaction of the conditions to the
Superintendent's approval and the FDIC's non-objection of the
Conversion and the OTS's approval of the Holding Company
Application, no further approval, registration, authorization,
consent or other order of any federal or state agency is required
in connection with the execution and delivery of this Agreement,
the issuance of the Shares and the consummation of the
Conversion, except as may be required under the securities or
blue sky laws of various jurisdictions (as to which no opinion
need be rendered) and except as may be required under the rules
and regulations of the NASD and/or the Nasdaq National Market (as
to which no opinion need be rendered). To such counsel's actual
knowledge, the Conversion has been consummated in all material
respects in accordance with all applicable provisions of the HOLA
and the Conversion Regulations, except that no opinion is
rendered with respect to (a) the Conversion Application, the
Registration Statement or Prospectus, which are covered by other
clauses of this opinion, (b) the satisfaction of the
post-Conversion conditions in the Conversion Regulations or in
the Superintendent or FDIC approvals of the Conversion
Application and the OTS's approval of the Holding Company
Application, (c) the securities or "blue sky" laws of various
jurisdictions, and (d) the rules and regulations of the NASD
and/or Nasdaq National Market.
(xii) The Registration Statement is effective under the 1933
Act, and no stop order suspending the effectiveness has been
issued under the 1933 Act or proceedings therefor initiated or,
to such counsel's actual knowledge, threatened by the Commission.
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<PAGE>
(xiii) At the time the Conversion Application, including the
Prospectus contained therein, was approved by the Banking
Department and the FDIC, the Conversion Application, including
the Prospectus contained therein, complied as to form in all
material respects with the requirements of the Conversion
Regulations, federal law and all applicable rules and regulations
promulgated thereunder (other than the financial statements, the
notes thereto, and other tabular, financial, statistical and
appraisal data included therein, as to which no opinion need be
rendered).
(xiv) The activities of the subsidiary as described in the
Prospectus are permitted to subsidiaries of a savings and loan
holding company and of a New York chartered savings bank by the
rules, regulations, resolutions and practices of the Banking
Department.
(xv) At the time that the Registration Statement became
effective, (i) the Registration Statement (as amended or
supplemented) (other than the financial statements, the notes
thereto, and other tabular, financial, statistical and appraisal
data included therein, as to which no opinion need be rendered),
complied as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations, and
(ii) the Prospectus (other than the financial statements, the
notes thereto, and other tabular, financial, statistical and
appraisal data included therein, as to which no opinion need be
rendered) complied as to form in all material respects with the
requirements of the 1933 Act, the 1933 Act Regulations, the
Conversion Regulations and federal law.
(xvi) The terms and provisions of the Shares of the Company
conform, in all material respects, to the description thereof
contained in the Registration Statement and Prospectus, and the
form of certificate used to evidence the Shares is in due and
proper form.
(xvii) There are no legal or governmental proceedings
pending or, to such counsel's actual knowledge, threatened which
are required to be disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, and to such
counsel's actual knowledge, all pending legal and governmental
proceedings to which the Company or the Bank is a party or of
which any of their property is the subject, which are not
described in the Registration Statement and the Prospectus,
including ordinary routine litigation incidental to the Company's
or the Bank's business, are, considered in the aggregate, not
material.
(xviii) To such counsel's actual knowledge, there are no
material contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be described or
referred to in the Conversion Application, the Registration
Statement or the Prospectus or required to be filed as exhibits
thereto other than those described or referred to therein or
filed as exhibits thereto in the Conversion Application, the
Registration Statement or the Prospectus. The description in the
Conversion Application, the Registration Statement and the
Prospectus of such documents and exhibits is accurate in all
material respects and fairly presents the information required to
be shown.
(xix) To such counsel's actual knowledge , the Company and
the Bank have conducted the
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<PAGE>
Conversion, in all material respects, in accordance with all
applicable requirements of the Plan and applicable federal and
New York law, except that no opinion is rendered with respect to
(a) the Conversion Application, the Registration Statement or
Prospectus, which are covered by other clauses of this opinion,
(b) the satisfaction of the post-Conversion conditions in the
Superintendent of the Banking Department and FDIC approvals of
the Conversion Application and the OTS approval of the Holding
Company Application, (c) the securities of "blue sky" laws of
various jurisdictions, and (d) the rules and regulations of the
NASD and/or Nasdaq National Market. The Plan complies in all
material respects with all applicable federal laws, rules,
regulations, decisions and orders including, but not limited to,
the Conversion Regulations; no order has been issued by the
Superintendent, the Commission, the FDIC, or any state authority
to suspend the Offering or the use of the Prospectus, and no
action for such purposes has been instituted or, to such
counsel's actual knowledge, threatened by the Banking Department,
the Commission, the FDIC, or any state authority and, to such
counsel's actual knowledge, no person has sought to obtain
regulatory or judicial review of the final action of the
Superintendent, the FDIC or the OTS approving the Plan, the
Conversion Application, the Holding Company Application or the
Prospectus.
(xx) To such counsel's actual knowledge, the Company and the
Bank have obtained all material licenses, permits and other
governmental authorizations currently required under federal
banking laws and Delaware corporate and banking law for the
conduct of their businesses and all such licenses, permits and
other governmental authorizations are in full force and effect,
and the Company and the Bank are in all material respects
complying therewith, except where the failure to have such
licenses, permits and other governmental authorizations or the
failure to be in compliance therewith would not have a material
adverse effect on the business or operations of the Bank and the
Company, taken as a whole.
(xxi) To such counsel's actual knowledge, neither the
Company, the Bank nor any of the subsidiaries is in violation of
its certificate of incorporation and bylaws or its Organization
Certificate and bylaws, as appropriate or, to such counsel's
actual knowledge, in default or violation of any obligation,
agreement, covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or its property
may be bound, except for such defaults or violations which would
not have a material adverse impact on the financial condition or
results of operations of the Company and the Bank on a
consolidated basis; to such counsel's actual knowledge, the
execution and delivery of this Agreement, the occurrence of the
obligations herein set forth and the consummation of the
transactions contemplated herein will not conflict with or
constitute a breach of, or default under, or result in the
creation or imposition of any lien, charge or encumbrance upon
any property or assets of the Company, the Bank or any of the
subsidiaries pursuant to any material contract, indenture,
mortgage, loan agreement, note, lease or other instrument to
which the Company, the Bank or any of the subsidiaries is a party
or by which any of them may be bound, or to which any of the
property or assets of the Company, the Bank or any of the
subsidiaries are subject (other than the establishment of the
liquidation account); and, such action will not result in any
violation of the provisions of the certificate of incorporation
or bylaws of the Company or the Organization Certificate or
bylaws of
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<PAGE>
the Bank or, to such counsel's actual knowledge, result in any
violation of any applicable federal law, act, regulation (except
that no opinion with respect to the securities and blue sky laws
of various jurisdictions or the rules or regulations of the NASD
and/or the Nasdaq Stock Market need be rendered) or order or
court order, writ, injunction or decree.
(xxii) The Company's certificate of incorporation and bylaws
comply in all material respects with the General Corporation Law
("GCL") of the State of Delaware. The Bank's organization
certificate and restated organization certificate and bylaws
comply in all material respects with the rules and regulations of
the Banking Department.
(xxiii) To such counsel's actual knowledge, neither the
Company nor the Bank is in violation of any directive from the
Superintendent or the FDIC to make any material change in the
method of conducting its respective business.
(xxiv) The information in the Prospectus under the captions
"Regulation," "The Conversion," "Restrictions on Acquisition of
the Company and the Bank" and "Description of Capital Stock of
the Holding Company," to the extent that such information
constitutes matters of law, summaries of legal matters, documents
or proceedings, or legal conclusions, has been reviewed by such
counsel and is correct in all material respects. The description
of the Conversion process under the caption "The Conversion" in
the Prospectus has been reviewed by such counsel and fairly
describes such process in all material respects. The discussion
of statutes or regulations described or referred to in the
Prospectus are accurate summaries and fairly present the
information required to be shown. The information under the
caption "The Conversion - Tax Considerations" has been reviewed
by such counsel and fairly describes the opinions rendered by
Silver, Freedman & Taff, L.L.P. to the Company and the Bank with
respect to such matters.
In addition, such counsel shall state that during the preparation of
the Conversion Application, the Registration Statement and the Prospectus, they
participated in conferences with certain officers of, the independent public and
internal accountants for, and other representatives of the Company and the Bank,
at which conferences the contents of the Conversion Application, the
Registration Statement and the Prospectus and related matters were discussed
and, while such counsel have not confirmed the accuracy or completeness of or
otherwise verified the information contained in the Conversion Application, the
Registration Statement or the Prospectus, and do not assume any responsibility
for such information, based upon such conferences and a review of documents
deemed relevant for the purpose of rendering their view (relying as to
materiality as to factual matters on certificates of officers and other factual
representations by the Company and the Bank), nothing has come to their
attention that would lead them to believe that the Conversion Application, the
Registration Statement, the Prospectus, or any amendment or supplement thereto
(other than the financial statements, the notes thereto, and other tabular,
financial, statistical and appraisal data included therein as to which no view
need be rendered) contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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In giving such opinion, such counsel may rely as to all matters of fact
on certificates of officers or directors or trustees of the Company and the
Bank, respectively, and certificates of public officials. Such counsel's opinion
shall be limited to matters governed by federal banking and securities laws and
by the New York Business Corporation Law and New York Banking Law. With respect
to matters involving the application of New York law, such counsel may rely, to
the extent it deems proper and as specified in its opinion, solely upon the
opinion of local counsel. The opinion of Silver, Freedman & Taff, L.L.P. shall
be governed by the Legal Opinion Accord ("Accord") of the American Bar Bank
Section of Business Law (1991). The term "actual knowledge" as used herein shall
have the meaning set forth in the Accord. For purposes of such opinion, no
proceedings shall be deemed to be pending, no order or stop order shall be
deemed to be issued, and no action shall be deemed to be instituted unless, in
each case, a director or executive officer of the Company or the Bank shall have
received a copy of such proceedings, order, stop order or action. In addition,
such opinion may be limited to present statutes, regulations and judicial
interpretations and to facts as they presently exist; in rendering such opinion,
such counsel need assume no obligation to revise or supplement it should the
present laws be changed by legislative or regulatory action, judicial decision
or otherwise; and such counsel need express no view, opinion or belief with
respect to whether any proposed or pending legislation, if enacted, or any
proposed or pending regulations or policy statements issued by any regulatory
agency, whether or not promulgated pursuant to any such legislation, would
affect the validity of the Conversion or any aspect thereof. Such counsel may
assume that any agreement is the valid and binding obligation of any parties to
such agreement other than the Company or the Bank.
The favorable opinion, dated as of the Closing Date and addressed to
the Agent and for their benefit, of the Bank's local counsel, in form and
substance to the effect that, to the best of such counsel's knowledge, (i) the
Company and the Bank have good and marketable title to all properties and assets
which are material to the business of the Company and the Bank and to those
properties and assets described in the Registration Statement and Prospectus, as
owned by them, free and clear of all liens, charges, encumbrances or
restrictions, except such as are described in the Registration Statement and
Prospectus, or are not material in relation to the business of the Company and
the Bank considered as one enterprise; (ii) all of the leases and subleases
material to the business of the Company and the Bank under which the Company and
the Bank hold properties, as described in the Registration Statement and
Prospectus, are in full force and effect; and (iii) the Bank is duly qualified
as a foreign corporation to transact business and is in good standing in each
jurisdiction in which its ownership of property or leasing of property or the
conduct of its business requires such qualification, unless the failure to be so
qualified in one or more of such jurisdictions would not have a material adverse
effect on the condition, financial or otherwise, or the business, operations or
income of the Bank.
(d) At the Closing Date, the Agent shall have received the favorable
opinion, dated as of the Closing Date, of Serchuk & Zelermyer, LLP, the
Agent's counsel, with respect to such matters as the Agent may reasonably
require. Such opinion may rely upon the opinions of counsel to the
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Company and the Bank, and as to matters of fact, upon certificates of
officers and directors and trustees respectively, of the Company and the
Bank delivered pursuant hereto or as such counsel shall reasonably request.
(e) At the Closing Date, the Agent shall receive a certificate of the
Chief Executive Officer and the Chief Financial Officer of the Company and
the Bank in form and substance reasonably satisfactory to the Agent's
Counsel, dated as of such Closing Date, to the effect that: (i) they have
carefully reviewed the Prospectus and, in their opinion, at the time the
Prospectus became authorized for final use, the Prospectus did not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; (ii) since the
date the Prospectus became authorized for final use, no event has occurred
which should have been set forth in an amendment or supplement to the
Prospectus which has not been so set forth, including specifically, but
without limitation, any material adverse change in the condition, financial
or otherwise, or in the earnings, capital, properties or business of the
Company or the Bank, and the conditions set forth in this Section 7 have
been satisfied; (iii) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, capital or properties of the Company or the Bank, independently,
or of the Company and the Bank, considered as one enterprise, whether or
not arising in the ordinary course of business; (iv) the representations
and warranties in Section 4 are true and correct with the same force and
effect as though expressly made at and as of the Closing Date; (v) the
Company and the Bank have complied in all material respects with all
agreements and satisfied all conditions on their part to be performed or
satisfied at or prior to the Closing Date and will comply in all material
respects with all obligations to be satisfied by them after the Conversion;
(vi) no stop order suspending the effectiveness of the Registration
Statement has been initiated or, to the best knowledge of the Company or
the Bank, threatened by the Commission or any state authority; (vii) no
order suspending the Offering, the Conversion, the acquisition of all of
the shares of the Bank by the Company or the effectiveness of the
Prospectus has been issued and no proceedings for that purpose are pending
or, to the best knowledge of the Company or the Bank, threatened by the
Superintendent, the Commission, the FDIC, or any state authority; and
(viii) to the best knowledge of the Company or the Bank, no person has
sought to obtain review of the final action of the Superintendent approving
the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of
the Agent, there shall have been no material adverse change in the
condition, financial or otherwise, or in the earnings or business of the
Company or the Bank independently, or of the Company and the Bank,
considered as one enterprise, from that as of the latest dates as of which
such condition is set forth in the Prospectus other than transactions
referred to or contemplated therein; (iii) the Company or the Bank shall
not have received from the Superintendent or the FDIC or the OTS any
direction (oral or written) to make any material change in the method of
conducting their business with which it has not complied (which direction,
if any, shall have been disclosed to the Agent) or which materially and
adversely would affect the business, operations or financial condition or
income of the Company
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and the Bank taken as a whole; (iv) the Company and the Bank or their
subsidiaries shall not have been in default (nor shall an event have
occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of any agreement or instrument relating to any
outstanding indebtedness; (v) no action, suit or proceeding, at law or in
equity or before or by any federal or state commission, board or other
administrative agency, shall be pending or, to the knowledge of the Company
or the Bank, threatened against the Company or the Bank or affecting any of
their properties wherein an unfavorable decision, ruling or finding would
materially and adversely affect the business, operations, financial
condition or income of the Company and the Bank taken as a whole; and (vi)
the Shares have been qualified or registered for offering and sale or
exempted therefrom under the securities or blue sky laws of the
jurisdictions as the Agent shall have reasonably requested and as agreed to
by the Company and the Bank.
(g) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from Arthur Andersen as of the date of the Prospectus and
addressed to the Agent: (i) confirming that Arthur Andersen is a firm of
independent public accountants within the meaning of Rule 101 of the Code
of Professional Ethics of the American Institute of Certified Public
Accountants and applicable regulations of the Banking Board and stating in
effect that in its opinion the consolidated financial statements, schedules
and related notes of the Bank as of June 30, 1998 and 1997 and for each of
the two years in the period ended June 30, 1998, as are included in the
Prospectus and covered by their opinion included therein, comply as to form
in all material respects with the applicable accounting requirements and
related published rules and regulations of the Banking Board regulations
and the 1933 Act; (ii) stating in effect that, on the basis of certain
agreed upon procedures (but not an audit in accordance with generally
accepted auditing standards) consisting of a reading of the latest
available unaudited interim consolidated financial statements of the Bank
prepared by the Bank, a reading of the minutes of the meetings of the Board
of Trustees of the Bank and the minutes of the meetings of the Board of
Directors of the Company since its inception and consultations with
officers of the Bank responsible for financial and accounting matters,
nothing came to their attention which caused them to believe that: (A) the
unaudited financial statements included in the Prospectus are not in
conformity with the 1933 Act, applicable accounting requirements of the
Banking Department and generally accepted accounting principles applied on
a basis substantially consistent with that of the audited financial
statements included in the Prospectus; or (B) during the period from the
date of the latest unaudited consolidated financial statements included in
the Prospectus to a specified date not more than three business days prior
to the date of the Prospectus, except as has been described in the
Prospectus, there was any increase in borrowings, other than normal deposit
fluctuations, by the Bank or more than $10 million in the consolidated
long-term or short-term debt of the Bank and its subsidiaries; or (C) there
was any decrease in the consolidated net assets of the Bank, the allowance
for loan losses or net worth of the Bank and its subsidiaries or a decrease
of more than 2% in total deposits (exclusive of amounts withdrawn by
subscribers to purchase Shares in the Subscription Offering) at the date of
such letter as compared with amounts shown in the latest unaudited
consolidated statement of condition included in the Prospectus; or (D)
during the period of December 31, 1997 to a specific date not more than
five days prior to the date of this Agreement there were any decreases, as
compared with
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the corresponding period in the preceding year, in total interest income,
net interest income and net interest income after provision for loan
losses, income before income tax expense or net income of the Bank and its
subsidiaries except in all instances for increases or decreases which the
Prospectus disclosed have occurred or may occur and (iii) stating that, in
addition to the audit referred to in their opinion included in the
Prospectus and the performance of the procedures referred to in clause (ii)
above, they have compared with the general accounting records of the Bank,
which are subject to the internal controls of the Bank, the accounting
system and other data prepared by the Bank, directly from such accounting
records, to the extent specified in such letter, such amounts and/or
percentages set forth in the Prospectus as the Agent may reasonably
request; and they have reported on the results of such comparisons.
(h) At the Closing Date, the Agent shall receive a letter dated the
Closing Date, addressed to the Agent, confirming the statements made by
Arthur Andersen in the letter delivered by it pursuant to subsection (g) of
this Section 7, the "specified date" referred to in clause (ii) of
subsection (f) thereof to be a date specified in such letter, which shall
not be more than three business days prior to the Closing Date.
(i) At the Closing Date, the Agent shall receive a letter from RP
Financial, LC, dated the date thereof and addressed to counsel for the
Agent (i) confirming that said firm is independent of the Company and the
Bank and is experienced and expert in the area of corporate appraisals
within the meaning of Title 12 of the Code of Federal Regulations, Section
563b.7(f)(1)(i), (ii) stating in effect that the Appraisal prepared by such
firm complies in all material respects with the applicable requirements of
Title 12 of the Code of Federal Regulations, and (iii) further stating that
their opinion of the aggregate pro forma market value of the Company and
the Bank expressed in their Appraisal dated as of ___________, 1998, and
most recently updated, remains in effect.
(j) The Company and the Bank shall not have sustained since the date
of the latest financial statements included in the Prospectus any material
loss or interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth
or contemplated in the Registration Statement and Prospectus and since the
respective dates as of which information is given in the Registration
Statement and Prospectus, there shall not have been any change in the
long-term debt of the Company or the Bank other than debt incurred in
relation to the purchase of Shares by the Bank's Eligible Plans, or any
change, or any development involving a prospective change, in or affecting
the general affairs, management, financial position, stockholders' equity
or results of operations of the Company or the Bank, otherwise than as set
forth or contemplated in the Registration Statement and Prospectus, the
effect of which, in any such case described above, is in KBW's reasonable
judgment sufficiently material and adverse as to make it impracticable or
inadvisable to proceed with the Subscription Offering or the delivery of
the Shares on the terms and in the manner contemplated in the Prospectus.
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(k) At or prior to the Closing Date, the Agent shall receive: (i) a
copy of the letter from the Superintendent approving the Conversion
Application and the FDIC's letter non-objection of the same and authorizing
the use of the Prospectus and Proxy Statement; (ii) a copy of the order
from the Commission declaring the Registration Statement effective; (iii) a
certificate from the Banking Department evidencing the existence of the
Bank; (iv) certificate of good standing from the State of Delaware
evidencing the good standing of the Company; (v) a certificate from the
FDIC evidencing the Bank's insurance of accounts; (vi) a certificate of the
FHLB-New York evidencing the Bank's membership thereof; (vii) a copy of the
letter from the OTS approving the Company's Holding Company Application;
(viii) a copy of the Bank's Restated Organization Certificate and (ix)
certificate from the State of New York evidencing the status of the Company
as a foreign corporation.
(l) Subsequent to the date hereof, there shall not have occurred any
of the following: (i) a suspension or limitation in trading in securities
generally on the New York Stock Exchange or in the over-the-counter market,
or quotations halted generally on the Nasdaq Stock Market, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices
for securities have been required by either of such exchanges or the NASD
or by order of the Commission or any other governmental authority; (ii) a
general moratorium on the operations of commercial banks, New York savings
institutions or federal savings institutions or a general moratorium on the
withdrawal of deposits from commercial banks, New York savings institutions
or federal savings institutions declared by federal or state authorities;
(iii) the engagement by the United States in hostilities which have
resulted in the declaration, on or after the date hereof, of a national
emergency or war; or (iv) a material decline in the price of equity or debt
securities if the effect of such a declaration or decline, in the Agent's
reasonable judgement, makes it impracticable or inadvisable to proceed with
the Offering or the delivery of the shares on the terms and in the manner
contemplated in the Registration Statement and the Prospectus.
(m) At the Closing Date, KBW shall have received the Officers'
Certificates certifying as to the accuracy of the representations and
warranties contained in Section 4 hereof.
(n) At or prior to the Closing Date, counsel to the Agent shall have
been furnished with such documents and opinions as they may reasonably
require for the purpose of enabling them to pass upon the sale of the
Shares as herein contemplated and related proceedings or in order to
evidence the occurrence or completeness of any of the representations or
warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company or the Bank in connection with the
Conversion and the sale of the Shares as herein contemplated shall be
satisfactory in form and substance to KBW and its counsel.
Section 8. Indemnification.
(a) The Company and the Bank jointly and severally agree to indemnify
and hold harmless the Agent, its respective officers and Trustees,
employees and agents, and each person, if
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any, who controls the Agent within the meaning of Section 15 of the 1933
Act or Section 20(a) of the 1934 Act, against any and all loss, liability,
claim, damage or expense whatsoever (including but not limited to
settlement expenses), joint or several, that the Agent or any of them may
suffer or to which the Agent and any such persons may become subject under
all applicable federal or state laws or otherwise, and to promptly
reimburse the Agent and any such persons upon written demand for any
expense (including reasonable fees and disbursements of counsel) incurred
by the Agent or any of them in connection with investigating, preparing or
defending any actions, proceedings or claims (whether commenced or
threatened) to the extent such losses, claims, damages, liabilities or
actions: (i) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment or supplement thereto), preliminary or final Prospectus
(or any amendment or supplement thereto), the Conversion Application (or
any amendment or supplement thereto), the Holding Company Application or
any instrument or document executed by the Company or the Bank or based
upon written information supplied by the Company or the Bank filed in any
state or jurisdiction to register or qualify any or all of the Shares or to
claim an exemption therefrom, or provided to any state or jurisdiction to
exempt the Company as a broker-dealer or its officers, Trustees and
employees as broker-dealers or agent, under the securities laws thereof
(collectively, the "Blue Sky Application"), or any document, advertisement,
oral statement or communication ("Sales Information") prepared, made or
executed by or on behalf of the Company or the Bank with their consent or
based upon written or oral information furnished by or on behalf of the
Company or the Bank, whether or not filed in any jurisdiction, in order to
qualify or register the Shares or to claim an exemption therefrom under the
securities laws thereof; (ii) arise out of or are based upon the omission
or alleged omission to state in any of the foregoing documents or
information, a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; or (iii) arise from any theory of liability
whatsoever relating to or arising from or based upon the Registration
Statement (or any amendment or supplement thereto), preliminary or final
Prospectus (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto), any Blue Sky
Application or Sales Information or other documentation distributed in
connection with the Conversion; provided, however, that no indemnification
is required under this paragraph (a) to the extent such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
material statement or alleged untrue material statement in, or material
omission or alleged material omission from, the Registration Statement (or
any amendment or supplement thereto), preliminary or final Prospectus (or
any amendment or supplement thereto), the Conversion Application, any Blue
Sky Application or Sales Information made in reliance upon and in
conformity with information furnished in writing to the Company or the Bank
by the Agent or its counsel regarding the Agent provided, that it is agreed
and understood that the only information furnished in writing to the
Company or the Bank by the Agent regarding the Agent is set forth in the
Prospectus under the caption "The Offering-Marketing and Underwriting
Arrangements"; and, provided further, that such indemnification shall be to
the extent permitted by the Commissioner, the Superintendent, the FDIC and
the OTS. The indemnification provided for in this paragraph (a) shall not
be applicable with respect to any loss, liability, claim, damage, or
expense whatsoever if it is determined by final judgment of a court having
jurisdiction over the
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matter that such loss, liability, claim, damage or expense was primarily a
result of the Agent's willful misconduct or gross negligence.
(b) The Agent agrees to indemnify and hold harmless the Company and
the Bank, their directors and trustees, respectively, and officers and each
person, if any, who controls the Company or the Bank within the meaning of
Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against any and
all loss, liability, claim, damage or expense whatsoever (including but not
limited to settlement expenses), joint or several, which they, or any of
them, may suffer or to which they, or any of them may become subject under
all applicable federal and state laws or otherwise, and to promptly
reimburse the Company, the Bank, and any such persons upon written demand
for any expenses (including reasonable fees and disbursements of counsel)
incurred by them, or any of them, in connection with investigating,
preparing or defending any actions, proceedings or claims (whether
commenced or threatened) to the extent such losses, claims, damages,
liabilities or actions: (i) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the
Conversion Application (or any amendment or supplement thereto), the
preliminary or final Prospectus (or any amendment or supplement thereto),
any Blue Sky Application or Sales Information, (ii) are based upon the
omission or alleged omission to state in any of the foregoing documents a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (iii) arise from any theory of liability
whatsoever relating to or arising from or based upon the Registration
Statement (or any amendment or supplement thereto), preliminary or final
Prospectus (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto), or any Blue Sky
Application or Sales Information or other documentation distributed in
connection with the Conversion; provided, however, that the Agent's
obligations under this Section 8(b) shall exist only if and only to the
extent (i) that such untrue statement or alleged untrue statement was made
in, or such material fact or alleged material fact was omitted from, the
Registration Statement (or any amendment or supplement thereto), the
preliminary or final Prospectus (or any amendment or supplement thereto),
the Conversion Application (or any amendment or supplement thereto), any
Blue Sky Application or Sales Information in reliance upon and in
conformity with information furnished in writing to the Company or the Bank
by the Agent or its counsel regarding the Agent. Provided, that it is
agreed and understood that the only information furnished in writing to the
Company or the Bank by the Agent regarding the Agent is set forth in the
Prospectus under the caption "The Offering-Marketing and Underwriting
Arrangements". The indemnification provided for in this paragraph (b) shall
not be applicable with respect to any loss, liability, claim, damage, or
expense whatsoever if it is determined by final judgment of a court having
jurisdiction over the matter that such loss, liability, claim, damage or
expense was primarily a result of the Company's or the Bank's willful
misconduct or gross negligence.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity
may be sought hereunder, but failure to so notify an indemnifying party
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<PAGE>
shall not relieve it from any liability which it may have on account of
this Section 8 or otherwise. An indemnifying party may participate at its
own expense in the defense of such action. In addition, if it so elects
within a reasonable time after receipt of such notice, an indemnifying
party, jointly with any other indemnifying parties receiving such notice,
may assume defense of such action with counsel chosen by it and approved by
the indemnified parties that are defendants in such action, unless such
indemnified parties reasonably object to such assumption on the ground that
there may be legal defenses available to them that are different from or in
addition to those available to such indemnifying party. If an indemnifying
party assumes the defense of such action, the indemnifying parties shall
not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action, proceeding or
claim, other than reasonable costs of investigation. In no event shall the
indemnifying parties be liable for the fees and expenses of more than one
separate firm of attorneys (and any special counsel that said firm may
retain) for each indemnified party in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings
or claims in the same jurisdiction arising out of the same general
allegations or circumstances.
(d) The agreements contained in this Section 8 and in Section 9 hereof
and the representations and warranties of the Company and the Bank set
forth in this Agreement shall remain operative and in full force and effect
regardless of: (i) any investigation made by or on behalf of agent or their
officers, trustees, directors or controlling persons, agent or employees or
by or on behalf of the Company or the Bank or any officers, trustees,
directors or controlling persons, agent or employees of the Company or the
Bank; (ii) delivery of and payment hereunder for the Shares; or (iii) any
termination of this Agreement.
Section 9. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company, the Bank or the Agent, the Company,
the Bank and the Agent shall contribute to the aggregate losses, claims, damages
and liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company, the Bank or the Agent from persons other than the other party
thereto, who may also be liable for contribution) in such proportion so that the
Agent is responsible for that portion represented by the percentage that the
fees paid to the Agent pursuant to Section 2 of this Agreement (not including
expenses) bears to the gross proceeds received by the Company from the sale of
the Shares in the Offering, and the Company and the Bank shall be responsible
for the balance. If, however, the allocation provided above is not permitted by
applicable law or if the indemnified party failed to give the notice required
under Section 8 above, then each indemnifying party shall contribute to such
amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative fault of the Company and the Bank
on the one hand and the Agent on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions, proceedings or claims in respect thereto), but also the relative
benefits received by the Company and the Bank on the one
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hand and the Agent on the other from the Offering (before deducting expenses).
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and/or the Bank on the one hand or the Agent on the
other and the parties' relative intent, good faith, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Bank and the Agent agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro-rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to above in this Section 9. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions, proceedings or claims in respect thereof)
referred to above in this Section 9 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, proceeding or claim. It is expressly
agreed that the Agent shall not be liable for any loss, liability, claim, damage
or expense or be required to contribute any amount which in the aggregate
exceeds the amount paid (excluding reimbursable expenses) to the Agent under
this Agreement. It is understood that the above stated limitation on the Agent's
liability is essential to the Agent and that the Agent would not have entered
into this Agreement if such limitation had not been agreed to by the parties to
this Agreement. No person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation. The obligations of the Company and the Bank under this
Section 9 and under Section 8 shall be in addition to any liability which the
Company and the Bank may otherwise have. For purposes of this Section 9, each of
the Agent's, the Company's or the Bank's officers and trustees and each person,
if any, who controls the Agent or the Company or the Bank within the meaning of
the 1933 Act and the 1934 Act shall have the same rights to contribution as the
Agent, the Company or the Bank. Any party entitled to contribution, promptly
after receipt of notice of commencement of any action, suit, claim or proceeding
against such party in respect of which a claim for contribution may be made
against another party under this Section 9, will notify such party from whom
contribution may be sought, but the omission to so notify such party shall not
relieve the party from whom contribution may be sought from any other obligation
it may have hereunder or otherwise than under this Section 9.
Section 10. Survival of Agreements, Representations and Indemnities.
The respective indemnities of the Company, the Bank and the Agent and the
representations and warranties and other statements of the Company, the Bank and
the Agent set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of the Agent, the Company,
the Bank or any controlling person referred to in Section 8 hereof, and shall
survive the issuance of the Shares, and any successor or assign of the Agent,
the Company, the Bank, and any such controlling person shall be entitled to the
benefit of the respective agreements, indemnities, warranties and
representations.
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Section 11. Termination. The Agent may terminate this Agreement by
giving the notice indicated below in this Section 11 at any time after this
Agreement becomes effective as follows:
(a) In the event the Company fails to sell the required minimum number
of the Shares by , 1998, and in accordance with the provisions of the Plan
or as required by the Conversion Regulations, and applicable law, this
Agreement shall terminate upon refund by the Company to each person who has
subscribed for or ordered any of the Shares the full amount which it may
have received from such person, together with interest as provided in the
Prospectus, and no party to this Agreement shall have any obligation to the
other hereunder, except for payment by the Company and/or the Bank as set
forth in Sections 2(a), 6, 8 and 9 hereof.
(b) If any of the conditions specified in Section 7 shall not have
been fulfilled when and as required by this Agreement unless waived in
writing, or by the Closing Date, this Agreement and all of the Agent's
obligations hereunder may be cancelled by the Agent by notifying the
Company and the Bank of such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and any such cancellation shall be
without liability of any party to any other party except as otherwise
provided in Sections 2(a), 6, 8 and 9 hereof.
(c) If the Agent elects to terminate this Agreement as provided in
this Section, the Company and the Bank shall be notified promptly by
telephone or telegram, confirmed by letter.
The Company and the Bank may terminate this Agreement in the event the
Agent is in material breach of the representations and warranties or covenants
contained in Section 5 and such breach has not been cured after the Company and
the Bank have provided KBW with notice of such breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
Section 12. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to the
Agent shall be mailed, delivered or telegraphed and confirmed to Keefe, Bruyette
& Woods, Inc., 211 Bradenton Avenue, Dublin, Ohio 43017-5034, Attention:
Patricia A. McJoynt (with a copy to Serchuk & Zelermyer, L.L.P, Attention:
Clifford S. Weber, Esq. and, if sent to the Company and the Bank, shall be
mailed, delivered or telegraphed and confirmed to the Company and the Bank at
Cohoes Bancorp, Inc., 75 Remsen Street, Cohoes, New York 12047-2892, Attention:
Harry L. Robinson, President (with a copy to Silver, Freedman & Taff, L.L.P.,
Attention: Martin L. Meyrowitz, P.C.).
Section 13. Parties. The Company and the Bank shall be entitled to act
and rely on any request, notice, consent, waiver or agreement purportedly given
on behalf of the Agent when the same shall have been given by the undersigned.
The Agent shall be entitled to act and rely on any request, notice, consent,
waiver or agreement purportedly given on behalf of the Company or the Bank, when
the same shall have been given by the undersigned or any other officer of the
Company
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or the Bank. This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Agent, the Company, the Bank, and their respective successors
and assigns, and no other person shall have or be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained. It is understood and agreed that
this Agreement is the exclusive agreement among the parties hereto, and
supersedes any prior agreement among the parties and may not be varied except in
writing signed by all the parties.
Section 14. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at such location as mutually agreed upon by the Agent
and the Company and the Bank. At the closing, the Company and the Bank shall
deliver to the Agent in next day funds the commissions, fees and expenses due
and owing to the Agent as set forth in Sections 2 and 6 hereof and the opinions
and certificates required hereby and other documents deemed reasonably necessary
by the Agent shall be executed and delivered to effect the sale of the Shares as
contemplated hereby and pursuant to the terms of the Prospectus.
Section 15. Partial Invalidity. In the event that any term, provision
or covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
Section 16. Construction. This Agreement shall be construed in
accordance with the laws of the State of New York.
Section 17. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and the Agent's
acceptance shall constitute a binding agreement.
39
<PAGE>
Section 18. Entire Agreement. This Agreement, including schedules and
exhibits hereto, which are integral parts hereof and incorporated as though set
forth in full, constitutes the entire agreement between the parties pertaining
to the subject matter hereof superseding any and all prior or contemporaneous
oral or prior written agreements, proposals, letters of intent and
understandings, and cannot be modified, changed, waived or terminated except by
a writing which expressly states that it is an amendment, modification or
waiver, refers to this Agreement and is signed by the party to be charged. No
course of conduct or dealing shall be construed to modify, amend or otherwise
affect any of the provisions hereof.
Very truly yours,
COHOES BANCORP, INC. COHOES SAVINGS BANK
By Its Authorized By Its Authorized
Representative: Representative:
___________________________ ___________________________
Harry L. Robinson Harry L. Robinson
President President
Accepted as of the date first above written
Keefe, Bruyette & Woods, Inc.
By Its Authorized
Representative:
____________________________
Patricia A. McJoynt
Executive Vice President
40
Exhibit 5
Opinion of Silver, Freedman & Taff, L.L.P.
with respect to legality of stock
<PAGE>
Exhibit 5
[SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD]
October 28, 1998
The Board of Directors
Cohoes Bancorp, Inc.
75 Remsen Street
Cohoes, NY 12042
Re: Registration Statement
Under the Securities Act of 1933
--------------------------------
Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the 12,788,790 shares of Common Stock of
Cohoes Bancorp, Inc. (the "Company"), par value $.01 per share, to be issued. As
counsel, we have reviewed the Certificate of Incorporation of the Company and
such other documents as we have deemed appropriate for the purpose of this
opinion. We are rendering this opinion as of the time the Registration Statement
referred to above becomes effective.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/s/ Silver, Freedman & Taff, L.L.P.
-----------------------------------
SILVER FREEDMAN & TAFF, L.L.P.
Exhibit 8.1
Opinion of Silver, Freedman & Taff, L.L.P.
with respect to Federal income tax consequences
of the Conversion
<PAGE>
[SILVER, FREEDMAN & TAFF, L.L.P. LETTERHEAD]
October 29, 1998
Board of Trustees
Cohoes Savings Bank
75 Remsen Street
Cohoes, New York 12047
RE: Federal Income Tax Opinion Relating To The Conversion Of
Cohoes Savings Bank 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
Cohoes Savings Bank ("Mutual") 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 May 21,
1998 (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
Cohoes Savings Bank
October 29, 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 Common 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
Cohoes Savings Bank
October 29, 1998
Page 3
- --------------------------------------------------------------------------------
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. 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.
10. 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 Cohoes Savings
Foundation, a charitable organization created under Section 501(c)(3) of the
Code (the "Foundation").
11. 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 Common Stock.
12. 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.
13. 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.
14. Mutual is not under the jurisdiction of a court in a Title 11 or
similar case
<PAGE>
Board of Trustees
Cohoes Savings Bank
October 29, 1998
Page 4
- --------------------------------------------------------------------------------
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.
15. Mutual's Eligible Account Holders and Supplemental Eligible Account
Holders will pay expenses of the Conversion solely attributable to them, if any.
16. 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.
17. There will be no purchase price advantage for Mutual's deposit
account holders who purchase Holding Company Common Stock.
18. 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
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 Common 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.
19. 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.
20. The proposed transaction does not involve the payment to Stock
Institution
<PAGE>
Board of Trustees
Cohoes Savings Bank
October 29, 1998
Page 5
- --------------------------------------------------------------------------------
or Mutual of financial assistance from federal agencies within the meaning of
Notice 89-102, 1989-40 C.B. 1.
21. On a per share basis, the purchase price of Holding Company Common
Stock will be equal to the fair market value of such stock at the time of the
completion of the proposed transaction.
22. 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 Common 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 Common Stock.
23. Mutual will not have any net operating losses, capital loss
carryovers or built-in losses at the time of the Conversion.
As part of the Conversion, Holding Company intends to donate to the
Foundation up to 3% shares of its common stock.
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 in which 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.
<PAGE>
Board of Trustees
Cohoes Savings Bank
October 29, 1998
Page 6
- --------------------------------------------------------------------------------
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.)
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Holding Company Common 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) Mutual, Stock Institution and Holding Company are each corporations
within the meaning of Section 7701(a)(3) of the Code.
(6) Mutual and Stock Institution are not investment companies as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
(7) 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).
<PAGE>
Board of Trustees
Cohoes Savings Bank
October 29, 1998
Page 7
- --------------------------------------------------------------------------------
(8) 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).
(9) 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
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 Common 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 Common 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 Common 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.
<PAGE>
Board of Trustees
Cohoes Savings Bank
October 29, 1998
Page 8
- --------------------------------------------------------------------------------
(10) 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.
(11) 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.
(12) The basis of Holding Company Common Stock to its shareholders will
be the purchase price thereof. (Section 1012 of the Code).
(13) 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.
<PAGE>
Board of Trustees
Cohoes Savings Bank
October 29, 1998
Page 9
- --------------------------------------------------------------------------------
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/ Gary A. Lax, P.C.
---------------------------------
Exhibit 8.2
Opinion of Wertime, Ries and Van Ullen, P.C.
with respect to New York income tax
consequences of the Conversion
<PAGE>
[Wertime, Ries & Van Ullen, P.C. Letterhead]
October 29, 1998
Board of Trustees
Cohoes Savings Bank
75 Remsen Street
Cohoes, New York 12047
Board Members:
You have requested our opinion as to the New York State franchise and
New York State personal income tax consequences relating to the proposed
conversion of Cohoes Savings Bank from a state chartered mutual savings bank to
a state chartered stock savings bank (Stock Bank) and the formation of Cohoes
Bancorp Inc., which will acquire all of the outstanding stock of Stock Bank.
You have submitted to us a copy of the federal income tax opinion
("Federal Opinion") dated October 29, 1998 relating to the federal income tax
consequences of the proposed transaction prepared by your counsel, Silver,
Freedman & Taff, L.L.P.
Our opinion regarding the New York State franchise and New York State
personal income tax consequences of the proposed transaction is based on the
same facts, assumptions and conditions contained in the Federal Opinion. It is
also based on existing New York Tax Law which is subject to change. We have not
reviewed the legal documents necessary to effectuate the steps to be undertaken,
and we assume that all steps will be properly effectuated under state and
federal law and will be consistent with the legal documentation.
In our opinion, the New York State franchise and New York State
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences of the proposed transaction opined upon the
Federal Opinion.
For the purposes of the franchise tax the State of New York has adopted
federal taxable income (Internal Revenue Code Sec. 63), as currently amended, as
the starting point for computing New York entire net income (NYS Tax Law Sec.
1453). Franchise tax terms are defined in relation to the Internal Revenue Code
of 1986, as amended. Taxpayers are required to use federal taxable income as the
starting point for the computation of entire net income.
Several specific modifications to federal taxable income are enumerated
in the New York Tax Law and the Banking Corporation Regulations in determining
income taxable for New York State franchise tax purposes. There are, however, no
specific modifications which apply to the proposed transaction (see New York
State Tax Law Article 32, Section 1453 (b) through (o) and Regulation Sections
18-2.3, 18-2.4 and 18-2.5 of the Franchise Tax on Banking Corporations).
<PAGE>
Board of Trustees
October 29, 1998
Page 2
The State of New York has adopted federal adjusted gross income (IRC
Sec. 62), as currently amended, as the starting point for computing New York
taxable income (NYS Tax Law Sec. 612) for personal income tax purposes. Income
tax terms are defined in relation to the Internal Revenue Code of 1986, as
amended.
New York modifications to federal taxable income are enumerated in the
Statutes in determining income taxable for New York State personal income tax
purposes. There are, however, no specific modifications applicable to the
proposed transactions (see New York State Tax Law Article 22, Sections 612 (b)
through (t) and Regulation Sections 1 12.2 through 1 12.13 of the Personal
Income Tax).
Our opinion expressed above is rendered only with respect to the New
York franchise and New York State personal income tax consequences of the
matters specifically discussed herein. We express no opinion with respect to any
other New York franchise, income or transfer tax matter or any other federal,
state, local or foreign tax matter relating to the proposed transaction. Our
opinion is based on the facts and conditions as stated herein, whether directly
or by reference to the Federal Opinion. It is expressly understood and agreed to
by Cohoes Savings Bank that Wertime, Ries & Van Ullen, P.C. is relying solely on
the Federal Opinion in all respects, relating to the federal tax consequences of
the matters described herein. Wertime, Ries & Van Ullen, P.C. has not
independently verified the accuracy of any fact, representation, opinion of
other matter contained in the Federal Tax Opinion and should any fact,
representation, opinion or other matter addressed therein not be correct, it
could cause the opinion contained herein regarding New York State franchise and
income taxes, to also be incorrect. If any of the facts and conditions are not
entirely complete or accurate, it is imperative that we be informed immediately,
as the inaccuracy or incompleteness could have a material effect on our
conclusions. In rendering our opinion, we are relying upon the relevant
provisions of the Internal Revenue Code of 1986, as amended, and New York
Statutes, as amended, the regulations and rules thereunder and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We undertake no responsibility to update or supplement our opinion
after its issuance. This opinion is not binding upon any tax authority or any
court and no assurance can be given that a position contrary to that expressed
herein will not be asserted by a tax authority and ultimately sustained by a
court.
Very truly yours,
WERTIME, RIES & VAN ULLEN, P.C.
/s/ Charles B. Ries
-------------------------------
Exhibit 10.6
Form of Cohoes Savings Bank 401(k) Savings Plan
<PAGE>
================================================================================
Cohoes Savings Bank
401(k) Retirement Savings Plan
In RSI Retirement Trust
(As Amended And Restated Effective April 1, 1993
And As Further Amended Through January 1, 1994)
================================================================================
<PAGE>
TABLE OF CONTENTS
Table Of Contents ........................................................... i
Introduction ........................................................... 1
Article I -- Definitions..................................................... 2
Article II -- Eligibility and Participation.................................. 12
2.1 Eligibility...................................................... 12
2.2 Ineligible Employees............................................. 12
2.3 Participation.................................................... 12
2.4 Termination of Participation..................................... 13
2.5 Eligibility upon Reemployment.................................... 13
Article III -- Contributions and Limitations on Contributions................ 15
3.1 Basic Contributions.............................................. 15
3.2 Limitation on Basic Contributions................................ 15
3.3 Changes in Basic Contributions................................... 17
3.4 Matching Contributions........................................... 17
3.5 Special Contributions............................................ 18
3.6 Discretionary Employer Contributions............................. 18
3.7 Post-Tax Contributions........................................... 19
3.8 Changes in Post-Tax Contributions................................ 19
3.9 Limitation on Matching Contributions and Post-Tax Contributions.. 20
3.10 Aggregate Limit; Multiple Use of Alternative Limitation.......... 21
3.11 Interest on Excess Contributions................................. 22
3.12 Payment of Contributions to the Trust............................ 23
3.13 Rollover Contributions........................................... 24
3.14 Section 415 Limits on Contributions.............................. 24
Article IV -- Vesting and Forfeitures........................................ 28
4.1 Vesting.......................................................... 28
4.2 Forfeitures...................................................... 29
4.3 Vesting upon Reemployment........................................ 30
Article V -- Trust Fund and Investment Accounts.............................. 31
5.1 Trust Fund....................................................... 31
5.2 Interim Investments.............................................. 31
5.3 Account Values................................................... 31
Article VI -- Investment Directions, Changes of Investment Directions and
Transfers Between Investment Accounts...................... 33
6.1 Investment Directions............................................ 33
6.2 Change of Investment Directions.................................. 33
6.3 Transfers Between Investment Accounts............................ 33
6.4 Employees Other than Participants................................ 33
i
<PAGE>
Article VII -- Payment of Benefits........................................... 35
7.1 General.......................................................... 35
7.2 Spousal Consent Requirements - Change From Life Annuity,
Optional Forms of Benefit Payments, Beneficiaries.............. 36
7.3 Non-Hardship Withdrawals......................................... 37
7.4 Hardship Distributions........................................... 37
7.5 Distribution of Benefits Following Retirement, Disability Or
Termination of Service......................................... 40
7.6 Payments upon Retirement or Disability........................... 41
7.7 Payments upon Termination of Service for Reasons Other Than
Retirement or Disability....................................... 44
7.8 Payments Upon Death.............................................. 46
7.9 Direct Rollover of Eligible Rollover Distributions............... 49
7.10 Latest Commencement of Benefits.................................. 50
Article VIII --Loans to Participants......................................... 51
8.1 Definitions and Conditions....................................... 51
8.2 Loan Amount...................................................... 51
8.3 Term of Loan..................................................... 51
8.4 Operational Provisions........................................... 52
8.5 Repayments....................................................... 53
8.6 Default.......................................................... 54
8.7 Coordination of Outstanding Account and Payment of Benefits...... 54
Article IX -- Administration................................................. 56
9.1 General Administration of the Plan............................... 56
9.2 Designation of Named Fiduciaries................................. 56
9.3 Responsibilities of Fiduciaries.................................. 56
9.4 Plan Administrator............................................... 57
9.5 Committee........................................................ 57
9.6 Powers and Duties of the Committee............................... 58
9.7 Certification of Information..................................... 59
9.8 Authorization of Benefit Payments................................ 59
9.9 Payment of Benefits to Legal Custodian........................... 59
9.10 Service in More Than One Fiduciary Capacity...................... 60
9.11 Payment of Expenses.............................................. 60
ii
<PAGE>
Article X -- Benefit Claims Procedure........................................ 61
10.1 Definition....................................................... 61
10.2 Claims........................................................... 61
10.3 Disposition of Claim............................................. 61
10.4 Denial of Claim.................................................. 61
10.5 Inaction by Plan Administrator................................... 62
10.6 Right to Full and Fair Review.................................... 62
10.7 Time of Review................................................... 62
10.8 Final Decision................................................... 62
Article XI -Amendment, Termination, and Withdrawal........................... 63
11.1 Amendment and Termination........................................ 63
11.2 Withdrawal from the Trust Fund................................... 63
Article XII -Top-Heavy Plan Provisions....................................... 64
12.1 Introduction..................................................... 64
12.2 Definitions...................................................... 64
12.3 Minimum Contributions............................................ 68
12.4 Impact on Section 415 Maximum Benefits........................... 69
12.5 Vesting.......................................................... 70
Article XIII -- Miscellaneous Provisions..................................... 71
13.1 No Right to Continued Employment................................. 71
13.2 Merger, Consolidation, or Transfer............................... 71
13.3 Nonalienation of Benefits........................................ 71
13.4 Missing Payee.................................................... 71
13.5 Affiliated Employers............................................. 72
13.6 Successor Employer............................................... 72
13.7 Return of Employer Contributions................................. 72
13.8 Adoption of Plan by Affiliated Employer.......................... 72
13.9 Construction of Language......................................... 73
13.10 Headings......................................................... 73
13.11 Governing Law.................................................... 73
iii
<PAGE>
INTRODUCTION
Effective as of January 1, 1986, Cohoes Savings Bank ("Employer") adopted the
Cohoes Savings Bank Retirement Savings Plan ("Prior Plan").
Effective as of April 1, 1993, the Employer adopted resolutions wherein RSI
Retirement Trust was named successor trustee and the RSI Retirement Trust
Agreement and Declaration of Trust ("Agreement") was adopted.
Effective as of April 1, 1993, the Prior Plan was amended and restated in its
entirety. It incorporates the applicable provisions of the Tax Reform Act of
1986 and subsequent legislation and regulations through the Omnibus Budget
Reconciliation Act of 1993. The amended and restated plan shall be known as the
Cohoes Savings Bank 401(k) Retirement Savings Plan in RSI Retirement Trust
("Plan"), shall contain the terms and conditions set forth herein, and shall in
all respects be subject to the provisions of the Agreement which are
incorporated herein and made a part hereof.
The Plan as amended and restated hereunder incorporates a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Plan shall constitute a profit-sharing plan within the meaning of Section
401(a) of the Code, without regard to current or accumulated profits of the
Employer, as provided in Section 401(a)(27) of the Code.
Subject to any amendments that may subsequently be adopted by the Employer prior
to his Termination of Service, the provisions set forth in this Plan shall apply
to an Employee who is in the employment of the Employer on or after April 1,
1993. Except to the extent specifically required to the contrary under the terms
of this Plan, for terminations of employment prior to April 1, 1993, the rights
and benefits of a former participant shall be determined in accordance with the
provisions of the Prior Plan as in effect on the date of the former
participant's termination of employment.
The Employer has herein restated the Plan with the intention that (a) the Plan
shall at all times be qualified under Section 401(a) of the Code, (b) the
Agreement shall be tax-exempt under Section 501(a) of the Code, and (c) Employer
contributions under the Plan shall be tax deductible under Section 404 of the
Code. The provisions of the Plan and the Agreement shall be construed to
effectuate such intentions.
<PAGE>
Article I Definitions
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ARTICLE I --
DEFINITIONS
The following words and phrases shall have the meanings hereinafter ascribed to
them. Those words and phrases which have limited application are defined in the
respective Articles in which such terms appear.
1.1 Accounts means the Basic Contribution Account (including Special
Contributions, if any), Matching Contribution Account, Discretionary
Employer Contribution Account, Post-Tax Contribution Account, and
Rollover Contribution
1.2 Actual Contribution Percentage means the ratio (expressed as a
percentage) of the sum of Matching Contributions and Post-Tax
Contributions under the Plan which are made on behalf of an Eligible
Employee for the Plan Year to such Eligible Employee's compensation (as
defined under Section 414(s) of the Code) for the Plan Year. An
Eligible Employee's compensation hereunder shall include compensation
receivable from the Employer for that portion of the Plan Year during
which the Employee is an Eligible Employee, up to a maximum of
$200,000, adjusted as prescribed by the Secretary of the Treasury under
Section 401(a)(17) of the Code. Commencing January 1, 1994, the amount
of Compensation taken into account for a Plan Year shall not exceed
$150,000, adjusted in multiples of $10,000 for increases in the
cost-of-living as prescribed by the Secretary of the Treasury under
Section 401(a)(17)(B) of the Code. In determining compensation, the
rules of Section 414(q)(6) of the Code shall apply except that the term
"family" shall include only the Spouse and those lineal descendants of
the Employee who have not attained age nineteen (19) before the close
of the Plan Year.
1.3 Actual Deferral Percentage means the ratio (expressed as a percentage)
of the sum of Basic Contributions, and those Qualified Nonelective
Contributions taken into account under the Plan for the purpose of
determining the Actual Deferral Percentage, which are made on behalf of
an Eligible Employee for the Plan Year to such Eligible Employee's
compensation (as defined under Section 414(s) of the Code) for the Plan
Year. An Eligible Employee's compensation hereunder shall include
compensation receivable from the Employer for that portion of the Plan
Year during which the Employee is an Eligible Employee, up to a maximum
of $200,000, adjusted as prescribed by the Secretary of the Treasury
under Section 401(a)(17) of the Code. Commencing January 1, 1994, the
amount of Compensation taken into account for a Plan Year shall not
exceed $150,000, adjusted in multiples of $10,000 for increases in the
cost-of-living as prescribed by the Secretary of the Treasury under
Section 401(a)(17)(B) of the Code. In determining compensation, the
rules of Section 414(q)(6) of the Code shall apply except that the term
"family" shall include only the Spouse and those lineal descendants of
the Employee who have not attained age nineteen (19) before the close
of the Plan Year.
1.4 Affiliated Employer means a member of an affiliated service group (as
defined under Section 414(m) of the Code), a controlled group of
corporations (as defined under Section 414(b) of the Code), a group of
trades or businesses under common control (as defined under Section
414(c) of the Code) of which the Employer is a member, any leasing
organization (as defined under Section 414(n) of the Code) providing
the services of Leased Employees to the Employer, or any other group
provided for under any and all Income Tax Regulations promulgated by
the Secretary of the Treasury under Section 414(o) of the Code.
2
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Article I -- Definitions
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1.5 Affiliated Service means employment with an employer during the period
that such employer is an Affiliated Employer.
1.6 Agreement means the RSI Retirement Trust Agreement and Declaration of
Trust as amended and restated August 1, 1990, as amended from time to
time. The Agreement shall be incorporated herein and constitute a part
of the Plan.
1.7 Average Actual Contribution Percentage means the average of the Actual
Contribution Percentages of (a) the group comprised of Eligible
Employees who are Highly Compensated Employees or (b) the group
comprised of Eligible Employees who are Non-Highly Compensated
Employees, whichever is applicable.
1.8 Average Actual Deferral Percentage means the average of the Actual
Deferral Percentages of (a) the group comprised of Eligible Employees
who are Highly Compensated Employees or (b) the group comprised of
Eligible Employees who are Non-Highly Compensated Employees, whichever
is applicable.
1.9 Basic Contribution Account means the separate, individual account
established on behalf of a Participant to which Basic Contributions and
Special Contributions, if any, and "Deferred Salary Elective Deferrals"
from the Prior Plan, if any, made on his behalf are credited, together
with all earnings and appreciation thereon, and against which are
charged any withdrawals, loans and other distributions made from such
account and any losses, depreciation or expenses allocable to amounts
credited to such account.
1.10 Basic Contributions means the contributions of the Employer made in
accordance with the Compensation Reduction Agreements of Participants
pursuant to Section 3.1.
1.11 Beneficiary means any person who is receiving or is eligible to receive
a benefit under Section 7.8 of the Plan upon the death of an Employee
or former Employee.
1.12 Board means the board of trustees, directors or other governing body of
the Employer.
1.13 Code means the Internal Revenue Code of 1986, as amended from time to
time.
1.14 Committee means the person or persons appointed by the Employer in
accordance with Section 9.2(b).
1.15 Compensation means an Employee's wages, salary, fees and other amounts
defined as compensation in Section 415(c)(3) of the Code and Income Tax
Regulations Sections 1.415-2(d)(2) and (3), received for personal
services actually rendered in the course of employment with the
3
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Article I -- Definitions
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Employer for the calendar year, prior to any reduction pursuant to a
Compensation Reduction Agreement. Compensation shall include overtime,
bonuses, (except bonuses earned under the "Officer's Bonus Plan"), wage
continuation payments to an Employee absent due to illness or
disability of a short-term nature, amounts paid or reimbursed by the
Employer for Employee moving expenses (to the extent not deductible by
the Employee), and the value of any nonqualified stock option granted
to an Employee by the Employer (to the extent includable in gross
income for the year granted).
Compensation does not include commissions, contributions made by the
Employer to any other pension, deferred compensation, welfare or other
employee benefit plan, amounts realized from the exercise of a
nonqualified stock option or the sale of a qualified stock option, and
other amounts which receive special tax benefits.
Compensation shall not exceed $200,000, adjusted as prescribed by the
Secretary of the Treasury under Section 401(a)(17) of the Code.
Commencing January 1, 1994, Compensation shall not exceed $150,000,
adjusted in multiples of $10,000 for increases in the cost-of-living as
prescribed by the Secretary of the Treasury under Section 401(a)(17)(B)
of the Code. In determining the dollar limitation hereunder,
compensation received from any Affiliated Employer shall be recognized
as Compensation and the rules of Section 414(q)(6) of the Code shall
apply except that the term "family" shall include only the Spouse and
those lineal descendants of the Employee who have not attained age
nineteen (19) before the close of the Plan Year.
1.16 Compensation Reduction Agreement means an agreement between the
Employer and an Eligible Employee whereby the Eligible Employee agrees
to reduce his Compensation during the applicable payroll period by an
amount equal to any whole percentage thereof and the Employer agrees to
contribute to the Trust, on behalf of such Eligible Employee, an amount
equal to the specified reduction in Compensation.
1.17 Disability means a physical or mental condition which renders the
Participant eligible for benefits under the Employer's long term
disability plan.
1.18 Discretionary Employer Contribution Account means the separate,
individual account established on behalf of a Participant to which
Discretionary Employer Contributions, if any, and "Company Optional
Contributions" from the Prior Plan, if any, are credited, together with
all earnings and appreciation thereon, and against which are charged
any withdrawals, loans and other distributions made from such account,
as well as any losses, depreciation, or expenses allocable to amounts
credited to such account.
1.19 Discretionary Employer Contributions means the amounts, if any,
contributed by the Employer on behalf of a Participant, pursuant to
Section 3.6.
1.20 Early Retirement Date means the first day of any month coincident with
or following (a) the Participant's completion of a consecutive five (5)
year Period of Service and (b) the earlier of the Participant's (i)
attainment of age sixty (60) or (ii) the date as of which the sum of
the Participant's attained age and Period of Service equals or exceeds
4
<PAGE>
Article I -- Definitions
- --------------------------------------------------------------------------------
seventy-five (75). If a Participant incurs a Termination of Service
after having completed a consecutive five (5) year Period of Service
but before attaining age (i) sixty (60) or (ii) the age which, when
added to the Participant's Period of Service, would produce a sum which
equals or exceeds seventy-five (75), the Participant's Early Retirement
Date shall be the date as of which the Participant attains the earlier
of the ages listed in Section 1.20(i) or (ii) above.
1.21 Earned Income means the net earnings of an individual from
self-employment in the trade or business with respect to which the Plan
is established, for which personal services of such individual are a
material income producing factor. Net earnings of an individual shall
be determined without regard to (a) items not included in such
individual's gross income, (b) deductions allocable to such items, and
(c) the deduction allowed such individual by Section 164(f) of the
Code. Net earnings of an individual shall be reduced by contributions
made by the Employer to a qualified plan maintained on behalf of such
individual, to the extent such contributions are deductible under
Section 404 of the Code.
1.22 Effective Date means January 1, 1986.
1.23 Eligible Employee means an Employee who is eligible to participate in
the Plan pursuant to the provisions of Article II.
1.24 Employee means any person employed by the Employer.
1.25 Employer means and any Participating Affiliate or any successor
organization which shall continue to maintain the Plan set forth
herein.
1.26 Employer Resolutions means resolutions adopted by the Board.
1.27 Employment Commencement Date means the date on which an Employee first
performs an Hour of Service for the Employer upon initial employment
or, if applicable, upon reemployment.
1.28 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.29 Forfeitures means any amounts forfeited pursuant to Section 4.2 by a
Participant whose Termination of Service occurs prior to such
Participant's being fully vested in the Net Value of his Account.
1.30 Hardship means the condition described in Section 7.4.
1.31 Highly Compensated Employee means, with respect to a Plan Year, an
Employee or an employee of an Affiliated Employer who is such an
Employee or employee during the Plan Year for which a determination is
being made and who:
5
<PAGE>
Article I -- Definitions
- --------------------------------------------------------------------------------
(a) during the Plan Year immediately preceding the Plan Year for which
a determination is being made:
(i) received compensation as defined under Section
414(q)(7) of the Code ("Section 414(q) Compensation")
from the Employer of greater than $75,000, adjusted
as prescribed by the Secretary of the Treasury under
Section 415(d) of the Code, or
(ii) received Section 414(q) Compensation from the
Employer of greater than $50,000, adjusted as
prescribed by the Secretary of the Treasury under
Section 415(d) of the Code, and was a member of the
top-paid group of Employees (as defined under Section
414(q)(4) of the Code) ("Top-Paid Group"), or
(iii) was an officer (as determined in accordance with
Section 414(q)(5) of the Code) of the Employer who
received Section 414(q) Compensation from the
Employer of greater than fifty percent (50%) of the
dollar limitation in effect under Section
415(b)(1)(A) of the Code, or if no such officer of
the Employer satisfied such compensation was the
highest paid officer for such year, or
(b) during the Plan Year for which a determination is being made,
satisfies the requirements of subsection (a)(i), (ii) or
(iii), determined without regard to "during the Plan Year
immediately preceding the Plan Year for which a determination
is made", and is a member of the group consisting of the one
hundred (100) Employees receiving the highest Section 414(q)
Compensation from the Employer during such Plan Year ("Top 100
Employees"), or
(c) at any time during the Plan Year for which a determination is
being made or at any time during the Plan Year immediately
preceding the Plan Year for which a determination is being
made, was a five-percent owner as described under Section
414(q)(3) of the Code.
Highly Compensated Employee also means a former Employee who (A)
incurred a Termination of Service prior to the Plan Year of the
determination, (B) is not credited with an Hour of Service during the
Plan Year of the determination and (C) satisfied the requirements of
subsection (a), (b) or (c) during either the Plan Year of his
Termination of Service or any Plan Year ending coincident with or
subsequent to the Employee's attainment of age fifty-five (55).
If, during either the Plan Year of the determination or the preceding
Plan Year, an Employee is a Family Member of either (1) a five-percent
owner (as defined under Section 414(q)(3) of the Code), or (2) a Highly
Compensated Employee who is among the ten (10) highly compensated
Employees receiving the highest Section 414(q) Compensation from the
Employer during such Plan Year, the Section 414(q) Compensation and the
Accounts of the Family Member shall be aggregated with the Section
414(q) Compensation and the Accounts of such Highly Compensated
Employee and the Family Member and the Highly Compensated Employee
shall be treated as a single Employee. For purposes of this Section
1.31, Family Member includes the Spouse, lineal ascendants and
descendants of the Employee or former Employee and the spouse of a
lineal ascendant or descendant.
6
<PAGE>
Article I -- Definitions
- --------------------------------------------------------------------------------
The determination of the number and identity of Employees in the
Top-Paid Group, the Top 100 Employees, and the number of Employees
treated as officers shall be made in accordance with Section 414(q) of
the Code and regulations promulgated thereunder by the Secretary of the
Treasury.
For purposes of this Section 1.31, if either (aa) the Plan Year for
which a determination is being made or (bb) the Plan Year immediately
preceding the Plan Year for which a determination is being made, is a
short Plan Year, the determination shall be made for the twelve (12)
month period which commences on the first day of such short Plan Year.
1.32 Hour of Service means each hour for which an Employee is paid or
entitled to be paid by the Employer for the performance of duties.
1.33 Investment Accounts means any and all of the investment accounts
established by a separate written agreement between the Employer and
the Trustees for the purpose of investing contributions made to the
Trust Fund in accordance with the provisions of the Agreement. The
securities and other property in which contributions to the Investment
Accounts of the Trust Fund may be invested shall be specified in the
Agreement and the rights of the Trustees shall be established in
accordance with the provisions of such Agreement.
1.34 Leased Employee means any individual (other than an Employee of the
Employer or an employee of an Affiliated Employer) who, pursuant to an
agreement between the Employer or any Affiliated Employer and any other
person ("leasing organization"), has performed services for the
Employer or any Affiliated Employer on a substantially full-time basis
for a period of at least one (1) year, and such services are of a type
historically performed by employees in the business field of the
Employer or any Affiliated Employer. A determination as to whether a
Leased Employee shall be treated as an Employee of the Employer or an
Affiliated Employer shall be made in accordance with Section 414(n) of
the Code and any and all Income Tax Regulations promulgated thereunder.
1.35 Matching Contribution Account means the separate, individual account
established on behalf of a Participant to which the Matching
Contributions and "Company Matching Contributions" from the Prior Plan,
if any, made on such Participant's behalf are credited, together with
all earnings and appreciation thereon, and against which are charged
any withdrawals, loans and other distributions made from such account
and any losses, depreciation or expenses allocable to amounts credited
to such account.
1.36 Matching Contributions means the contributions made by the Employer
pursuant to Section 3.4.
7
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Article I -- Definitions
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1.37 Named Fiduciaries means the Trustees and the Committee designated by
the Employer to control and manage the operation and administration of
the Plan.
1.38 Net Value means the value of an Employee's Accounts as determined as of
the Valuation Date coincident with or next following the event
requiring such determination.
1.39 Non-Highly Compensated Employee means, with respect to a Plan Year, an
Employee who is neither a Highly Compensated Employee nor a family
member as provided in Section 414(q)(6) of the Code.
1.40 Normal Retirement Age means the date an Employee attains age sixty-five
(65).
1.41 Normal Retirement Date means the first day of the month coincident with
or next following the Participant's Normal Retirement Age.
1.42 One Year Period of Severance means a twelve (12) consecutive month
period following an Employee's Termination of Service with the Employer
during which the Employee did not perform an Hour of Service.
Notwithstanding the foregoing, if an Employee is absent from employment
for maternity or paternity reasons, such absence during the twenty-four
(24) month period commencing on the first date of such absence shall
not constitute a One Year Period of Severance. An absence from
employment for maternity or paternity reasons means an absence (a) by
reason of pregnancy of the Employee, or (b) by reason of a birth of a
child of the Employee, or (c) by reason of the placement of a child
with the Employee in connection with the adoption of such child by such
Employee, or (d) for purposes of caring for such child for a period
beginning immediately following such birth or placement.
1.43 Participant means an Eligible Employee who, in accordance with the
provisions of Section 2.3, has elected to participate in the Plan and
whose participation in the Plan has not been terminated in accordance
with the provisions of Section 2.4.
1.44 Participating Affiliate means any corporation that is a member of a
controlled group of corporations (within the meaning of Section 414(b)
of the Code) of which the Sponsoring Employer is a member and any
unincorporated trade or business that is a member of a group of trades
or businesses under common control (within the meaning of Section
414(c) of the Code) of which the Sponsoring Employer is a member,
which, with the prior approval of the Sponsoring Employer and subject
to such terms and conditions as may be imposed by such Sponsoring
Employer and the Trustees, shall adopt this Plan in accordance with the
provisions of Section 13.8 and the Agreement. Such entity shall
continue to be a Participating Affiliate until such entity terminates
its participation in the Plan in accordance with Section 13.8.
8
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Article I -- Definitions
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1.45 Period of Service means a period commencing with an Employee's
Employment Commencement Date and ending on the date such Employee first
incurs a Termination of Service.
Notwithstanding the foregoing, the period between the first and second
anniversary of the first date of a maternity or paternity absence
described under Section 1.42 shall not be included in determining a
Period of Service.
A period during which an individual was not employed by the Employer
shall nevertheless be deemed to be a Period of Service if such
individual incurred a Termination of Service and:
(a) such Termination of Service was the result of resignation,
discharge or retirement and such individual is reemployed by
the Employer within one (1) year after such Termination of
Service; or
(b) such Termination of Service occurred when the individual was
otherwise absent for less than one (1) year and he was
reemployed by the Employer within one (1) year after the date
such absence began.
All Periods of Service not disregarded under Sections 2.5 and 4.3 shall
be aggregated.
Wherever used in the Plan, a Period of Service means the quotient
obtained by dividing the days in all Periods of Service not disregarded
hereunder by 365 and disregarding any fractional remainder.
1.46 Plan means the Cohoes Savings Bank 401(k) Retirement Savings Plan in
RSI Retirement Trust, as herein restated and as it may be amended from
time to time.
1.47 Plan Administrator means the person or persons who have been designated
as such by the Employer in accordance with the provisions of Section
9.4.
1.48 Plan Funds means the assets of the Plan held in the Trust Fund.
1.49 Plan Year means the calendar year.
1.50 Postponed Retirement Date means the first day of the month coincident
with or next following a Participant's date of actual retirement which
occurs after his Normal Retirement Date.
1.51 Post-Tax Contribution Account means the separate, individual account
established on behalf of a Participant to which Post-Tax Contributions,
if any, and "Participant Nondeductible Voluntary Contributions" from
the Prior Plan, if any, are credited, together with all earnings and
appreciation thereon, and against which are charged any withdrawals,
loans and other distributions made from such account, as well as any
losses, depreciation, or expenses allocable to amounts credited to such
account.
9
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Article I -- Definitions
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1.52 Post-Tax Contribution Election Agreement means an agreement between the
Employer and an Eligible Employee whereby the Eligible Employee elects
to make Post-Tax Contributions to the Plan in accordance with the
provisions of Section 3.7.
1.53 Post-Tax Contributions means the amounts, if any, contributed by a
Participant under a Post-Tax Contribution Election Agreement pursuant
to Section 3.7. Such contributions shall be made on a post-tax basis.
1.54 Prior Plan means the as in effect on the date immediately preceding the
Restatement Date.
1.55 Qualified Nonelective Contributions means contributions, other than
Matching Contributions and Discretionary Employer Contributions, made
by the Employer, which (a) Participants may not elect to receive in
cash in lieu of their being contributed to the Plan; (b) are one
hundred percent (100%) nonforfeitable when made; and (c) are not
distributable under the terms of the Plan to Participants or their
Beneficiaries until the earliest of:
(i) the Participant's death, Disability or separation from service
for other reasons;
(ii) the Participant's attainment of age fifty-nine and one-half
(59-1/2); or
(iii) termination of the Plan.
Special Contributions defined under Section 1.60 are Qualified
Nonelective Contributions.
1.56 Restatement Date means April 1, 1993.
1.57 Retirement Date means the Participant's Normal Retirement Date, Early
Retirement Date or Postponed Retirement Date, whichever is applicable.
1.58 Rollover Contribution means (a) a contribution to the Plan of money
received by an Employee from a qualified plan or (b) a contribution to
the Plan of money transferred directly from another qualified plan on
behalf of the Employee, which the Code permits to be rolled over into
the Plan.
1.59 Rollover Contribution Account means the separate, individual account
established on behalf of an Employee to which his Rollover
Contributions are credited together with all earnings and appreciation
thereon, and against which are charged any withdrawals, loans and other
distributions made from such account and any losses, depreciation or
expenses allocable to amounts credited to such account.
1.60 Special Contributions means the contributions made by the Employer
pursuant to Section 3.5. Special Contributions are Qualified
Nonelective Contributions as defined under Section 1.55.
10
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Article I -- Definitions
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1.61 Sponsoring Employer means or any successor organization which shall
continue to maintain the Plan set forth herein.
1.62 Spouse means a person to whom the Employee was legally married and
which marriage had not been dissolved by formal divorce proceedings
that had been completed prior to the date on which payments to the
Employee are scheduled to commence.
1.63 Termination of Service means the earlier of (a) the date on which an
Employee's service is terminated by reason of his resignation,
retirement, discharge, death or Disability or (b) the first anniversary
of the date on which such Employee's active service ceases for any
other reason.
Service in the Armed Forces of the United States of America shall not
constitute a Termination of Service but shall be considered to be a
period of employment by the Employer provided that (i) such military
service is caused by war or other emergency or the Employee is required
to serve under the laws of conscription in time of peace, (ii) the
Employee returns to employment with the Employer within six (6) months
following discharge from such military service and (iii) such Employee
is reemployed by the Employer at a time when the Employee had a right
to reemployment at his former position or substantially similar
position upon separation from such military duty in accordance with
seniority rights as protected under the laws of the United States of
America.
A leave of absence granted to an Employee by the Employer shall not
constitute a Termination of Service provided that the Participant
returns to the active service of the Employer at the expiration of any
such period for which leave has been granted.
Notwithstanding the foregoing, an Employee who is absent from service
with the Employer beyond the first anniversary of the first date of his
absence for maternity or paternity reasons set forth in Section 1.42
shall incur a Termination of Service for purposes of the Plan on the
second anniversary of the date of such absence.
1.64 Trust means the trust established or maintained under the Agreement
with respect to the Plan.
1.65 Trust Fund means the assets held in accordance with the Agreement.
1.66 Trustees means the Trustees of the RSI Retirement Trust.
1.67 Units means the units of measure of an Employee's proportionate
undivided beneficial interest in one or more of the Investment
Accounts, valued as of the close of business.
1.68 Valuation Date means each business day.
11
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Article II -- Eligibility and Participation
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ARTICLE II --
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility
(a) Every Employee who was a Participant in the Prior Plan
immediately prior to the Restatement Date shall continue to be
a Participant on the Restatement Date.
(b) Every other Employee who is not excluded under the provisions
of Section 2.2 shall become an Eligible Employee upon
satisfying each of the following conditions:
(i) completion of a Period of Service of one (1) year;
and
(ii) attainment of age twenty-one (21); and
(iii) classification as a salaried Employee.
(c) For purposes of determining (i) if an Employee completed a
Period of Service of one (1) year and (ii) Periods of Service
pursuant to Section 2.5, employment with an Affiliated
Employer shall be deemed employment with the Employer.
(d) An Employee who otherwise satisfies the requirements of this
Section 2.1 but who is excluded under the provisions of
Section 2.2 shall become an Eligible Employee immediately upon
classification as an Employee under the provisions of
subsection (b)(iii).
2.2 Ineligible Employees
The following classes of Employees are ineligible to participate in the
Plan:
(a) Employees compensated on an hourly, daily, commission, fee, or
retainer basis;
(b) Leased Employees;
(c) Employees in a unit of Employees covered by a collective
bargaining agreement with the Employer pursuant to which
employee benefits were the subject of good faith bargaining
and which agreement does not expressly provide that Employees
of such unit be covered under the Plan.
2.3 Participation
An Eligible Employee shall be eligible to participate in the Plan as of
the Monday nearest the first day of any calendar month following
satisfaction of the eligibility requirements set forth in Section 2.1,
provided such Eligible Employee meets the conditions of (a) or (b) as
follows:
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Article II -- Eligibility and Participation
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(a) An Eligible Employee may elect to have Basic Contributions, as
described in Section 3.1, made to his Basic Contribution
Account as of the first day of any payroll period following
satisfaction of the eligibility requirements set forth in
Section 2.1. Such election shall be evidenced by completing
and filing the form prescribed by the Committee not less than
ten (10) days prior to the date payroll deductions are to
commence. Such form shall include, but not be limited to, a
Compensation Reduction Agreement, a designation of
Beneficiary, and an investment direction as described in
Section 6.1. By completing and filing such form, the Eligible
Employee authorizes the Employer to make the applicable
payroll deductions from Compensation, commencing on the first
applicable payday coincident with or next following the
effective date of the Eligible Employee's election; and/or
(b) An Eligible Employee may elect to have Post-Tax Contributions,
as described in Section 3.7, made to his Post-Tax Contribution
Account as of the first day of any payroll period following
satisfaction of the eligibility requirements set forth in
Section 2.1. Such election shall be evidenced by completing
and filing a Post-Tax Contribution Election Agreement
prescribed by the Committee not less than ten (10) days prior
to the date such contributions are to commence. Such form
shall include, but not be limited to, the percentage of
Compensation to be contributed as Post-Tax Contributions, a
designation of Beneficiary, and an investment direction as
described in Section 6.1. By completing and filing such form,
the Eligible Employee authorizes the Employer to make the
applicable payroll deductions from Compensation, commencing on
the first applicable payday coincident with or next following
the effective date of the Eligible Employee's election.
2.4 Termination of Participation
Participation in the Plan shall terminate on the earlier of the date a
Participant dies or the entire vested interest in the Net Value of such
Participant's Accounts has been distributed.
2.5 Eligibility upon Reemployment
If an Employee incurs a One Year Period of Severance prior to
satisfying the eligibility requirements of Section 2.1, service prior
to such One Year Period of Severance shall be disregarded and such
Employee must satisfy the eligibility requirements of Section 2.1 as a
new Employee.
If an Employee incurs a One Year Period of Severance after satisfying
the eligibility requirements of Section 2.1 and:
(a) if such Employee is not vested in any Matching Contributions
or Discretionary Employer Contributions, incurs a One Year
Period of Severance and again performs an Hour of Service, the
Employee shall receive credit for Periods of Service prior to
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Article II -- Eligibility and Participation
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a One Year Period of Severance only if the number of
consecutive One Year Periods of Severance is less than the
greater of: (i) five (5) years or (ii) the aggregate number of
such Employee's Periods of Service credited before his One
Year Period of Severance. If such former Employee's Periods of
Service prior to his One Year Period of Severance are
recredited under this Section 2.5, such former Employee shall
be eligible to participate immediately upon reemployment,
provided such Employee is not excluded from participating
under the provisions of Section 2.2. If such former Employee's
Periods of Service prior to his One Year Period of Severance
are not recredited under this Section 2.5, such Employee must
satisfy the eligibility requirements of Section 2.1 as a new
Employee.
(b) if such Employee is vested in any Matching Contributions
and/or Discretionary Employer Contributions, incurs a One Year
Period of Severance and again performs an Hour of Service, the
Employee shall receive credit for Periods of Service prior to
his One Year Period of Severance and shall be eligible to
participate in the Plan immediately upon reemployment,
provided such Employee is not excluded from participating
under the provisions of Section 2.2.
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Article XIII -- Miscellaneous Provisions
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ARTICLE III --
CONTRIBUTIONS AND LIMITATIONS ON CONTRIBUTIONS
3.1 Basic Contributions
The Employer shall make Basic Contributions for each payroll period in
an amount equal to the amount by which a Participant's Compensation has
been reduced with respect to such period under his Compensation
Reduction Agreement. Subject to the limitations set forth in Sections
3.2 and 3.14, the amount of reduction authorized by the Eligible
Employee shall be limited to whole percentages of Compensation and
shall not be less than two percent (2%) nor greater than fifteen
percent (15%). The Basic Contributions made on behalf of a Participant
shall be credited to such Participant's Basic Contribution Account and
shall be invested in accordance with Article VI of the Plan.
3.2 Limitation on Basic Contributions
(a) The percentage of Basic Contributions made on behalf of a
Participant who is a Highly Compensated Employee shall be
limited so that the Average Actual Deferral Percentage for the
group of such Highly Compensated Employees for the Plan Year
does not exceed the greater of:
(i) the Average Actual Deferral Percentage for the group
of Eligible Employees who are Non-Highly Compensated
Employees for the Plan Year multiplied by 1.25; or
(ii) the Average Actual Deferral Percentage for the group
of Eligible Employees who are Non-Highly Compensated
Employees for the Plan Year, multiplied by two (2);
provided that the difference in the Average Actual
Deferral Percentage for eligible Highly Compensated
Employees and eligible Non-Highly Compensated
Employees does not exceed two percent (2%). Use of
this alternative limitation shall be subject to the
provisions of Income Tax Regulations Section
1.401(m)-2 regarding the multiple use of the
alternative deferral tests set forth in Sections
401(k) and 401(m) of the Code.
If the Average Actual Deferral Percentage for the group of
eligible Highly Compensated Employees exceeds the limitations
set forth in the preceding paragraph, the amount of excess
Basic Contributions for a Highly Compensated Employee shall be
determined by "leveling" the highest Actual Deferral
Percentage until the Average Actual Deferral Percentage for
the group of eligible Highly Compensated Employees complies
with such limitations. For purposes of this paragraph,
"leveling" means reducing the Actual Deferral Percentage of
the Highly Compensated Employee with the highest Actual
Deferral Percentage to the extent required to:
(A) enable the Average Actual Deferral Percentage
limitations to be met, or
15
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Article XIII -- Miscellaneous Provisions
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(B) cause such Highly Compensated Employee's Actual
Deferral Percentage to equal the Actual Deferral
Percentage of the Highly Compensated Employee with
the next highest Actual Deferral Percentage and
repeating such process until the Average Actual
Deferral Percentage for the group of eligible Highly
Compensated Employees complies with the Average
Actual Deferral Percentage limitations.
If Basic Contributions made on behalf of a Participant during
any Plan Year exceed the maximum amount applicable to a
Participant as set forth above, any such contributions,
including any earnings thereon as determined under Section
3.11, shall be characterized as Compensation payable to the
Participant and shall be paid to the Participant from his
Basic Contribution Account no later than two and one-half
(2-1/2) months after the close of such Plan Year.
In the event that the Plan satisfies the requirements of
Section 410(b) of the Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the
requirements of Section 410(b) of the Code only if aggregated
with the Plan, then this Section 3.2 shall be applied by
determining the Actual Deferral Percentages of Eligible
Employees as if all such plans were a single plan.
(b) Basic Contributions and elective deferrals (as defined under
Section 402(g) of the Code) under all other plans, contracts
or arrangements of the Employer made on behalf of any
Participant during the 1993 Plan Year shall not exceed $8,994.
For Plan Years commencing after December 31, 1993, Basic
Contributions and elective deferrals (as defined under Section
402(g) of the Code) under all other plans, contracts or
arrangements of the Employer shall not exceed $7,000, adjusted
as prescribed by the Secretary of the Treasury under Section
415(d) of the Code.
(c) If Basic Contributions made on behalf of a Participant during
any Plan Year exceed the dollar limitation set forth in
subsection (b), such contributions, including any earnings
thereon as determined under Section 3.11, shall be
characterized as Compensation payable to the Participant and
shall be paid to the Participant from his Basic Contribution
Account no later than April 15th of the calendar year
following the close of such Plan Year.
(d) Subject to the requirements of Sections 401(a) and 401(k) of
the Code, the maximum amounts under subsections (a) and (b)
may differ in amount or percentage as between individual
Participants or classes of Participants, and any Compensation
Reduction Agreement may be terminated, amended, or suspended
without the consent of any such Participant or Participants in
order to comply with the provisions of such subsections (a)
and (b).
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Article XIII -- Miscellaneous Provisions
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3.3 Changes in Basic Contributions
Unless (a) an election is made to the contrary, or (b) a Participant
receives a Hardship distribution pursuant to Section 7.4(c)(iii), the
percentage of Basic Contributions made under Section 3.1 shall continue
in effect so long as the Participant has a Compensation Reduction
Agreement in force. A Participant may, by completing the applicable
form, prospectively increase or decrease the rate of Basic
Contributions made on his behalf to any of the percentages authorized
under Section 3.1 or suspend Basic Contributions without withdrawing
from participation in the Plan. Such form must be filed at least ten
(10) days prior to the first day of the payroll period with respect to
which such change is to become effective. A Participant who has Basic
Contributions made on his behalf suspended may resume such
contributions by completing and filing the applicable form. Only once
in any calendar quarter may an election be made which would
prospectively increase, decrease, suspend or resume Basic Contributions
made on behalf of a Participant.
Notwithstanding the foregoing, a Participant who receives a Hardship
distribution pursuant to Section 7.4(c)(iii) shall have his
Compensation Reduction Agreement deemed null and void and all Basic
Contributions made on behalf of such Participant shall be suspended
until the later to occur of: (i) twelve (12) months after receipt of
the Hardship distribution and (ii) the first payroll period which
occurs ten (10) days following the completion and filing of a
Compensation Reduction Agreement authorizing the resumption of Basic
Contributions to be made on his behalf. Basic Contributions following a
Hardship distribution made pursuant to Section 7.4(c)(iii) shall be
subject to the following limitations:
(A) Basic Contributions for the Participant's taxable year
immediately following the taxable year of the Hardship
distribution shall not exceed the applicable limit under
Section 402(g) of the Code for such next taxable year less the
amount of such Participant's Basic Contributions for the
taxable year of the Hardship distribution, and
(B) the percentage of Basic Contributions for the twelve (12)
month period following the mandatory twelve (12) month
suspension period shall not exceed the percentage of Basic
Contributions made on behalf of the Participant as set forth
in the last Compensation Reduction Agreement in effect prior
to the Hardship distribution. Basic Contributions based on
Compensation for the period during which such contributions
had been suspended or decreased may not be made up at a later
date.
3.4 Matching Contributions
(a) The Employer shall make contributions on behalf of each
Participant in an amount equal to fifty percent (50%) of such
Participant's Basic Contributions up to a maximum of three
percent (3%) of the Participant's Compensation.
(b) Matching Contributions shall be credited to the Participant's
Matching Contribution Account and shall be invested in
accordance with Article VI of the Plan.
17
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Article XIII -- Miscellaneous Provisions
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(c) If a Participant terminates his Basic Contributions, Matching
Contributions attributable to such contributions will also
cease. If Basic Contributions are suspended, the Matching
Contributions attributable to such contributions will be
suspended for the same period. Subject to the limitations set
forth in subsection (a), if Basic Contributions are increased
or decreased, Matching Contributions attributable to such
contributions will be increased or decreased during the same
period. Matching Contributions for the period during which
Basic Contributions had been suspended or decreased may not be
made up at a later date.
(d) Matching Contributions will be reviewed from time to time and
may be modified by the Employer's Board.
3.5 Special Contributions
In addition to any other contributions, the Employer may, in its
discretion, make Special Contributions for a Plan Year to the Basic
Contribution Account of any Eligible Employees. Such Special
Contributions may be limited to the amount necessary to insure that the
Plan complies with the requirements of Section 401(k) of the Code. The
Special Contributions made on behalf of a Participant shall be invested
in accordance with Article VI of the Plan.
The Employer may provide that Special Contributions be made only on
behalf of each Eligible Employee who is a Non-Highly Compensated
Employee on the last day of the Plan Year. Such Special Contributions
shall be allocated in proportion to each such Eligible Employee's
Compensation for the Plan Year.
Any other provision of the Plan to the contrary notwithstanding, no
Matching Contributions shall be made with respect to any Special
Contributions.
3.6 Discretionary Employer Contributions
Subject to the limitations of Section 3.14, the Employer may, in its
sole and absolute discretion, make Discretionary Employer Contributions
to the Plan for a Plan Year. Discretionary Employer Contributions shall
be credited in an amount determined by the Board and expressed as a
percentage of the Compensation of each Eligible Employee (a) who has
competed one thousand (1,000) Hours of Service during the Plan Year for
which such Discretionary Employer Contribution is being made, and (b)
who is in the employ of the Employer on the last day of such Plan Year
and (c) on whose behalf Basic Contributions and/or Post-Tax
Contributions are being made to the Plan.
The Discretionary Employer Contributions allocated to each Participant
shall be credited to such Participant's Discretionary Employer
Contribution Account and shall be invested in accordance with Article
VI of the Plan. Any and all withdrawals, distributions or payments from
a Participant's Discretionary Employer Contribution Account shall be
made in accordance with Article VII, or Article VIII of the Plan,
whichever is applicable.
18
<PAGE>
Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
3.7 Post-Tax Contributions
(a) Subject to the limitations of Section 3.9 and 3.14, a
Participant may, by completing and filing a Post-Tax
Contribution Election Agreement, authorize Post-Tax
Contributions be made on his behalf. Post-Tax Contributions
shall be limited to whole percentages of Compensation and
shall not be less than one percent (1%) nor greater than ten
percent (10%).
(b) A Participant's Post-Tax Contributions shall be credited to
such Participant's Post-Tax Contribution Account and shall be
invested in accordance with Article VI of the Plan.
3.8 Changes in Post-Tax Contributions
(a) Unless (i) an election is made to the contrary or (ii) a
Participant receives a Hardship distribution pursuant to
Section 7.4(c)(iii), the percentage of Post-Tax Contributions
made on behalf of a Participant under a Post-Tax Contribution
Election Agreement entered into pursuant to Section 3.7(a)
shall continue in effect so long as the Participant continues
to have a Post-Tax Contribution Election Agreement in effect.
A Participant may, by completing the applicable form, increase
or decrease the rate of his Post-Tax Contributions to any of
the percentages authorized pursuant to Section 3.7(a), or
suspend his Post-Tax Contributions hereunder without
withdrawing from participation in the Plan. Such form must be
filed at least ten (10) days prior to the first day of the
payroll period with respect to which such change is to become
effective. A Participant who has suspended his Post-Tax
Contributions may resume such contributions by completing and
filing the applicable form. Only once in any calendar quarter
may an election be made which would increase, decrease,
suspend, or resume a Participant's Post-Tax Contributions.
(b) Notwithstanding the foregoing, a Participant who receives a
Hardship distribution pursuant to Section 7.4(c)(iii) shall
have his Post-Tax Contribution Election Agreement deemed null
and void and all Post-Tax Contributions shall be suspended
until the later to occur of: (i) twelve (12) months after
receipt of the Hardship distribution and (ii) the payroll
period which occurs ten (10) days following the completion and
filing of a Post-Tax Contribution Election Agreement.
(c) Post-Tax Contributions based on Compensation for the period
during which such contributions had been suspended or
decreased may not be made up at a later date.
3.9 Limitation on Matching Contributions and Post-Tax Contributions
The Actual Contribution Percentage made on behalf of a Participant who
is a Highly Compensated Employee shall be limited so that the Average
Actual Contribution Percentage for the group of such Highly Compensated
Employees for the Plan Year shall not exceed the greater of:
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
(a) the Average Actual Contribution Percentage for the group of
Eligible Employees who are Non-Highly Compensated Employees
for the Plan Year multiplied by 1.25; or
(b) the Average Actual Contribution Percentage for the group of
Eligible Employees who are Non-Highly Compensated Employees
for the Plan Year, multiplied by two (2); provided that the
difference in the Average Actual Contribution Percentage for
Highly Compensated Employees and Non-Highly Compensated
Employees does not exceed two percent (2%). Use of this
alternative limitation shall be subject to the provisions of
Income Tax Regulations Section 1.401(m)-2 regarding the
multiple use of the alternative deferral tests set forth in
Sections 401(k) and 401(m) of the Code.
If the Average Actual Contribution Percentage for the group of
eligible Highly Compensated Employees exceeds the limitations
set forth in the preceding paragraph, the amount of excess
Matching Contributions and/or Post-Tax Contributions for a
Highly Compensated Employee shall be determined by "leveling"
the highest Actual Contribution Percentage until the Average
Actual Contribution Percentage for the group of eligible
Highly Compensated Employees complies with such limitations.
For purposes of this paragraph, "leveling" means reducing the
Actual Contribution Percentage of the Highly Compensated
Employee with the highest Actual Contribution Percentage to
the extent required to:
(i) enable the Average Actual Contribution Percentage
limitations to be met, or
(ii) cause such Highly Compensated Employee's Actual
Contribution Percentage to equal the Actual
Contribution Percentage of the Highly Compensated
Employee with the next highest Actual Contribution
Percentage and repeating such process until the
Average Actual Contribution Percentage for the group
of eligible Highly Compensated Employees complies
with the Average Actual Contribution Percentage
limitations.
If Matching Contributions and/or Post-Tax Contributions during any Plan
Year exceed the maximum amount applicable to a Participant as set forth
above, any such contributions, including any earnings thereon as
determined under Section 3.11, shall, to the extent vested, be
characterized as Compensation payable to the Participant and any such
vested Matching Contribution and/or Post-Tax Contribution, including
earnings thereon as determined under Section 3.11, shall be paid to the
Participant from the applicable Account no later than two and one-half
(2-1/2) months after the close of such Plan Year.
In the event that the Plan satisfies the requirements of Section 410(b)
of the Code only if aggregated with one or more other plans, or if one
or more other plans satisfy the requirements of Section 410(b) of the
Code only if aggregated with the Plan, then this Section 3.9 shall be
applied by determining the Actual Contribution Percentages of Eligible
Employees as if all such plans were a single plan.
20
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
3.10 Aggregate Limit; Multiple Use of Alternative Limitation
Multiple use of the alternative limitation in determining the Average
Actual Deferral Percentage and Average Actual Contribution Percentage
shall not be permitted.
Multiple use of the alternative limitation occurs if, for the group of
Eligible Employees who are Highly Compensated Employees, the sum of the
Average Actual Deferral Percentage and the Average Actual Contribution
Percentage exceeds the Aggregate Limit.
For purposes of this Section 3.10, Aggregate Limit shall mean the
greater of (a) or (b), where (a) and (b) are as follows:
(a) the sum of:
(i) one hundred twenty-five percent (125%) of the greater
of:
(A) the Average Actual Deferral Percentage for
the group of Eligible Employees who are
Non-Highly Compensated Employees for the
Plan Year; or
(B) the Average Actual Contribution Percentage
for the group of Eligible Employees who are
Non-Highly Compensated Employees for the
Plan Year; and
(ii) two (2) plus the lesser of subsection (a)(i)(A) or
(a)(i)(B). In no event shall this amount exceed two
hundred percent (200%) of the lesser of subsection
(a)(i)(A) or (a)(i)(B).
(b) the sum of:
(i) one hundred twenty-five percent (125%) of the lesser
of:
(A) the Average Actual Deferral Percentage for
the group of Eligible Employees who are
Non-Highly Compensated Employees for the
Plan Year; or
(B) the Average Actual Contribution Percentage
for the group of Eligible Employees who are
Non-Highly Compensated Employees for the
Plan Year; and
(ii) two (2) plus the greater of subsection (b)(i)(A) or
(b)(i)(B). In no event shall this amount exceed two
hundred percent (200%) of the greater of subsection
(b)(i)(A) or (b)(i)(B).
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Article XIII -- Miscellaneous Provisions
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If multiple use of the alternative limitation occurs, the Average
Actual Deferral Percentage for all Highly Compensated Employees under
the Plan shall be reduced in accordance with the provisions of Income
Tax Regulations Section 1.401(m)-2(c).
3.11 Interest on Excess Contributions
In the event Basic Contributions, Matching Contributions and/or
Post-Tax Contributions made on behalf of a Participant during a Plan
Year exceed the maximum allowable amount as described in Section
3.2(a), 3.2(b) or 3.9 ("Excess Contributions") and such Excess
Contributions and earnings thereon are payable to the Participant under
the applicable provisions of the Plan, earnings on such Excess
Contributions for the period commencing with the first day of the Plan
Year in which the Excess Contributions were made and ending with the
date of payment to the Participant ("Allocation Period") shall be
determined in accordance with the provisions of this Section 3.11.
The earnings allocable to excess Basic Contributions for an Allocation
Period shall be equal to the sum of (a) plus (b) where (a) and (b) are
determined as follows:
(a) The amount of earnings attributable to the Participant's Basic
Contribution Account for the Plan Year multiplied by a
fraction, the numerator of which is the excess Basic
Contributions and Special Contributions for the Plan Year, and
the denominator of which is the sum of (i) the Net Value of
the Participant's Basic Contribution Account as of the last
day of the immediately preceding Plan Year and (ii) the
contributions (including the Excess Contributions) made to the
Basic Contribution Account on the Participant's behalf during
such Plan Year.
(b) The amount of earnings attributable to the Participant's Basic
Contribution Account for the period commencing with the first
day of the Plan Year in which payment is made to the
Participant and ending with the date of payment to the
Participant multiplied by a fraction, the numerator of which
is the excess Basic Contributions and Special Contributions
made to the Basic Contribution Account on the Participant's
behalf during the Plan Year immediately preceding the Plan
Year in which the payment is made to the Participant, and the
denominator of which is the Net Value of the Participant's
Basic Contribution Account on the first day of the Plan Year
in which the payment is made to the Participant.
The earnings allocable to excess Matching Contributions and/or
Post-Tax Contributions for an Allocation Period shall be equal
to the sum of (A) and (B) where (A) and (B) are determined as
follows:
(A) The amount of earnings attributable to the
Participant's Matching Contribution Account and/or
Post-Tax Contribution Account for the Plan Year
multiplied by a fraction, the numerator of which is
the excess Matching Contributions and/or Post-Tax
Contributions for the Plan Year, and the denominator
of which is the sum of (I) the Net Value of the
Participant's Matching Contribution Account and/or
Post-Tax Contribution Account as of the last day of
the immediately preceding Plan Year and (II) the
22
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
contributions (including the Excess Contributions)
made to the Matching Contribution Account and/or
Post-Tax Contribution Account on the Participant's
behalf during such Plan Year.
(B) The amount of earnings attributable to the
Participant's Matching Contribution Account and/or
Post-Tax Contribution Account for the period
commencing with the first day of the Plan Year in
which payment is made to the Participant and ending
with the date of payment to the Participant
multiplied by a fraction, the numerator of which is
the excess Matching Contributions and/or Post-Tax
Contributions made to the Matching Contribution
Account and/or Post-Tax Contribution Account on the
Participant's behalf during the Plan Year immediately
preceding the Plan Year in which the payment is made
to the Participant, and the denominator of which is
the Net Value of the Participant's Matching
Contribution Account and/or Post-Tax Contribution
Account on the first day of the Plan Year in which
the payment is made to the Participant.
3.12 Payment of Contributions to the Trust
As soon as possible after each payroll period, but not less often than
once a month, the Employer shall deliver to the Trustees: (a) the Basic
Contributions required to be made to the Trust during such payroll
period under the applicable Compensation Reduction Agreements, (b) the
amount of all Matching Contributions required to be made to the Trust
for such payroll period and (c) the amount of all Post-Tax
Contributions required to be made to the Trust during such payroll
period under the applicable Post-Tax Contribution Election Agreements.
Special Contributions and Discretionary Employer Contributions to the
Trust shall be forwarded by the Employer to the Trustees no later than
the time for filing the Employer's federal income tax return, plus any
extensions thereon, for the Plan Year to which they are attributable.
3.13 Rollover Contributions
Subject to such terms and conditions as may from time to time be
established by the Committee and the Trustees, an Employee, whether or
not a Participant, may contribute a Rollover Contribution to the Plan
Fund; provided, however, that such Employee shall submit a written
certification, in form and substance satisfactory to the Committee,
that the contribution qualifies as a Rollover Contribution. The
Committee shall be entitled to rely on such certification and shall
accept the contribution on behalf of the Trustees. Rollover
Contributions shall be credited to an Employee's Rollover Contribution
Account and shall be invested in accordance with Article VI of the
Plan.
23
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Article XIII -- Miscellaneous Provisions
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3.14 Section 415 Limits on Contributions
(a) For purposes of this Section 3.14, the following terms and
phrases shall have the meanings hereafter ascribed to them:
(i) "Annual Additions" shall mean the sum of the
following amounts credited to a Participant's
Accounts for the Limitation Year: (A) Employer
contributions, including Basic Contributions,
Matching Contributions and Discretionary Employer
Contributions; (B) Post-Tax Contributions and any
other Employee contributions; (C) forfeitures; and
(D) contributions attributable to medical benefits as
described in Sections 415(1)(1) and 419A(d)(2) of the
Code. Annual Additions include the following
contributions credited to a Participant's Accounts
for the Limitation Year, regardless of whether such
contributions have been distributed to the
Participant:
(I) Basic Contributions which exceed the
limitations set forth in Section 3.2(a);
(II) Basic Contributions made on behalf of a
Highly Compensated Employee which exceed the
limitations set forth in Section 3.2(b); and
(III) Matching Contributions and Post-Tax
Contributions made on behalf of a Highly
Compensated Employee which exceed the
limitations set forth in Section 3.9.
(ii) "Current Accrued Benefit" shall mean a Participant's
annual accrued benefit under a defined benefit plan,
determined in accordance with the meaning of Section
415(b)(2) of the Code, as if the Participant had
separated from service as of the close of the last
Limitation Year beginning before January 1, 1987. In
determining the amount of a Participant's Current
Accrued Benefit, the following shall be disregarded:
(A) any change in the terms and conditions of
the defined benefit plan after May 5, 1986;
and
(B) any cost of living adjustment occurring
after May 5, 1986.
(iii) "Defined Benefit Plan" and "Defined Contribution
Plan" shall have the meanings set forth in Section
415(k) of the Code.
(iv) "Defined Benefit Plan Fraction" for a Limitation Year
shall mean a fraction, (A) the numerator of which is
the aggregate projected annual benefit (determined as
of the last day of the Limitation Year) the
24
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
Participant under all defined benefit plans (whether
or not terminated) maintained by the Employer, and
(B) the denominator of which is the lesser of: (I)
the product of 125 (or such adjustment as required
under Section 12.4) and the dollar limitation in
effect under Section 415(b)(1)(A) of the Code,
adjusted as prescribed by the Secretary of the
Treasury under Section 415(d) of the Code, or (II)
the product of 1.4 and the amount which may be taken
into account with respect to such Participant under
Section 415(b)(1)(B) of the Code for such Limitation
Year. Notwithstanding the above, if the Participant
was a participant in one or more defined benefit
plans of the Employer in existence on May 6, 1986,
the dollar limitation of the denominator of this
fraction will not be less than the Participant's
Current Accrued Benefit.
(v) "Defined Contribution Plan Fraction" for a Limitation
Year shall mean a fraction, (A) the numerator of
which is the sum of the Participant's Annual
Additions under all defined contribution plans
(whether or not terminated) maintained by the
Employer for the current year and all prior
Limitation Years (including annual additions
attributable to the Participant's nondeductible
employee contributions to all defined benefit plans
(whether or not terminated) maintained by the
Employer), and (B) the denominator of which is the
sum of the maximum aggregate amounts for the current
year and all prior Limitation Years with the Employer
(regardless of whether a defined contribution plan
was maintained by the Employer). Maximum aggregate
amounts" shall mean the lesser of (I) the product of
1.25 (or such adjustment as required under Section
12.4) and the dollar limitation in effect under
Section 415(c)(1)(A) of the Code, adjusted as
prescribed by the Secretary of the Treasury under
Section 415(d) of the Code, or (II) the product of
1.4 and the amount that may be taken into account
under Section 415(c)(1)(B) of the Code; provided,
however, that the Committee may elect, on a uniform
and nondiscriminatory basis, to apply the special
transition rule of Section 415(e)(6) of the Code
applicable to Limitation Years ending before January
1, 1983 in determining the denominator of the Defined
Contribution Plan Fraction.
(vi) "Limitation Year" shall mean the calendar year.
(vii) "Section 415 Compensation" shall be a Participant's
remuneration as defined in Income Tax Regulations
Sections 1.415-2(d)(2), (3) and (6).
(b) For purposes of applying the Section 415 limitations, the
Employer and all members of a controlled group of corporations
(as defined under Section 414(b) of the Code as modified by
Section 415(h) of the Code), all commonly controlled trades or
businesses (as defined under Section 414(c) of the Code as
modified by Section 415(h) of the Code), all affiliated
service groups (as defined under Section 414(m) of the Code)
of which the Employer is a member, any leasing organization
(as defined under Section 414(n) of the Code) that employs any
25
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Article XIII -- Miscellaneous Provisions
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person who is considered an Employee under Section 414(n) of
the Code and any other group provided for under any and all
Income Tax Regulations promulgated by the Secretary of the
Treasury under Section 414(o) of the Code, shall be treated as
a single employer.
(c) If the Employer maintains more than one qualified Defined
Contribution Plan on behalf of its Employees, such plans shall
be treated as one Defined Contribution Plan for purposes of
applying the Section 415 limitations of the Code.
(d) Notwithstanding anything contained in the Plan to the
contrary, in no event shall the Annual Additions to a
Participant's Accounts for a Limitation Year exceed the lesser
of:
(i) $30,000 or, if greater, one-fourth (1/4th) of the
defined benefit dollar limitation set forth in
Section 415(b)(1)(A) of the Code as in effect for the
Limitation Year; or
(ii) twenty-five percent (25%) of the Participant's
Section 415 Compensation for such Limitation Year.
For purposes of this subsection (d)(ii), Section 415
Compensation shall not include (A) any contribution
for medical benefits within the meaning of Section
419A(f)(2) of the Code after separation from service,
which is otherwise treated as an Annual Addition, and
(B) any amount otherwise treated as an Annual
Addition under Section 415(1)(1) of the Code.
(e) If the Annual Additions to a Participant's Accounts for a
Limitation Year exceed the limitation set forth in subsection
(d) above during the Limitation Year, any or all of the
following contributions on behalf of such Participant shall be
immediately adjusted to that amount which will result in such
Annual Additions not exceeding the limitation set forth in
subsection (d):
(i) Discretionary Employer Contributions;
(ii) Post-Tax Contributions;
(iii) Basic Contributions;
(iv) Special Contributions; and
(v) Matching Contributions.
(f) If the Annual Additions to a Participant's Accounts for a
Limitation Year exceed the limitations set forth in subsection
(d) above at the end of a Limitation Year, such excess amounts
shall not be treated as Annual Additions in such Limitation
Year but shall instead be used to reduce the Basic
Contributions, Matching Contributions, Discretionary Employer
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Article XIII -- Miscellaneous Provisions
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Contributions and/or Special Contributions to be made on
behalf of such Participant in the succeeding Limitation Year,
provided that such Participant is an Eligible Employee during
such succeeding Limitation Year. If such Participant is not an
Eligible Employee or ceases to be an Eligible Employee during
such succeeding Limitation Year, any remaining excess amounts
from the preceding Limitation Year shall be allocated during
such succeeding Limitation Year to each Participant then
actively participating in the Plan. Such allocation shall be
in proportion to the Basic Contributions made to date on his
behalf for such Limitation Year, or the prior Limitation Year
with respect to an allocation as of the beginning of a
Limitation Year, before any other contributions are made in
such succeeding Limitation Year.
(g) If a Participant participates in both (i) the Plan and/or any
other defined contribution plan maintained by the Employer and
(ii) any defined benefit plan or plans maintained by the
Employer, the sum of the Defined Contribution Plan Fraction
and the Defined Benefit Plan Fraction shall not exceed the sum
of 1.0.
(h) If the sum determined under subsection (g) for any Participant
exceeds 1.0, the Defined Contribution Plan Fraction of such
Participant as provided in the defined contribution plan or
plans maintained by the Employer shall be reduced in order
that such sum shall not exceed 1.0.
27
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Article XIII -- Miscellaneous Provisions
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ARTICLE IV --
VESTING AND FORFEITURES
4.1 Vesting
(a) An Employee shall always be fully vested in the Net Value of
his Basic Contribution Account, the Net Value of his Post-Tax
Contribution Account, and the Net Value of his Rollover
Contribution Account.
(b) A Participant shall become fully vested in the Net Value of
his Discretionary Employer Contribution Account and the Net
Value of his Matching Contribution Account upon the earlier of
such Participant's (i) Normal Retirement Age or (ii)
termination of employment by reason of death, Disability or
reaching his Retirement Date.
(c) A Participant who is not fully vested under subsection (b)
shall be vested in the Net Value of his Discretionary Employer
Contribution Account and the Net Value of his Matching
Contribution Account in accordance with the following
schedule:
Vested
Period of Service Percentage
----------------- ----------
Less than 2 years 0%
2 years but less than 3 years 40%
3 years but less than 4 years 60%
4 years but less than 5 years 80%
5 or more years 100%
For purposes of determining a Participant's Period of Service
under this subsection (c) and under Section 4.3, employment
with an Affiliated Employer shall be deemed employment with
the Employer.
For purposes of determining a Participant's vested percentage
of the Net Value of his Discretionary Employer Contribution
Account and the Net Value of his Matching Contribution
Account, all Periods of Service shall be included.
(d) The vested Net Value of a Participant's Matching Contribution
Account and Discretionary Employer Contribution Account shall
be determined as follows:
(i) the Participant's Matching Contribution Account and
Discretionary Employer Contribution Account shall
first be increased to include (A) that portion of
such Accounts which had been previously withdrawn in
accordance with Sections 7.3 and 7.4 and (B) that
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Article XIII -- Miscellaneous Provisions
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portion of such Accounts which had been borrowed in
accordance with Article VIII and is outstanding on
the date of this determination;
(ii) the applicable vested percentage determined in
accordance with subsection (c) shall then be applied
to such Accounts as determined in accordance with
clause (i);
(iii) the amount determined in accordance with clause (ii)
shall then be reduced by (A) that portion of such
Accounts which had been previously withdrawn in
accordance with Sections 7.3 and 7.4 and (B) that
portion of such Accounts which had been borrowed in
accordance with Article VIII and is outstanding on
the date of this determination.
4.2 Forfeitures
If a Participant who is not fully vested in the Net Value of his
Accounts terminates employment, the Units representing the nonvested
portion of his Accounts shall constitute Forfeitures. Forfeitures shall
be reallocated as soon as administratively possible following the last
day of the Plan Year to the Discretionary Employer Contribution Account
of each Eligible Employee who is in the employment of the Employer on
the last day of such Plan Year, or who terminated employment during
such Plan Year due to retirement or disability, in the same proportion
that such Eligible Employee's Compensation bears to the aggregate
Compensation of all Eligible Employees as of the last day of the Plan
Year.
If a former Participant who is not fully vested in the Net Value of his
Accounts receives a distribution of his vested interest in the Net
Value of his Accounts and is subsequently reemployed by the Employer
prior to incurring five (5) consecutive One Year Periods of Severance,
he shall have the Net Value of his Accounts as of the date he
previously terminated employment reinstated provided he repays the full
amount of his distribution before the end of the five (5) consecutive
One Year Periods of Severance commencing with the date of distribution.
The reinstated amount shall be unadjusted by any gains or losses
occurring subsequent to the Participant's termination of employment and
prior to repayment of such distribution. Any forfeited amounts required
to be reinstated hereunder shall be made by an additional Employer
contribution for such Plan Year. If such former Participant does not
repay the full amount of his distribution before the end of the five
(5) consecutive One Year Periods of Severance commencing with the date
of distribution, the Net Value of his Accounts as of the date he
previously terminated employment shall not be reinstated.
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Article XIII -- Miscellaneous Provisions
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If a former Participant who is not fully vested in the Net Value of his
Accounts elects to defer distribution of his vested account interest or
elects to receive installment payments pursuant to Section 7.6(e) or
7.7(d), the nonvested portion of such former Participant's Account
shall be forfeited as of the date of his Termination of Service;
provided, however, that if such former Participant is reemployed before
incurring five (5) consecutive One Year Periods of Severance, the
nonvested portion of his Accounts shall be reinstated in its entirety,
unadjusted by any gains or losses occurring subsequent to the
distribution.
4.3 Vesting upon Reemployment
(a) For purposes of this Section 4.3, "Period of Service" means an
Employee's Period of Service determined in accordance with
Section 4.1(c).
(b) For the purpose of determining a Participant's vested interest
in the Net Value of his Discretionary Employer Contribution
Account and/or Matching Contribution Account:
(i) if an Employee is not vested in any Discretionary
Employer Contributions and/or Matching Contributions,
incurs a One Year Period of Severance and again
performs an Hour of Service, such Employee shall
receive credit for his Periods of Service prior to
his One Year Period of Severance only if the number
of consecutive One Year Periods of Severance is less
than the greater of: (A) five (5) years or (B) the
aggregate number of his Periods of Service credited
before his One Year Period of Severance.
(ii) if a Participant is partially vested in any
Discretionary Employer Contributions and/or Matching
Contributions, incurs a One Year Period of Severance
and again performs an Hour of Service, such
Participant shall receive credit for his Periods of
Service prior to his One Year Period of Severance;
provided, however, that after five (5) consecutive
One Year Periods of Severance, a former Participant's
vested interest in the Net Value of the Discretionary
Employer Contribution Account and/or Matching
Contribution Account attributable to Periods of
Service prior to his One Year Period of Severance
shall not be increased as a result of his Periods of
Service following his reemployment date.
(iii) if a Participant is fully vested in any Discretionary
Employer Contributions and/or Matching Contributions,
incurs a One Year Period of Severance and again
performs an Hour of Service, such Participant shall
receive credit for all his Periods of Service prior
to his One Year Period of Severance.
30
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Article XIII -- Miscellaneous Provisions
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ARTICLE V --
TRUST FUND AND INVESTMENT ACCOUNTS
5.1 Trust Fund
The Employer has adopted the Agreement as the funding vehicle with
respect to the Investment Accounts.
All contributions forwarded by the Employer to the Trustees pursuant to
the Agreement shall be held by them in trust and shall be used to
purchase Units on behalf of the Plan in accordance with the terms and
provisions of the Agreement. Contributions designated for investment in
any Investment Account of the Trust Fund shall be allocated
proportionately to and among the classes of Units so selected for such
Investment Account.
All assets of the Plan shall be held for the exclusive benefit of
Participants, Beneficiaries or other persons entitled to benefits. No
part of the corpus or income of the Trust Fund shall be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants, Beneficiaries or other persons entitled to benefits and
for defraying reasonable administrative expenses of the Plan and Trust.
No person shall have any interest in or right to any part of the
earnings of the Trust Fund, or any rights in, to or under the Trust
Fund or any part of its assets, except to the extent expressly provided
in the Plan.
The Trustees shall invest and reinvest the Trust Fund, and the income
therefrom, without distinction between principal and income, in
accordance with the terms and provisions of the Agreement. The Trustees
may maintain such part of the Trust Fund in cash uninvested as they
shall deem necessary or desirable. The Trustees shall be the owner of
and have title to all the assets of the Trust Fund and shall have full
power to manage the same, except as otherwise specifically provided in
the Agreement.
5.2 Interim Investments
The Trustees may temporarily invest any amounts designated for
investment in any of the Investment Accounts of the Trust Fund
identified herein in the Investment Account which provides for
short-term investments and retain the value of such contributions
therein pending the allocation of such values to the Investment
Accounts designated for investment.
5.3 Account Values
The Net Value of the Accounts of an Employee means the sum of the total
Net Value of each Account maintained on behalf of the Employee in the
Trust as determined as of the Valuation Date coincident with or next
following the event requiring the determination of such Net Value. The
assets of any Account shall consist of the Units credited to such
Account. The Units shall be valued from time to time by the Trustees in
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Article XIII -- Miscellaneous Provisions
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accordance with the Agreement, but not less often than monthly. On the
basis of such valuations, each Employee's Accounts shall be adjusted to
reflect the effect of income collected and accrued, realized and
unrealized profits and losses, expenses and all other transactions
during the period ending on the applicable Valuation Date.
Upon receipt by the Trustees of Basic Contributions, Matching
Contributions, and, if applicable, Post-Tax Contributions,
Discretionary Employer Contributions, Rollover Contributions and
Special Contributions, such contributions shall be applied to purchase
Units for such Employee's Account, using the value of such Units as of
the close of business on the date received. Whenever a distribution is
made to a Participant, Beneficiary or other person entitled to
benefits, the appropriate number of Units credited to such Employee
shall be reduced accordingly and each such distribution shall be
charged against the Units of the Investment Accounts of such Employee
pro rata according to their respective values.
For the purposes of this Section 5.3, fractions of Units as well as
whole Units may be purchased or redeemed for the Account of an
Employee.
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Article XIII -- Miscellaneous Provisions
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ARTICLE VI --
INVESTMENT DIRECTIONS, CHANGES OF INVESTMENT DIRECTIONS
AND TRANSFERS BETWEEN INVESTMENT ACCOUNTS
6.1 Investment Directions
Upon electing to participate, each Participant shall direct that the
contributions made to his Accounts shall be applied to purchase Units
in any one or more of the Investment Accounts of the Trust Fund. Such
direction shall indicate the percentage, in multiples of ten percent
(10%), in which Basic Contributions, Matching Contributions, Special
Contributions, Discretionary Employer Contributions, Post-Tax
Contributions and Rollover Contributions shall be made to the
designated Investment Accounts.
To the extent a Participant shall fail to make an investment direction,
contributions made on his behalf shall be applied to purchase Units in
the Investment Account which provides for short-term investments.
6.2 Change of Investment Directions
A Participant may change any investment direction not more often than
once in any calendar quarter by completing and filing a notice in the
form and manner prescribed by the Committee at least ten (10) days
prior to the effective date of such direction. Any such change shall be
subject to the same conditions as if it were an initial direction and
shall be applied only to any contributions to be invested on or after
the effective date of such direction.
6.3 Transfers Between Investment Accounts
By filing a notice in the form and manner prescribed by the Committee
at least ten (10) days prior to the effective date of such change, a
Participant or Beneficiary may, not more often than once in any
calendar quarter, direct that multiples of ten percent (10%) of the Net
Value of any one or more Investment Accounts be transferred to any one
or more of the other Investment Accounts. The requisite transfers shall
be valued as of the Valuation Date on which the direction is received
by the Trustees and shall be affected within seven (7) days of the
Trustees' receipt of such direction.
6.4 Employees Other than Participants
(a) Investment Direction
An Employee who is not a Participant but who has made a
Rollover Contribution in accordance with the provisions of
Section 3.13, shall direct, in the form and manner prescribed
by the Committee, that such contribution be applied to the
purchase of Units in any one or more of the Investment
Accounts. Such direction shall indicate the percentage, in
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Article XIII -- Miscellaneous Provisions
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multiples of ten percent (10%), in which contributions shall
be made to the designated Investment Accounts. To the extent
any Employee shall fail to make an investment direction, the
Rollover Contributions shall be applied to the purchase of
Units in the Investment Account which provides for short-term
investments.
(b) Transfers Between Investment Accounts
An Employee who is not a Participant may, subject to the
provisions of Section 6.3, not more often than once in any
calendar quarter, direct that multiples of ten percent (10%)
of the Net Value of any one or more Investment Accounts be
transferred to any one or more of the other Investment
Accounts. The requisite transfers shall be valued as of the
Valuation Date on which the direction is received by the
Trustees and shall be affected within seven (7) days of the
Trustees' receipt of such direction.
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Article XIII -- Miscellaneous Provisions
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ARTICLE VII --
PAYMENT OF BENEFITS
7.1 General
(a) For purposes of this Article VII, the following terms and
phrases shall have the meanings hereinafter ascribed to them:
(i) "Beneficiary" shall mean (A) in the case of a married
Participant, the Spouse. Notwithstanding the
foregoing, such Participant may, subject to the
spousal consent requirements of Section 7.2(a),
effectively elect to designate a person or persons
other than the Spouse as Beneficiary; (B) in the case
of a single Participant, a person or persons who have
been designated under the Plan by such Participant or
who are otherwise entitled to a benefit under the
Plan.
(ii) "Life Annuity" shall mean the benefit payable under
subsection (iii) or (iv) hereunder.
(iii) "Straight Life Annuity" shall mean a benefit payable
in equal monthly installments to the Participant for
his life with no benefits payable after his death.
(iv) "50% Joint and Survivor Annuity" shall mean a benefit
payable in equal monthly installments to the
Participant for his life with a benefit equal to
one-half (l/2) of the benefit paid to the Participant
continuing after his death to and for the life of a
surviving Beneficiary.
(b) The vested interest in the Net Value of any one or more of the
Accounts of a Participant, Beneficiary or any other person
entitled to benefits under the Plan shall be paid only at the
times, to the extent, in the manner, and to the persons
provided in this Article VII.
(c) Notwithstanding the foregoing, if payments are to be made on a
monthly basis and if, in the judgment of the Committee,
payments are too small to warrant monthly payments, the
Committee, in its sole discretion, may determine to make such
payments in a lump sum or in quarterly, semi-annual, or annual
installments.
(d) The Net Value of any one or more of the Accounts of a
Participant shall be subject to the provisions of Section 8.7.
(e) Notwithstanding any provisions of the Plan to the contrary,
any and all withdrawals, distributions or payments made under
the provisions of this Article VII shall be made in accordance
with Section 401(a)(9) of the Code and any and all Income Tax
Regulations promulgated thereunder.
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Article XIII -- Miscellaneous Provisions
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(f) Any distribution of the vested interest in the Net Value of a
Participant's Accounts which is made by the purchase of any
Life Annuity shall be made by the purchase of a
nontransferable annuity contract from a legal reserve life
insurance company licensed to do business in the state of
Cohoes Savings Bank. Such Life Annuity contract shall comply
with the provisions of this Plan.
(g) Notwithstanding any provisions of the Plan to the contrary,
the provisions of this Article VII shall also apply to a
person who is not a Participant but who has made a
contribution to and maintains a Rollover Contribution Account
under the Plan.
7.2 Spousal Consent Requirements - Change From Life Annuity, Optional Forms
of Benefit Payments, Beneficiaries
(a) An election by the Participant (i) to receive benefit payments
in another form after a Life Annuity option has been elected
under Section 7.6(f) or 7.7(e), (ii) to designate a Life
Annuity Beneficiary who is other than his Spouse, or (iii)
under any other provision of the Plan which is subject to
spousal consent, shall not be effective unless: (A) the
Participant's Spouse irrevocably consents to such election in
writing, (B) such election designates a Beneficiary or form of
benefit payment, which may not be changed without spousal
consent unless the consent of the Spouse expressly permits
designation by the Participant without any requirement of
further consent by the Spouse, (C) the Spouse's consent
acknowledges understanding of the effect of such election, and
(D) the consent is witnessed by a Plan representative or a
notary public. Notwithstanding this consent requirement, if
the Participant establishes to the satisfaction of the Plan
representative that such written consent cannot be obtained
because there is no Spouse or the Spouse cannot be located,
such election shall be deemed a qualified election.
Any consent necessary under this provision shall be valid only
with respect to the Spouse who signs the consent.
(b) A Participant who has submitted to the Committee an election
form in accordance with the provisions of subsection (a)(ii),
may, without the consent of his Spouse, revoke such prior
election by submitting written notification of such revocation
to the Committee before the date benefit payments are
scheduled to commence. Such revocation shall result in the
reinstatement of the Spouse as the designated Life Annuity
Beneficiary unless the Participant effectively designates
another person as the Life Annuity Beneficiary in accordance
with the provisions of subsection (a) and Section 7.1 (a)(i).
The number of election forms and revocations shall not be
limited.
(c) The terms and conditions of any election form shall, unless
otherwise indicated, become effective on the date benefit
payments are scheduled to commence, or, if applicable, the
date of distribution.
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Article XIII -- Miscellaneous Provisions
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7.3 Non-Hardship Withdrawals
(a) Subject to the terms and conditions contained in this Section
7.3, upon ten (10) days prior written notice to the Committee
each Participant, or each Employee who solely maintains a
Rollover Contribution Account, shall be entitled to withdraw
all or any portion of his Accounts in the following order of
priority not more often than once during any Plan Year:
(i) the Net Value of his Post-Tax Contribution Account;
(ii) the Net Value of his Basic Contribution Account, upon
the Participant's attainment of age 59-1/2;
(iii) the Net Value of the Employee's Rollover Contribution
Account, upon the Employee's attainment of age
59-1/2, provided that such Employee shall have
satisfied such additional terms and conditions as the
Committee may deem necessary;
(iv) that portion of the Participant's vested interest in
the Net Value of his Matching Contribution Account,
upon the Participant's attainment of age 59-1/2; and
(v) that portion of the Participant's vested interest in
the Net Value of his Discretionary Employer
Contribution Account, upon the Participant's
attainment of age 59-1/2.
(b) Withdrawals under this Section 7.3 shall be made by the
redemption of Units from each of the Participant's Accounts on
a pro rata basis from the Investment Accounts selected by the
Participant pursuant to Article VI.
7.4 Hardship Distributions
(a) For purposes of this Section 7.4, a "Hardship" distribution
shall mean a distribution that is (i) made on account of a
condition which has given rise to immediate and heavy
financial need of a Participant and (ii) necessary to satisfy
such financial need. A determination of the existence of an
immediate and heavy financial need and the amount necessary to
meet the need shall be made by the Committee in accordance
with uniform nondiscriminatory standards with respect to
similarly situated persons.
(b) Immediate and Heavy Financial Need:
A Hardship distribution shall be deemed to be made on account
of an immediate and heavy financial need if the distribution
is on account of:
(i) expenses for medical care described under Section
213(d) of the Code which were previously incurred by
the Participant, the Participant's Spouse or any of
the Participant's dependents as defined under Section
152 of the Code or expenses which are necessary to
obtain medical care described under Section 213(d) of
the Code for the Participant, the Participant's
Spouse or any of the Participant's dependents as
defined under Section 152 of the Code; or
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Article XIII -- Miscellaneous Provisions
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(ii) purchase (excluding mortgage payments) of a principal
residence of the Participant; or
(iii) payment of tuition and related educational fees for
the next twelve (12) months of post-secondary
education for the Participant, the Participant's
Spouse, children or any of the Participant's
dependents as defined under Section 152 of the Code;
or
(iv) the need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence; or
(v) any other condition which the Commissioner of
Internal Revenue, through the publication of revenue
rulings, notices and other documents of general
applicability, deems to be an immediate and heavy
financial need.
(c) Necessary to Satisfy Such Financial Need:
(i) A distribution will be treated as necessary to
satisfy an immediate and heavy financial need of a
Participant if: (A) the amount of the distribution is
not in excess of (1) the amount required to relieve
the financial need of the Participant and (2) if
elected by the Participant, an amount necessary to
pay any federal, state or local income taxes or
penalties reasonably anticipated to result from such
distribution, and (B) such need may not be satisfied
from other resources that are reasonably available to
the Participant.
(ii) A distribution will be treated as necessary to
satisfy a financial need if the Committee reasonably
relies upon the Participant's representation that the
need cannot be relieved:
(A) through reimbursement or compensation by
insurance or otherwise,
(B) by reasonable liquidation of the
Participant's assets, to the extent such
liquidation would not itself cause an
immediate and heavy financial need,
(C) by cessation of Basic Contributions or
Employee contributions, if any, under the
Plan, or
(D) by other distributions or nontaxable loans
from plans maintained by the Employer or by
any other employer, or by borrowing from
commercial sources on reasonable commercial
terms.
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Article XIII -- Miscellaneous Provisions
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For purposes of this subsection (c)(ii), the
Participant's resources shall be deemed to include
those assets of his Spouse and minor children that
are reasonably available to the Participant.
(iii) Alternatively, a Hardship distribution will be deemed
to be necessary to satisfy an immediate and heavy
financial need of a Participant if (A) or (B) are
met:
(A) all of the following requirements are satisfied:
(I) the distribution is not in excess of
(1) the amount of the immediate and
heavy financial need of the
Participant and (2) if elected by
the Participant, an amount necessary
to pay any federal, state or local
income taxes or penalties reasonably
anticipated to result from such
distribution;
(II) the Participant has obtained all
distributions, other than Hardship
distributions, and all nontaxable
loans currently available under all
plans maintained by the Employer;
(III) the Plan, and all other plans
maintained by the Employer, provide
that the Participant's elective
contributions and Employee
contributions, if any, will be
suspended for at least twelve (12)
months after receipt of the Hardship
distribution; and
(IV) the Plan, and all other plans
maintained by the Employer, provide
that the Participant may not make
elective contributions for the
Participant's taxable year
immediately following the taxable
year of the Hardship distribution in
excess of the applicable limit under
Section 402(g) of the Code for such
next taxable year less the amount of
such Participant's elective
contributions for the taxable year
of the Hardship distribution; or
(B) the requirements set forth in additional
methods, if any, prescribed by the
Commissioner of Internal Revenue (through
the publication of revenue rulings, notices
and other documents of general
applicability) are satisfied.
(d) A Participant who has withdrawn the maximum amounts available
to such Participant under Section 7.3 or a Participant who is
not eligible for a withdrawal thereunder, may, in case of
Hardship (as defined under this Section 7.4), apply not more
often than once in any Plan Year to the Committee for a
Hardship distribution. Any application for a Hardship
distribution shall be made in writing to the Committee at
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Article XIII -- Miscellaneous Provisions
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least ten (10) days prior to the requested date of payment.
Hardship distributions may be made by a distribution of all or
a portion of an Employee's (i) Basic Contributions, (ii)
earnings on Basic Contributions which accrued prior to January
1, 1989, (iii) Net Value of his Rollover Contribution Account,
(iv) vested interest in the Net Value of his Matching
Contribution Account, and (v) vested interest in the Net Value
of his Discretionary Employer Contribution Account.
(e) Distributions under this Section 7.4 shall be made in the
following order of priority:
(i) the Net Value of the Participant's Basic Contribution
Account, including earnings on Basic Contributions
which accrued prior to January 1, 1989; and
(ii) the Net Value of the Employee's Rollover Contribution
Account, provided that such Employee shall have
satisfied such additional terms and conditions as the
Committee may deem necessary; and
(iii) that portion of the Participant's vested interest in
the Net Value of his Matching Contribution Account;
and
(iv) that portion of the Participant's vested interest in
the Net Value of his Discretionary Employer
Contribution Account.
(f) Distributions under this Section 7.4 shall be made by the
redemption of Units from each of the Participant's Accounts on
a pro rata basis from the Investment Accounts selected by the
Participant pursuant to Article VI.
(g) A Participant who receives a Hardship distribution under this
Section 7.4 may have his Basic Contributions and Post-Tax
Contributions suspended in accordance with Section 3.3 or 3.7.
7.5 Distribution of Benefits Following Retirement, Disability Or
Termination of Service
(a) If an Employee incurs a Termination of Service for any reason
other than death, a distribution of the vested interest in the
Net Value of his Accounts shall be made to the Employee in
accordance with the provisions of Section 7.6, 7.7 or 7.9. The
amount of such distribution shall be the vested interest in
the Net Value of his Accounts as of the Valuation Date
coincident with the date of receipt by the Trustees of the
proper documentation acceptable to the Trustees for such
purpose.
(b) An election by an Employee to receive the vested interest in
the Net Value of his Accounts in a form other than in the
normal form of benefit payment set forth in Sections 7.6(b)
and (c) and Section 7.7(b) may not be revoked or amended by
him after he terminates his employment. Notwithstanding the
foregoing, an Employee who elected to receive payment of
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benefits as of a deferred Valuation Date, in the form of
installments, or in the form of a Life Annuity, may, by
completing and filing the forms prescribed by the Committee,
and subject to Section 7.2 where an Employee elected to
receive payment of benefits in the form of a Life Annuity,
change to another form of benefit payment.
(c) An Employee who incurs a Termination of Service and is
reemployed by the Employer prior to the distribution of all or
part of the entire vested interest in the Net Value of his
Accounts in accordance with the provisions of Section 7.6 or
7.7, shall not be eligible to receive or to continue to
receive such distribution during his period of reemployment
with the Employer. The foregoing sentence shall not apply if
the distribution was in the form of a Life Annuity as defined
under Section 7.1(a)(ii). Upon such Employee's subsequent
Termination of Service, his prior election to receive a
distribution in a form other than the normal form of benefit
payment shall be null and void and the vested interest in the
Net Value of his Accounts shall be distributed to him in
accordance with the provisions of Section 7.6, 7.7 or 7.9.
7.6 Payments upon Retirement or Disability
(a) If an Employee incurs a Termination of Service as of a
Retirement Date or due to Disability and the Net Value of the
Employee's Accounts, as determined by the Trustees, is equal
to or less than $3,500, a lump sum distribution of the Net
Value of his Accounts shall be made to the Employee within
seven (7) days of the Valuation Date coincident with the date
of receipt by the Trustees of the proper documentation
indicating that the Employee incurred a Termination of
Service.
(b) If an Employee incurs a Termination of Service as of his
Normal Retirement Date or his Postponed Retirement Date, and
the Net Value of the Employee's Accounts, as determined by the
Trustees, exceeds $3,500, a lump sum distribution of the Net
Value of his Accounts shall be made to the Employee within
seven (7) days of the Valuation Date coincident with the date
of receipt by the Trustees of the proper documentation
indicating that the Employee incurred a Termination of Service
as of such Retirement Date.
(c) If an Employee incurs a Termination of Service as of his Early
Retirement Date or, subsequent to his Termination of Service,
attains his Early Retirement Date in accordance with the
provisions of Section 1.20 before receiving or filing an
election form to receive the vested interest in the Net Value
of his Accounts, or if an Employee incurs a Termination of
Service due to Disability, a lump sum distribution of the
vested interest in the Net Value of his Accounts shall be made
to the Employee within seven (7) days of the Valuation Date
coincident with the date of receipt by the Trustees of the
proper documentation indicating the date the Employee would
have attained his Normal Retirement Date if he were still
employed by the Employer.
(d) In lieu of the normal form of benefit payment set forth in
subsections (a), (b) and (c), an Employee who incurs a
Termination of Service as of his Early Retirement Date or,
subsequent to his Termination of Service, attains his Early
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Article XIII -- Miscellaneous Provisions
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Retirement Date in accordance with the provisions of Section
1.20 before receiving or filing an election form to receive
the vested interest in the Net Value of his Accounts, or
incurs a Termination of Service due to Disability, may file an
election form to receive the vested interest in the Net Value
of his Accounts as a lump sum distribution as of some other
Valuation Date following his Termination of Service and prior
to his Normal Retirement Date. Subject to the required minimum
distribution provisions of Sections 7.10(b) and 7.10(c), the
vested interest in the Net Value of his Accounts shall be
distributed to such Employee as a lump sum distribution within
seven (7) days of the Valuation Date coincident with the date
of receipt by the Trustees of the proper documentation
indicating the Employee's distribution date.
(e) In lieu of the normal form of benefit payment set forth in
subsections (a), (b) and (c), an Employee who incurs a
Termination of Service as of his Retirement Date or,
subsequent to his Termination of Service, attains his Early
Retirement Date in accordance with the provisions of Section
1.20 before receiving or filing an election form to receive
the vested interest in the Net Value of his Accounts, or
incurs a Termination of Service due to Disability may, subject
to the required minimum distribution provisions of Sections
7.10(b) and 7.10(c), file an election form to receive the
vested interest in the Net Value of his Accounts in the form
of installments over a period not to exceed twenty (20) years.
The vested interest in the Net Value of his Accounts shall be
determined as of such Valuation Date or Valuation Dates in
each such Plan Year as may be elected by such Employee and
shall be based on the respective values of the Employee's
Units in each Investment Account as of such Valuation Date or
Valuation Dates. The amount of the installment payment shall
be distributed by the redemption of Units from the Employee's
Accounts on a pro rata basis among such Employee's Investment
Accounts. Any portion of the vested interest in the Net Value
of the Accounts of such former Employee which shall not have
been so paid shall continue to be held for his benefit or for
the benefit of his Beneficiary in the Employee's Investment
Accounts. If an Employee elects to receive his benefit
pursuant to this subsection (e), the installment period may
not extend beyond the life expectancy of such Employee or the
life expectancy of such Employee and his Beneficiary.
(f) In lieu of the normal form of benefit payment set forth in
subsections (a), (b) and (c), an Employee who incurs a
Termination of Service as of his Retirement Date or,
subsequent to his Termination of Service, attains his Early
Retirement Date in accordance with the provisions of Section
1.20 before receiving or filing an election form to receive
the vested interest in the Net Value of his Accounts, or
incurs a Termination of Service due to Disability may file an
election form to receive a distribution of the vested interest
in the Net Value of his Accounts by the purchase of a Life
Annuity. Subject to Section 7.2(a), such form may include an
election to designate a Beneficiary who is other than his
Spouse. Payment of benefits to the Participant shall commence
as of the later of the Participant's Normal Retirement Date or
his Postponed Retirement Date. Notwithstanding the foregoing
sentence, such form may include an election to receive a
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Article XIII -- Miscellaneous Provisions
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distribution commencing on any date coincident with or next
following his Early Retirement Date or, if applicable, the
date of his Disability.
(g) In lieu of the normal form of benefit payment set forth in
subsections (a), (b) and (c), an Employee who incurs a
Termination of Service as of his Retirement Date or,
subsequent to his Termination of Service, attains his Early
Retirement Date in accordance with the provisions of Section
1.20 before receiving or filing an election form to receive
the vested interest in the Net Value of his Accounts, or
incurs a Termination of Service due to Disability may elect to
defer receipt of the vested interest in the Net Value of his
Accounts beyond his Normal Retirement Date or Postponed
Retirement Date. The applicable form must be filed at least
ten (10) days prior to the Employee's Retirement Date. If such
an election is made, the vested interest in the Net Value of
his Accounts shall continue to be held in the Trust Fund.
Subject to the required minimum distribution provisions of
Sections 7.10(b) and 7.10(c), the vested interest in the Net
Value of his Accounts shall (i) be distributed to such
Employee as a lump sum distribution within seven (7) days of
the Valuation Date coincident with the date of receipt by the
Trustees of the proper documentation indicating the Employee's
deferred distribution date or (ii), upon the election of the
Employee, commence to be distributed in installments in
accordance with the provisions of subsection (e).
(h) In lieu of the normal form of benefit payment set forth in
subsections (a), (b) and (c), an Employee who incurs a
Termination of Service as of his Retirement Date or,
subsequent to his Termination of Service, attains his Early
Retirement Date in accordance with the provisions of Section
1.20 before receiving or filing an election form to receive
the vested interest in the Net Value of his Accounts, or
incurs a Termination of Service due to Disability may, at
least ten (10) days prior to the date on which his benefit is
scheduled to be paid, file an election form that a lump sum
distribution equal to the vested interest in the Net Value of
his Accounts be made payable to the trustee of another
qualified pension or profit-sharing plan designated by the
Employee. Such lump sum distribution shall be made within
seven (7) days of the Valuation Date coincident with the date
of receipt by the Trustees of the proper documentation.
7.7 Payments upon Termination of Service for Reasons Other Than Retirement
or Disability
(a) If an Employee incurs a Termination of Service as of a date
other than a Retirement Date, and does not, subsequent to his
Termination of Service, attain his Early Retirement Date in
accordance with the provisions of Section 1.20 before
receiving or filing an election form to receive the vested
interest in the Net Value of his Accounts, or incurs a
Termination of Service for reasons other than Disability, has
not elected to receive his benefit pursuant to an optional
form of benefit payment in accordance with the provisions of
subsection (c), (d), (e) or (f) and the vested interest in the
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Article XIII -- Miscellaneous Provisions
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Net Value of the Employee's Accounts, as determined by the
Trustees in accordance with subsection (g), is equal to or
less than $3,500, a lump sum distribution of the vested
interest in the Net Value of his Accounts shall be made to the
Employee within seven (7) days of the Valuation Dates set
forth in subsection (g)(i) and (g)(ii).
(b) If an Employee incurs a Termination of Service as of a date
other than a Retirement Date and does not, subsequent to his
Termination of Service, attain his Early Retirement Date in
accordance with the provisions of Section 1.20 before
receiving or filing an election form to receive the vested
interest in the Net Value of his Accounts, or incurs a
Termination of Service for reasons other than Disability, has
not elected to receive his benefit pursuant to an optional
form of benefit payment in accordance with the provisions of
subsection (c), (d), (e) or (f) and the vested interest in the
Net Value of the Employee's Accounts, as determined by the
Trustees in accordance with subsection (g), exceeds $3,500, a
lump sum distribution of the vested interest in the Net Value
of his Accounts shall be made to the Employee within seven (7)
days of the Valuation Date coincident with the date of receipt
by the Trustees of the proper documentation indicating the
date the Employee would have attained his Normal Retirement
Date if he were still employed by the Employer.
(c) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination
of Service as of a date other than a Retirement Date and does
not, subsequent to his Termination of Service, attain his
Early Retirement Date in accordance with the provisions of
Section 1.20 before receiving or filing an election form to
receive the vested interest in the Net Value of his Accounts,
or incurs a Termination of Service for reasons other than
Disability may, subject to the provisions of Sections 7.10(b)
and 7.10(c), file an election form to receive the vested
interest in the Net Value of his Accounts as a lump sum
distribution as of some other Valuation Date following his
termination; provided, however, that the Valuation Date may
not be later than thirteen (13) months following his
Termination of Service. Subject to the required minimum
distribution provisions of Sections 7.10(b) and 7.10(c), the
vested interest in the Net Value of his Accounts shall be
distributed to such Employee as a lump sum distribution within
seven (7) days of the Valuation Date coincident with the date
of receipt by the Trustees of the proper documentation
indicating the Employee's distribution date.
(d) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination
of Service as of a date other than his Retirement Date and
does not, subsequent to his Termination of Service, attain his
Early Retirement Date in accordance with the provisions of
Section 1.20 before receiving or filing an election form to
receive the vested interest in the Net Value of his Accounts,
or incurs a Termination of Service for reasons other than
Disability may file an election form to receive the vested
interest in the Net Value of his Accounts in the form of
installments over a period not to exceed twenty (20) years.
The vested interest in the Net Value of his Accounts shall be
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Article XIII -- Miscellaneous Provisions
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determined as of such Valuation Date or Valuation Dates in
each such Plan Year as may be elected by such Employee and
shall be based on the respective values of the Employee's
Units in each Investment Account as of such Valuation Date or
Valuation Dates. The amount of the installment payment shall
be distributed by the redemption of Units from the Employee's
Accounts on a pro rata basis among such Employee's Investment
Accounts. Any portion of the vested interest in the Net Value
of the Accounts of such former Employee which shall not have
been so paid shall continue to be held for his benefit or for
the benefit of his Beneficiary in the Employee's Investment
Accounts. If an Employee elects to receive his benefit
pursuant to this subsection (d), the installment period may
not extend beyond the life expectancy of such Employee or the
life expectancy of such Employee and his Beneficiary.
(e) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination
of Service as of a date other than his Retirement Date and
does not, subsequent to his Termination of Service, attain his
Early Retirement Date in accordance with the provisions of
Section 1.20 before receiving or filing an election form to
receive the vested interest in the Net Value of his Accounts,
or incurs a Termination of Service for reasons other than
death or Disability, may file an election form to receive a
distribution of the vested interest in the Net Value of his
Accounts by the purchase of a Life Annuity. Subject to Section
7.2(a), such form may include an election to designate a
Beneficiary who is other than his Spouse. Payment of benefits
to the Participant shall commence as of the Participant's
Normal Retirement Date. Notwithstanding the foregoing
sentence, such form may include an election to receive a
distribution commencing on any date coincident with or next
following his Termination of Service and prior to his Normal
Retirement Date.
(f) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination
of Service as of a date other than his Retirement Date and
does not, subsequent to his Termination of Service, attain his
Early Retirement Date in accordance with the provisions of
Section 1.20 before receiving or filing an election form to
receive the vested interest in the Net Value of his Accounts,
or incurs a Termination of Service for reasons other than
Disability may, at least ten (10) days prior to the date on
which his benefit is scheduled to be paid, file an election
form that a lump sum distribution equal to the vested interest
in the Net Value of his Accounts be made payable to the
trustee of another qualified pension or profit-sharing plan
designated by the Employee. Such lump sum distribution shall
be made within seven (7) days of the Valuation Date coincident
with the date of receipt by the Trustees of the proper
documentation.
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Article XIII -- Miscellaneous Provisions
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(g) If an Employee incurs a Termination of Service as of a date
other than a Retirement Date or for reasons other than
Disability and has not elected to receive the vested interest
in the Net Value of his Accounts pursuant to an optional form
of benefit payment in accordance with subsection (c), (d), (e)
or (f), the Employer shall notify the Trustees of such
termination.
The Trustees shall determine the vested interest in the Net
Value of the Accounts of such Employee as of the later of: (i)
the Valuation Date which occurs thirteen (13) months following
his Termination of Service or (ii) the Valuation Date
coincident with the date of receipt by the Trustees of the
proper documentation indicating that he incurred a Termination
of Service.
7.8 Payments Upon Death
(a) In the case of a married Participant, the Spouse shall be the
designated Beneficiary. Notwithstanding the foregoing, such
Participant may effectively elect to designate a person or
persons other than the Spouse as Beneficiary. Such an election
shall not be effective unless (i) such Participant's Spouse
irrevocably consents to such election in writing, (ii) such
election designates a Beneficiary which may not be changed
without spousal consent or the consent of the Spouse expressly
permits designation by the Participant without any requirement
of further consent by the Spouse, (iii) the Spouse's consent
acknowledges understanding of the effect of such election and
(iv) the consent is witnessed by a Plan representative or
acknowledged before a notary public. Notwithstanding this
consent requirement, if the Participant establishes to the
satisfaction of the Plan representative that such written
consent cannot be obtained because there is no Spouse or the
Spouse cannot be located, the consent hereunder shall not be
required. Any consent necessary under this provision shall be
valid only with respect to the Spouse who signs the consent.
(b) In the case of a single Participant, Beneficiary means a
person or persons who have been designated under the Plan by
such Participant or who are otherwise entitled to a benefit
under the Plan.
(c) The designation of a Beneficiary who is other than a
Participant's Spouse and the designation of any contingent
Beneficiary shall be made in writing by the Participant in the
form and manner prescribed by the Committee and shall not be
effective unless filed prior to the death of such person. If
more than one person is designated as a Beneficiary or a
contingent Beneficiary, each designated Beneficiary in such
Beneficiary classification shall have an equal share unless
the Participant directs otherwise. For purposes of this
Section 7.8, "person" includes an individual, a trust, an
estate, or any other person or entity designated as a
Beneficiary.
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Article XIII -- Miscellaneous Provisions
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(d) A married Participant who has designated a person or persons
other than the Spouse as Beneficiary may, without the consent
of such Spouse, revoke such prior election by submitting
written notification of such revocation. Such revocation shall
result in the reinstatement of the Spouse as the designated
Beneficiary unless the Participant effectively designates
another person as Beneficiary in accordance with the
provisions of subsection (a). The number of election forms and
revocations shall not be limited.
(e) Upon the death of a Participant the remaining vested interest
in the Net Value of his Accounts shall become payable, in
accordance with the provisions of subsection (g), to his
Beneficiary or contingent Beneficiary. If there is no such
Beneficiary, the remaining vested interest in the Net Value of
his Accounts shall be payable to the executor or administrator
of his estate, or, if no such executor or administrator is
appointed and qualifies within a time which the Committee
shall, in its sole and absolute discretion, deem to be
reasonable, then to such one or more of the descendants and
blood relatives of such deceased Participant as the Committee,
in its sole and absolute discretion, may select.
(f) If a designated Beneficiary entitled to payments hereunder
shall die after the death of the Participant but before the
entire vested interest in the Net Value of Accounts of such
Participant has been distributed, then the remaining vested
interest in the Net Value of Accounts of such Participant
shall be paid, in accordance with the provisions of subsection
(g), to the surviving Beneficiary who is not a contingent
Beneficiary, or, if there are no such surviving Beneficiaries
then living, to the designated contingent Beneficiaries as
shall be living at the time such payment is to be made. If
there is no designated contingent Beneficiary then living, the
remaining interest in the Net Value of his Accounts shall be
paid to the executor or administrator of the estate of the
last to die of the Beneficiaries who are not contingent
Beneficiaries.
(g) If a Participant dies before his entire vested interest in the
Net Value of his Accounts has been distributed to him, the
remainder of such vested interest shall be paid to his
Beneficiary or, if applicable, his contingent Beneficiary, in
the following manner:
(i) if the Participant had begun receiving a distribution
in the form of installments, over the remaining
installment period, at the times set forth in such
election;
(ii) if the Participant had begun receiving a distribution
in the form of a Life Annuity, distributions shall
continue in accordance with such election.
(iii) under all other circumstances, in a lump sum
distribution as soon as practicable following the
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Article XIII -- Miscellaneous Provisions
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date of the Participant's death unless the
Participant so elected prior to his death or the
Beneficiary so elects to receive such distribution:
(A) in a lump sum distribution as of any such
Valuation Date which occurs within one (1)
year of the death of the Participant; or
(B) in the form of installments over a period
not to exceed twenty (20) years. The Net
Value of his Accounts shall be determined as
of such Valuation Date or Valuation Dates in
each such Plan Year as may be elected by
such Beneficiary and shall be based on the
respective values of the Beneficiary's Units
in each Investment Account as of such
Valuation Date or Valuation Dates. The
amount of the installment payment shall be
distributed by the redemption of Units from
the Beneficiary's Accounts on a pro rata
basis among such Beneficiary's Investment
Accounts. Any portion of the vested interest
in the Net Value of the Accounts of such
Beneficiary which shall not have been so
paid shall continue to be held for his
benefit or for the benefit of the contingent
Beneficiary in the Beneficiary's Investment
Accounts. If a Beneficiary elects to receive
his benefit pursuant to this subsection
(g)(iii)(B), the installment period may not
extend beyond the life expectancy of such
Beneficiary; or
(C) in the form of a Life Annuity. Payment of
benefits to the Beneficiary shall commence
as of the Participant's Normal Retirement
Date or, if applicable, his Postponed
Retirement Date. Notwithstanding the
foregoing sentence, such form may include an
election to receive a distribution
commencing on any date coincident with or
next following the Participant's date of
death.
If the Beneficiary is the Participant's Spouse and if
benefits are payable to such Beneficiary as an
immediate or deferred lump sum distribution, such
Spouse may defer the distribution up to the date on
which the Participant would have attained age seventy
and one-half (70-1/2). If such Spouse dies prior to
such distribution, the prior sentence shall be
applied as if the Spouse were the Participant.
(h) Notwithstanding anything in the Plan to the contrary, the
provisions of subsections (a) through (g) shall also apply to
a person who is not a Participant but who has made a
contribution to and maintains a Rollover Contribution Account
under the Plan.
7.9 Direct Rollover of Eligible Rollover Distributions
For purposes of this Section 7.9, the following definitions shall
apply:
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Article XIII -- Miscellaneous Provisions
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(a) "Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
(b) "Distributee" means an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee'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.
(c) "Eligible Retirement Plan" means an individual retirement
account described in Section 408(a) of the Code, an individual
retirement annuity described in Section 408(b) 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.
(d) "Eligible Rollover Distribution" means any distribution of all
or any portion of the balance to the credit of the
Distributee, except that an Eligible Rollover Distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) or
the Distributee and the Distributee's designated Beneficiary,
or for a specified period of ten(10) 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 includable in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
This Section 7.9 applies to distributions made on or after
April 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's
election under this section, 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.
7.10 Latest Commencement of Benefits
(a) Unless the Employee elects otherwise in accordance with the
Plan, in no event shall the payment of benefits commence later
than the sixtieth (60th) day after the close of the Plan Year
in which the latest of the following events occur: (i) the
attainment by the Employee of age sixty-five (65), (ii) the
tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan or Prior Plan, or (iii)
the termination of the Employee's employment with the
Employer; provided, however, that if the amount of the payment
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Article XIII -- Miscellaneous Provisions
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required to commence on the date determined under this
sentence cannot be ascertained by such date, a payment
retroactive to such date may be made no later than sixty (60)
days after the earliest date on which the amount of such
payment can be ascertained under the Plan.
(b) Distributions to five-percent owners:
The vested interest in the Net Value of the Accounts of a
five-percent owner (as described in Section 416(i) of the Code
and determined with respect to the Plan Year ending in the
calendar year in which such individual attains age seventy and
one-half (70-1/2)) must be distributed or commence to be
distributed no later than the first day of April following the
calendar year in which such individual attains age seventy and
one-half (70-1/2). The vested interest in the Net Value of the
Accounts of an Employee who is not a five-percent owner (as
described in Section 416(i) of the Code) for the Plan Year
ending in the calendar year in which such person attains age
seventy and one-half (70-1/2) but who becomes a five-percent
owner (as described in Section 416(i) of the Code) for a later
Plan Year must be distributed or commence to be distributed no
later than the first day of April following the last day of
the calendar year that includes the last day of the first Plan
Year for which such individual is a five-percent owner (as
described in Section 416(i) of the Code).
(c) Distributions to other than five-percent owners:
The vested interest in the Net Value of the Accounts of an
Employee who is not a five-percent owner and who attained age
seventy and one-half (70-1/2) prior to January 1, 1988, must
be distributed or commence to be distributed no later than the
first day of April following the calendar year in which occurs
the later of: (i) his termination of employment or (ii) his
attainment of age seventy and one-half (70-1/2).
The vested interest in the Net Value of the Accounts of any
Employee who attains age seventy and one-half (70-1/2) after
December 31, 1987, must be distributed or commence to be
distributed no later than the first day of April following the
calendar year in which such individual attains age seventy and
one-half (70-1/2).
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Article XIII -- Miscellaneous Provisions
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ARTICLE VIII --
LOANS TO PARTICIPANTS
8.1 Definitions and Conditions
(a) For purposes of this Article VIII, the following terms and
phrases shall have the meanings hereafter ascribed to them:
(i) "Borrower" means a Participant or a "Party in
Interest" (as defined under Section 3(14) of ERISA)
who maintains an Account, provided such Participant
or Party in Interest is not receiving a benefit
payment in accordance with the provisions of Section
7.6(e), 7.6(f), 7.7(d), 7.7(e) or 7.8.
(ii) "Loan Account" means the separate, individual account
established on behalf of a Borrower in accordance
with the provisions of Section 8.4(d).
(b) To the extent permitted under the provisions of this Article
VIII and subject to the terms and conditions set forth herein,
a Borrower may request a loan from his Accounts. Any loans
made in accordance with this Article shall not be subject to
the provisions of Article VI.
8.2 Loan Amount
Upon a finding by the Committee that all requirements hereunder have
been met, a Borrower may request a loan from his Accounts in an amount
up to the lesser of: (a) fifty percent (50%) of the Net Value as of the
close of business on the date the loan is processed of the Basic
Contribution Account, vested Matching Contribution Account, vested
Discretionary Employer Contribution Account, Post-Tax Contribution
Account and Rollover Contribution Account, or (b) $50,000, reduced by
the highest outstanding loan balance during the preceding twelve (12)
months. The minimum loan permitted shall be $1,000.
8.3 Term of Loan
All loans shall be for a fixed term of not more than five (5) years,
except that a loan which shall be used to acquire any dwelling which
within a reasonable time is to be used as the principal residence of
the Participant, may, in the discretion of the Committee, be made for a
term of not more than fifteen (15) years. Interest on a loan shall be
based on the prime rate as published in The Wall Street Journal on the
day in which the loan is requested, rounded to the nearest one quarter
of one percent (1/4 of 1%). Such rate shall remain in effect until the
Loan Account is closed.
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8.4 Operational Provisions
(a) An application for a loan shall be filed in the form and
manner prescribed by the Committee ten (10) days prior to the
Valuation Date as of which such loan is requested. If the
Committee shall approve such application, the Committee shall
establish the amount of such loan and such loan shall be
effected as of such Valuation Date.
(b) The amount of the loan shall be distributed from the
Investment Accounts in which the Borrower's Accounts are
invested in the following order of priority:
(i) Post-Tax Contribution Account;
(ii) Basic Contribution Account;
(iii) Rollover Contribution Account;
(iv) vested Matching Contribution Account;
(v) vested Discretionary Employer Contribution Account.
Distributions from each of the foregoing Accounts shall be
made on a pro rata basis among the Investment Accounts
selected pursuant to Section 6.1.
(c) The proceeds of a loan shall be distributed to the Borrower as
soon as practicable after the Valuation Date as of which the
loan is processed; provided, however, that the Borrower shall
have satisfied such reasonable conditions as the Committee
shall deem necessary, including, without limitation: (i) the
delivery of an executed promissory note for the amount of the
loan, including interest, payable to the order of the
Trustees; (ii) an assignment to the Plan of such Borrower's
interest in his Accounts to the extent of such loan; and (iii)
if the Borrower is actively employed by the Employer, an
authorization to the Employer to make payroll deductions in
order to repay his loan to the Plan. The aforementioned
promissory note shall be duly acknowledged and executed by the
Borrower and shall be held by the Trustees, or the Committee
as agent for the Trustees, as an asset of the Borrower's Loan
Account pursuant to subsection (d).
(d) A Loan Account shall be established for each Borrower with an
outstanding loan pursuant to this Article VIII. Each Loan
Account shall be comprised of a Borrower's (i) executed
promissory note and (ii) installment payments of principal and
interest made pursuant to Section 8.5(a). Upon full payment
and satisfaction of the outstanding Loan Account balance, a
Borrower's promissory note shall be marked paid in full,
returned to the Borrower, and his Loan Account thereupon
closed.
(e) As of each Valuation Date coincident with or next succeeding
each payment of principal and interest on a loan, the then
current balance of each Borrower's Loan Account shall be
debited by the amount of such payment and such amount shall be
transferred for investment in accordance with Section 8.5(c)
to the appropriate Borrower's Account. If the Committee
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established a lien against the Borrower's Accounts pursuant to
Section 8.6(c), and foreclosure of such lien is deferred until
the Borrower's Termination of Service pursuant to Section
8.6(c)(i), for each month that foreclosure of the lien is
deferred, the then current balance of the Borrower's Loan
Account shall be charged with interest on the unpaid principal
and interest thereon.
(f) Only one (1) loan shall be outstanding to any Borrower under
this Article VIII at any time.
8.5 Repayments
(a) If the Borrower is on the payroll of the Employer and unless
otherwise agreed to by the Committee, repayments of loan
principal, or the unpaid balance thereof, and interest thereon
shall be made through payroll deductions. The first repayment
shall be deducted as of the first payroll date occurring no
later than three (3) weeks after the Committee submits the
loan form for processing.
If the Borrower is not on the payroll of the Employer and
unless otherwise agreed to by the Committee, repayments of
loan principal, or the unpaid balance thereof, and interest
thereon, shall be made in cash or cash equivalencies to the
Employer in equal monthly installments for payment to his Loan
Account.
(b) Any amount repaid to the Plan by a Borrower with respect to a
loan, including interest thereon, shall be invested as if such
amount were a contribution to be invested in accordance with
Section 6.1.
(c) With respect to each Borrower's Loan Account, any repayment of
principal and interest made by a Borrower shall be credited,
as of the Valuation Date coincident with or next succeeding
such payment, to the Borrower's Accounts in the order of
priority established under Section 8.4(b). No Account having a
lesser degree of priority shall be credited until the Account
having the immediately preceding degree of priority has been
restored by an amount equal to that which had been borrowed
from such Account.
(d) A Borrower may prepay his entire loan, plus all interest
accrued and unpaid thereon, as of any Valuation Date.
Alternatively and subject to such other terms and conditions
as may be established from time to time by the Committee, a
Borrower may prepay a portion of his loan on any Valuation
Date. Such prepayment shall be applied first to all accrued
and unpaid interest on the outstanding balance of the loan.
After any partial prepayment of principal, interest will only
be charged on the remaining outstanding balance of the loan.
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(e) In the event the Plan is terminated, the entire unpaid
principal amount of the loan hereunder, together with any
accrued and unpaid interest thereon, shall become immediately
due and payable.
8.6 Default
(a) If a Borrower fails to make any payment on any loan when due
under this Article VIII, the entire unpaid principal amount of
such loan, together with any accrued and unpaid interest
thereon, shall be deemed in default and become due and payable
ninety (90) days after the initial date of payment
delinquency.
(b) If a Borrower fails to make any payment on a loan and is
deemed to be in default pursuant to subsection (a), the
Committee shall establish a lien against the Borrower's
Accounts in an amount equal to any unpaid principal and
interest. The lien shall be foreclosed by applying the value
of the Borrower's Loan Account (determined as of the next
Valuation Date immediately following foreclosure) in
satisfaction of said unpaid principal and interest as follows:
(i) if the Borrower is in the employment of the Employer,
upon the Borrower's Termination of Service; or
(ii) if the Borrower is not in the employment of the
Employer, immediately upon default.
Thereupon, the vested interest in the balance of the
Borrower's Accounts shall be distributed in accordance with
the applicable provisions of the Plan.
(c) The Committee may, in accordance with uniform rules
established by it, restrict the right of any Borrower who has
defaulted on a loan from the Plan to: (i) make withdrawals
and/or loans from his Matching Contribution Account, Basic
Contribution Account, Post-Tax Contribution Account,
Discretionary Employer Contribution Account and/or Rollover
Contribution Account for a period not exceeding twelve (12)
months or (ii) if the Borrower is an Eligible Employee,
authorize Basic Contributions or Post-Tax Contributions to be
made on his behalf or make any other contributions to the Plan
for a period not exceeding twelve (12) months.
8.7 Coordination of Outstanding Account and Payment of Benefits
(a) If the Borrower has an outstanding Loan Account and is either
(i) scheduled to receive or elects to receive a lump sum
distribution or Life Annuity in accordance with the provisions
of Article VII, or (ii) scheduled to receive the last
installment payment under a previous election made in
accordance with the provisions of Article VII to receive
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payments in a form other than the normal form of benefit
payments, then, at the time of the distribution or payment
under clause 8.6(b)(i) or (ii) above, the entire unpaid
principal amount of the loan together with any accrued and
unpaid interest thereon, shall become immediately due and
payable. No Plan distribution, except as permitted under
Section 7.3 or Section 7.4, shall be made to any Borrower
unless and until such Borrower's Loan Account, including
accrued interest thereunder, has been liquidated and closed.
If a Borrower fails to pay the outstanding balance of his Loan
Account hereunder, such loan shall be satisfied as if a
default had occurred pursuant to Section 8.6.
(b) Any reference in the Plan to the Net Value of Units in a
Borrower's Accounts available for distribution to any
Borrower, shall mean the value after the satisfaction of the
entire unpaid principal loan amount and any accrued, unpaid
interest thereon, as provided in this Article VIII.
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ARTICLE IX --
ADMINISTRATION
9.1 General Administration of the Plan
The operation and administration of the Plan shall be subject to the
management and control of the Named Fiduciaries and Plan Administrator
designated by the Employer. The designation of such Named Fiduciaries
and Plan Administrator, the terms of their appointment, and their
duties and responsibilities allocated among them shall be as set forth
in this Article IX.
9.2 Designation of Named Fiduciaries
The management and control of the operation and administration of the
Plan shall be allocated in the following manner:
(a) The Employer shall designate the Trustees as a Named Fiduciary
to perform those functions set forth in the Agreement or the
Plan that are assigned to the Trustees.
(b) The Employer shall designate one or more individuals to serve
as member(s) of an employee benefits Committee to perform
those functions set forth in the Agreement or the Plan that
are assigned to such Committee.
(c) A Trust Participant (as defined under the Agreement) may
delegate to a person or persons the duties and
responsibilities for voting Units set forth under the
Agreement.
9.3 Responsibilities of Fiduciaries
The Named Fiduciaries and Plan Administrator shall have only those
powers, duties, responsibilities and obligations that are specifically
allocated to them under the Plan or the Agreement.
To the extent permitted by ERISA, each Named Fiduciary and Plan
Administrator may rely upon any direction, information or action of
another Named Fiduciary, Plan Administrator or the Employer as being
proper under the Plan or the Agreement and is not required to inquire
into the propriety of any such direction, information or action and no
Named Fiduciary or Plan Administrator shall be responsible for any act
or failure to act of another Named Fiduciary, Plan Administrator or the
Employer.
No Named Fiduciary, Plan Administrator or the Employer guarantees the
Trust Fund in any manner against investment loss or depreciation in
asset value.
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The allocation of responsibility between the Trustees and the Employer
may be changed by written agreement. Such reallocation shall be
evidenced by Employer Resolutions and shall not be deemed an amendment
to the Plan.
9.4 Plan Administrator
The Employer shall designate the Trustees as the Trustee Administrator
and shall designate one or more persons to act as Plan Administrator
and to perform those functions set forth in the Agreement or the Plan
that are assigned to the Plan Administrator.
The duties and responsibilities of a plan administrator under ERISA
shall be allocated between the Plan Administrator and the Trustee
Administrator as set forth herein or in the Agreement. Such allocation
may be changed only by written agreement between the parties and shall
not be deemed an amendment to the Plan.
The Plan Administrator shall be solely responsible for monitoring and
notifying the Trustees of an Employee's age for all purposes under the
Plan.
The Plan Administrator is designated as the Plan's agent for the
service of legal process.
9.5 Committee
The members of the Committee designated by the Employer under Section
9.2(b) shall serve for such term(s) as the Employer shall determine and
until their successors are designated and qualified. The term of any
member of the Committee may be renewed from time to time without
limitation as to the number of renewals. Any member of the Committee
may (a) resign upon at least sixty (60) days written notice to the
Employer or (b) be removed from office but only for his failure or
inability, in the opinion of the Employer, to carry out his
responsibilities in an effective manner. Termination of employment with
the Employer shall be deemed to give rise to such failure or inability.
The powers and duties allocated to the Committee shall be vested
jointly and severally in its members. Notwithstanding specific
instructions to the contrary, any instrument or document signed on
behalf of the Committee by any member of the Committee may be accepted
and relied upon by the Trustees as the act of the Committee. The
Trustees shall not be required to inquire into the propriety of any
such action taken by the Committee nor shall they be held liable for
any actions taken by them in reliance thereon.
The Employer may, pursuant to Employer Resolutions and upon notice to
the Trustees, change the number of individuals comprising the
Committee, their terms of office or other conditions of their
incumbency provided that there shall be at all times at least one
individual member of the Committee.
Any such change shall not be deemed an amendment to the Plan.
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9.6 Powers and Duties of the Committee
The Committee shall have authority to perform all acts it may deem
necessary or appropriate in order to exercise the duties and powers
imposed or granted by ERISA, the Plan, the Agreement or any Employer
Resolutions. Such duties and powers shall include, but not be limited
to, the following:
(a) Power to Construe - Except as otherwise provided in the
Agreement, the Committee shall have the power to construe the
provisions of the Plan and to determine any questions of fact
which may arise thereunder.
(b) Power to Make Rules and Regulations - The Committee shall have
the power to make such reasonable rules and regulations as it
may deem necessary or appropriate to perform its duties and
exercise its powers. Such rules and regulations shall include,
but not be limited to, those governing (i) the manner in which
the Committee shall act and manage its own affairs, (ii) the
procedures to be followed in order for Employees or
Beneficiaries to claim benefits, and (iii) the procedures to
be followed by Participants, Beneficiaries or other persons
entitled to benefits with respect to notifications, elections,
designations or other actions required by the Plan or ERISA.
All such rules and regulations shall be applied in a uniform
and nondiscriminatory manner.
(c) Powers and Duties with Respect to Information - The Committee
shall have the power and responsibility:
(i) to obtain such information as shall be necessary for
the proper discharge of its duties;
(ii) to furnish to the Employer, upon request, such
reports as are reasonable and appropriate;
(iii) to receive, review and retain periodic reports of the
financial condition of the Trust Fund; and
(iv) to receive, collect and transmit to the Trustees all
information required by the Trustees in the
administration of the Accounts of the Employee as
contemplated in Section 9.7.
(d) Power of Delegation - The Committee shall have the power to
delegate fiduciary responsibilities (other than trustee
responsibilities defined under Section 405(c)(3) of ERISA) to
one or more persons who are not members of the Committee.
Unless otherwise expressly indicated by the Employer, the
Committee must reserve the right to terminate such delegation
upon reasonable notice.
(e) Power of Allocation - Subject to the written approval of the
Employer, the Committee shall have the power to allocate among
its members specified fiduciary responsibilities (other than
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Article XIII -- Miscellaneous Provisions
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trustee responsibilities defined under Section 405(c)(3) of
ERISA). Any such allocation shall be in writing and shall
specify the persons to whom such allocation is made and the
terms and conditions thereof.
(f) Duty to Report - Any member of the Committee to whom specified
fiduciary responsibilities have been allocated under
subsection (e) shall report to the Committee at least
annually. The Committee shall report to the Employer at least
annually regarding the performance of its responsibilities as
well as the performance of any persons to whom any powers and
responsibilities have been further delegated.
(g) Power to Employ Advisors and Retain Services - The Committee
may employ such legal counsel, enrolled actuaries,
accountants, pension specialists, clerical help and other
persons as it may deem necessary or desirable in order to
fulfill its responsibilities under the Plan.
9.7 Certification of Information
The Committee shall certify to the Trustees on such periodic or other
basis as may be agreed upon, but in no event later than ten (10) days
before any Valuation Date as of which the Trustees must effect any
action with respect to any Accounts held under the provisions of the
Plan, relevant facts regarding the establishment of the Accounts of an
Employee, periodic contributions with respect to such Accounts,
investment elections and modifications thereof and withdrawals and
distributions therefrom. The Trustees shall be fully protected in
maintaining individual Account records and in administering the
Accounts of the Employee on the basis of such certifications and shall
have no duty of inquiry or otherwise with respect to any transactions
or communications between the Committee and Employees relating to the
information contained in such certifications.
9.8 Authorization of Benefit Payments
The Committee shall forward to the Trustees any application for payment
of benefits within a reasonable time after it has approved such
application. The Trustees may rely on any such information set forth in
the approved application for the payment of benefits to the
Participant, Beneficiary or any other person entitled to benefits.
9.9 Payment of Benefits to Legal Custodian
Whenever, in the Committee's opinion, a person entitled to receive any
benefit payment is a minor or deemed to be physically, mentally or
legally incompetent to receive such benefit, the Committee may direct
the Trustees to make payment for his benefit to such individual or
institution having legal custody of such person or to his legal
representative. Any benefit payment made in accordance with the
provisions of this Section 9.9 shall operate as a valid and complete
discharge of any liability for payment of such benefit under the
provisions of the Plan.
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9.10 Service in More Than One Fiduciary Capacity
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan, regardless of whether any such
person is an officer, employee, agent or other representative of a
party in interest.
9.11 Payment of Expenses
The Employer will pay the ordinary administrative expenses of the Plan
and compensation of the Trustees to the extent required, except that
any expenses directly related to the Trust Fund, such as transfer
taxes, brokers' commissions, registration charges, or administrative
expenses of the Trustees (including expenses of counsel retained by it
in accordance with the Agreement), shall be paid from the Trust Fund or
from such Investment Account to which such expenses directly relate.
The Employer may charge Employees all or part of the reasonable
expenses associated with withdrawals and other distributions, loans or
Account transfers. The Employer will charge Employees loan origination
fees and all annual maintenance fees associated with loans.
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ARTICLE X --
BENEFIT CLAIMS PROCEDURE
10.1 Definition
For purposes of this Article X, "Claimant" shall mean any Participant,
Beneficiary or any other person entitled to benefits under the Plan or
his duly authorized representative.
10.2 Claims
A Claimant may file a written claim for a Plan benefit with the Plan
Administrator on the appropriate form to be supplied by the Plan
Administrator. The Plan Administrator shall, in its sole and absolute
discretion, review the Claimant's application for benefits and
determine the disposition of such claim.
10.3 Disposition of Claim
The Plan Administrator shall notify the Claimant as to the disposition
of the claim for benefits under this Plan within ninety (90) days after
the appropriate form has been filed unless special circumstances
require an extension of time for processing. If such an extension of
time is required, the Plan Administrator shall furnish written notice
of the extension to the Claimant prior to the termination of the
initial ninety (90) day period. The extension notice shall indicate the
special circumstances requiring the extension of time and the date the
Plan Administrator expects to render a decision. In no event shall such
extension exceed a period of one hundred-eighty (180) days from the
receipt of the claim.
10.4 Denial of Claim
If a claim for benefits under this Plan is denied in whole or in part
by the Plan Administrator, a notice written in a manner calculated to
be understood by the Claimant shall be provided by the Plan
Administrator to the Claimant and such notice shall include the
following:
(a) a statement that the claim for the benefits under this Plan
has been denied;
(b) the specific reasons for the denial of the claim for benefits,
citing the specific provisions of the Plan which set forth the
reason or reasons for the denial;
(c) a description of any additional material or information
necessary for the Claimant to perfect the claim for benefits
under this Plan and an explanation of why such material or
information is necessary; and
(d) appropriate information as to the steps to be taken if the
Claimant wishes to appeal such decision.
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10.5 Inaction by Plan Administrator
A claim for benefits shall be deemed to be denied if the Plan
Administrator shall not take any action on such claim within ninety
(90) days after receipt of the application for benefits by the Claimant
or, if later, within the extended processing period established by the
Plan Administrator by written notice to the Claimant, in accordance
with Section 10.3.
10.6 Right to Full and Fair Review
A Claimant who is denied, in whole or in part, a claim for benefits
under the Plan may file an appeal of such denial. Such appeal must be
made in writing by the Claimant or his duly authorized representative
and must be filed with the Committee within sixty (60) days after
receipt of the notification under Section 10.4 or the date his claim is
deemed to be denied under Section 10.5. The Claimant or his
representative may review pertinent documents and submit issues and
comments in writing.
10.7 Time of Review
The Committee, independent of the Plan Administrator, shall conduct a
full and fair review of the denial of claim for benefits under this
Plan to a Claimant within sixty (60) days after receipt of the written
request for review described in Section 10.6; provided, however, that
an extension, not to exceed sixty (60) days, may apply in special
circumstances. Written notice shall be furnished to the Claimant prior
to the commencement of the extension period.
10.8 Final Decision
The Claimant shall be notified in writing of the final decision of such
full and fair review by such Committee. Such decision shall be written
in a manner calculated to be understood by the Claimant, shall state
the specific reasons for the decision and shall include specific
references to the pertinent Plan provisions upon which the decision is
based. In no event shall the decision be furnished to the Claimant
later than sixty (60) days after the receipt of a request for review,
unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered within one
hundred-twenty (120) days after receipt of such request for review.
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ARTICLE XI -
AMENDMENT, TERMINATION, AND WITHDRAWAL
11.1 Amendment and Termination
The Employer expects to continue the Plan indefinitely, but
specifically reserves the right, in its sole and absolute discretion,
at any time, by appropriate action of the Board, to terminate its Plan
or to amend (subject to the approval of the Trustees), in whole or in
part, any or all of the provisions of the Plan. Subject to the
provisions of Section 13.7, no such amendment or termination shall
permit any part of the Trust Fund to be used for or diverted to
purposes other than for exclusive benefit of Participants,
Beneficiaries or other persons entitled to benefits, and no such
amendment or termination shall reduce the interest of any Participant,
Beneficiary or other person who may be entitled to benefits, without
his consent. In the event of a termination or partial termination of
the Plan, or upon complete discontinuance of contributions under the
Plan, the Accounts of each affected Participant shall become fully
vested and shall be distributable in accordance with the provisions of
Article VII. In the event of a complete termination of the Plan, the
Accounts of each affected Participant shall become fully vested and
shall be distributable as a lump sum distribution within seven (7) days
of the Valuation Date coincident with the date of receipt by the
Trustees of the proper documentation indicating the Participant's
distribution date.
If any amendment changes the vesting schedule, any Participant who has
a Period of Service of three (3) or more years may, by filing a written
request with the Employer, elect to have his vested percentage computed
under the vesting schedule in effect prior to the amendment.
The period during which the Participant may elect to have his vested
percentage computed under the prior vesting schedule shall commence
with the date the amendment is adopted and shall end on the latest of:
(a) sixty (60) days after the amendment is adopted;
(b) sixty (60) days after the amendment becomes effective; or
(c) sixty (60) days after the Participant is issued written notice
of the amendment from the Employer.
11.2 Withdrawal from the Trust Fund
An Employer may withdraw its Plan from the Trust Fund in accordance
with and subject to the provisions of the Agreement.
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ARTICLE XII -
TOP-HEAVY PLAN PROVISIONS
12.1 Introduction
Any other provisions of the Plan to the contrary notwithstanding, the
provisions contained in this Article XII shall be effective with
respect to any Plan Year in which this Plan is a Top-Heavy Plan, as
hereinafter defined.
12.2 Definitions
For purposes of this Article XII, the following words and phrases shall
have the meanings stated herein unless a different meaning is plainly
required by the context.
(a) "Account," for the purpose of determining the Top-Heavy Ratio,
means the sum of (i) a Participant's Accounts as of the most
recent Valuation Date and (ii) an adjustment for contributions
due as of the Determination Date.
(b) "Determination Date" means, with respect to any Plan Year, the
last day of the preceding Plan Year. With respect to the first
Plan Year, "Determination Date" means the last day of such
Plan Year.
(c) "Five-Percent Owner" means, if the Employer is a corporation,
any Employee who owns (or is considered as owning within the
meaning of Section 318 of the Code modified by Section
416(i)(1)(B)(iii) of the Code) more than five percent (5%) of
the value of the outstanding stock of, or more than five
percent (5%) of the total combined voting power of all the
stock of, the Employer. If the Employer is not a corporation,
a Five-Percent Owner means any Employee who owns more than
five percent (5%) of the capital or profits interest in the
Employer.
(d) "Key Employee" means any Employee or former Employee (or,
where applicable, such person's Beneficiary) in the Plan who,
at any time during the Plan Year containing the Determination
Date or any of the preceding four (4) Plan Years, is: (i) an
Officer having Top-Heavy Earnings from the Employer of greater
than fifty percent (50%) of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code; (ii) one of the ten
(10) Employees having Top-Heavy Earnings from the Employer of
more than the dollar 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 modified by
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Article XIII -- Miscellaneous Provisions
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Section 416(i)(1)(B)(iii) of the Code) both more than a
one-half of one percent (1/2%) interest in value and the
largest interests in the value of the Employer; (iii) a
Five-Percent Owner of the Employer; or (iv) a One-Percent
Owner of the Employer having Top-Heavy Earnings from the
Employer greater than $150,000. For purposes of computing the
Top-Heavy Earnings in subsections (d)(i), (d)(ii) and (d)(iv),
the aggregation rules of Sections 414(b), (c), (m) and (o) of
the Code shall apply.
(e) "Non-Key Employee" means an Employee or former Employee (or,
where applicable, such person's Beneficiary) who is not a Key
Employee.
(f) "Officer" means an Employee who is an administrative executive
in the regular and continued service of his Employer; any
Employee who has the title but not the authority of an officer
shall not be considered an Officer for purposes of this
Article XII. Similarly, an Employee who does not have the
title of an officer but has the authority of an officer shall
be considered an Officer. For purposes of this Article XII,
the maximum number of Officers that must be taken into
consideration shall be determined as follows: (i) three (3),
if the number of Employees is less than thirty (30); (ii) ten
percent (10%) of the number of Employees, if the number of
Employees is between thirty (30) and five hundred (500); or
(iii) fifty (50), if the number of Employees is greater than
five hundred (500). In determining such limit, the term
"Employer" shall be determined in accordance with Sections
414(b), (c), (m) and (o) of the Code and "Employee" shall
include Leased Employees and exclude employees described in
Section 414(q)(8) of the Code.
(g) "One-Percent Owner" means, if the Employer is a corporation,
any Employee who owns (or is considered as owning within the
meaning of Section 318 of the Code modified by Section
416(i)(1)(B)(iii) of the Code) more than one percent (1%) of
the value of the outstanding stock of, or more than one
percent (1%) of the total combined voting power of all the
stock of, the Employer. If the Employer is not a corporation,
a One-Percent Owner means any Employee who owns more than one
percent (1%) of the capital or profits interest in the
Employer.
(h) A "Permissive Aggregation Group" consists of one or more plans
of the Employer that are part of a Required Aggregation Group,
plus one or more plans that are not part of a Required
Aggregation Group but that satisfy the requirements of
Sections 401(a)(4) and 410 of the Code when considered
together with the Required Aggregation Group. If two (2) or
more defined benefit plans are included in the aggregation
group, the same actuarial assumptions must be used with
respect to all such plans in determining the Present Value of
Accrued Benefits.
(i) "Present Value of Accrued Benefits" shall be determined in
accordance with the actuarial assumptions set forth in the
defined benefit plan and the assumed benefit commencement date
shall be determined taking into account any nonproportional
subsidy.
(j) "Related Rollover Contributions" means rollover contributions
received by the Plan that are not initiated by the Employee
nor made from another plan maintained by the Employer.
65
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
(k) A "Required Aggregation Group" consists of each plan of the
Employer (whether or not terminated) in which a Key Employee
participates or participated at any time during the Plan Year
containing the Determination Date or any of the four (4)
preceding Plan Years and each other plan of the Employer
(whether or not terminated) which enables any plan in which a
Key Employee participates or participated to meet the
requirements of Section 401(a)(4) or 410 of the Code. If two
(2) or more defined benefit plans are included in the
aggregation group, the same actuarial assumptions must be used
with respect to all such plans in determining the Present
Value of Accrued Benefits.
(l) A "Super Top-Heavy Plan" means a Plan in which, for any Plan
Year:
(i) the Top-Heavy Ratio (as defined under subsection (o))
for the Plan exceeds ninety percent (90%) and the
Plan is not part of any Required Aggregation Group
(as defined under subsection (k)) or Permissive
Aggregation Group (as defined under subsection (h));
or
(ii) the Plan is a part of a Required Aggregation Group
(but is not part of a Permissive Aggregation Group)
and the Top-Heavy Ratio for the group of plans
exceeds ninety percent (90%); or
(iii) the Plan is a part of a Required Aggregation Group
and part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the Permissive Aggregation Group
exceeds ninety percent (90%).
(m) "Top-Heavy Earnings" means, for any year, compensation as
defined under Section 414(q)(7) of the Code, up to a maximum
of $200,000 adjusted as prescribed by the Secretary of the
Treasury under Section 401(a)(17) of the Code. Commencing
January 1, 1994, the maximum compensation taken into account
for any year shall be $150,000, adjusted in multiples of
$10,000 for increases in the cost-of-living, as prescribed by
the Secretary of the Treasury under Section 401(a)(17)(B) of
the Code. In determining Top-Heavy Earnings, the rules of
Section 414(q)(6) of the Code shall apply except that the term
"family" shall include only the Spouse and those lineal
descendants of the Employee who have not attained age nineteen
(19) before the close of the Plan Year.
(n) A "Top-Heavy Plan" means a Plan in which, for any Plan Year:
(i) the Top-Heavy Ratio (as defined under subsection (o))
for the Plan exceeds sixty percent (60%) and the Plan
is not part of any Required Aggregation Group (as
defined under subsection (k)) or Permissive
Aggregation Group (as defined under subsection (h));
or
66
<PAGE>
Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
(ii) the Plan is a part of a Required Aggregation Group
but is not part of a Permissive Aggregation Group and
the Top-Heavy Ratio for the group of plans exceeds
sixty percent (60%); or
(iii) the Plan is a part of a Required Aggregation Group
and part of a Permissive Aggregation Group and the
Top-Heavy Ratio for the Permissive Aggregation Group
exceeds sixty percent (60%).
(o) "Top-Heavy Ratio" means:
(i) if the Employer maintains one or more qualified
defined contribution plans and the Employer has not
maintained any qualified defined benefit plans which
during the five (5) year period ending on the
Determination Date have or have had accrued benefits,
the Top-Heavy Ratio for the Plan alone or for the
Required Aggregation Group or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator
of which is the sum of the Account balances under the
aggregated defined contribution plan or plans for all
Key Employees as of the Determination Date, including
any part of any Account balance distributed in the
five (5) year period ending on the Determination Date
but excluding distributions attributable to Related
Rollover Contributions, if any, and the denominator
of which is the sum of all Account balances under the
aggregated qualified defined contribution plan or
plans for all Participants as of the Determination
Date, including any part of any Account balance
distributed in the five (5) year period ending on the
Determination Date but excluding distributions
attributable to Related Rollover Contributions, if
any, determined in accordance with Section 416 of the
Code and the regulations thereunder.
(ii) if the Employer maintains one or more qualified
defined contribution plans and the Employer maintains
or has maintained one or more qualified defined
benefit plans which during the five (5) year period
ending on the Determination Date have or have had any
accrued benefits, the Top-Heavy Ratio for any
Required Aggregation Group or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator
of which is the sum of the Account balances under the
aggregated qualified defined contribution plan or
plans for all Key Employees, determined in accordance
with (i) above, and the sum of the Present Value of
Accrued Benefits under the aggregated qualified
defined benefit plan or plans for all Key Employees
as of the Determination Date, and the denominator of
which is the sum of the Account balances under the
aggregated qualified defined contribution plan or
plans determined in accordance with (i) above, for
all Participants and the sum of the Present Value of
Accrued Benefits under the aggregated qualified
defined benefit plan or plans for all Participants as
of the Determination Date, all determined in
67
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
accordance with Section 416 of the Code and the
regulations thereunder. The accrued benefits under a
qualified defined benefit plan in both the numerator
and denominator of the Top-Heavy Ratio are adjusted
for any distribution of an accrued benefit made in
the five (5) year period ending on the Determination
Date.
(iii) For purposes of (i) and (ii) above, the value of
Account balances and the Present Value of Accrued
Benefits will be determined as of the most recent
Valuation Date that falls within the twelve (12)
month period ending on the Determination Date, except
as provided in Section 416 of the Code and the
regulations thereunder for the first and second Plan
Years of a qualified defined benefit plan. The
Account balances and Present Value of Accrued
Benefits of a Participant (A) who is a Non-Key
Employee but who was a Key Employee in a prior year,
or (B) who has not been credited with at least an
Hour of Service with any employer maintaining the
Plan at any time during the five (5) year period
ending on the Determination Date will be disregarded.
The calculation of the Top-Heavy Ratio, and the
extent to which distributions, rollovers, and
transfers are taken into account will be made in
accordance with Section 416 of the Code and the
regulations thereunder. When aggregating plans, the
value of Account balances and the Present Value of
Accrued Benefits will be calculated with reference to
the Determination Date that falls within the same
calendar year.
(p) "Valuation Date", for the purpose of computing the Top-Heavy
Ratio (as defined under subsection (o)) under subsections (1)
and (n) means the last date of the Plan Year.
For purposes of subsections (h), (j) and (k), the rules of Sections
414(b), (c), (m) and (o) of the Code shall be applied in determining
the meaning of the term "Employer".
12.3 Minimum Contributions
If the Plan becomes a Top-Heavy Plan, then any provision of Article III
to the contrary notwithstanding, the following provisions shall apply:
(a) Subject to subsection (b), the Employer shall contribute on
behalf of each Participant who is employed by the Employer on
the last day of the Plan Year and who is a Non-Key Employee an
amount with respect to each Top-Heavy year which, when added
to the amount of Matching Contributions, Special
Contributions, Discretionary Employer Contributions and
Forfeitures made on behalf of such Participant, shall not be
less than the lesser of: (i) three percent (3%) of such
Participant's Section 415 Compensation (as defined under
Section 3.14(a)(vii) of the Plan and modified by Section
401(a)(17) of the Code), or (ii) if the Employer has no
defined benefit plan which is designated to satisfy Section
416 of the Code, the largest of Matching Contributions,
Special Contributions Discretionary Employer Contributions and
forfeitures, as a percentage of Key Employees' Top-Heavy
68
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
Earnings; provided, however, that in no event shall any
contributions be made under this Section 12.3 in an amount
which will cause the percentage of contributions made by the
Employer on behalf of any Participant who is a Non-Key
Employee to exceed the percentage at which contributions are
made by the Employer on behalf of the Key Employee for whom
the percentage of Matching Contributions is highest in such
Top-Heavy year. Any such contribution shall be allocated to
the Matching Contribution Account of each such Participant
and, for purposes of vesting and withdrawals only, shall be
deemed to be a Matching Contribution.
(b) Notwithstanding the foregoing, this Section 12.3 shall not
apply to any Participant to the extent that such Participant
is covered under any other plan or plans of the Employer
(determined in accordance with Sections 414(b), (c), (m) and
(o) of the Code) and such other plan provides that the minimum
allocation or benefit requirement will be met by such other
plan should this Plan become Top-Heavy.
(c) For purposes of this Article XII, the following shall be
considered as a contribution made by the Employer:
(i) Qualified Nonelective Contributions;
(ii) Matching Contributions made by the Employer on behalf
of Key Employees;
(iii) Basic Contributions made by the Employer on behalf of
Key Employees; and
(iv) Discretionary Employer Contributions on behalf of Key
Employees.
(d) Subject to the provisions of subsection (b), all Non-Key
Employee Participants who are employed by the Employer on the
last day of the Plan Year shall receive the defined
contribution minimum provided under subsection (a). A Non-Key
Employee may not fail to accrue a defined contribution minimum
merely because such Employee was excluded from participation
or failed to accrue a benefit because (i) his Compensation is
less than a stated amount, or (ii) he failed to make Basic
Contributions.
12.4 Impact on Section 415 Maximum Benefits
For any Plan Year in which the Plan is a Super Top-Heavy Plan, Sections
3.14(a)(iv) and (v) shall be read by substituting the number 1.0 for
the number 1.25 wherever it appears therein. For any Plan Year in which
the Plan is a Top-Heavy Plan but not a Super Top-Heavy Plan, the Plan
shall be treated as a Super Top-Heavy Plan under this Section 12.4,
unless each Non-Key Employee who is entitled to a minimum contribution
or benefit receives an additional minimum contribution or benefit. If
the Non-Key Employee is entitled to a minimum contribution under
Section 12.3(a), the Plan shall not be treated as a Super Top-Heavy
Plan under this Section 12.4 if the minimum contribution satisfies
Section 12.3(a) when four percent (4%) is substituted for three percent
(3%) in Section 12.3(a)(i).
69
<PAGE>
Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
12.5 Vesting
If the Plan becomes a Top-Heavy Plan, then the Vested Percentage of a
Participant who has at least one (1) Hour of Service with the Employer
after the Plan becomes Top-Heavy shall not be less than the following
Vested Percentage of his accrued benefit, determined in accordance with
the following table:
Period of Service Vested Percentage
----------------- -----------------
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
Notwithstanding the foregoing provision, each Participant with at least
three (3) years of Vested Service with the Employer shall at all times
have his vested percentage computed under the greater of the provisions
of this Section 12.5 or the provisions of Section 4.1(c).
For those Plan Years in which the Plan ceases to be a Top-Heavy Plan,
the vesting schedule shall be determined in accordance with the
provisions of Section 4.1(c), except that the vested percentage of a
Participant's accrued benefit before the Plan ceased to be a Top-Heavy
Plan shall not be reduced.
70
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
ARTICLE XIII --
MISCELLANEOUS PROVISIONS
13.1 No Right to Continued Employment
Neither the establishment of the Plan, nor any provisions of the Plan
or of the Agreement establishing the Trust nor any action of any Named
Fiduciary, Plan Administrator or the Employer, shall be held or
construed to confer upon any Employee any right to a continuation of
his employment by the Employer. The Employer reserves the right to
dismiss any Employee or otherwise deal with any Employee to the same
extent and in the same manner that it would if the Plan had not been
adopted.
13.2 Merger, Consolidation, or Transfer
The Plan shall not be merged or consolidated with, nor transfer its
assets or liabilities to, any other plan unless each Employee,
Participant, Beneficiary and other person entitled to benefits under
the Plan, would (if such other plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
if the Plan had terminated immediately before the merger, consolidation
or transfer.
13.3 Nonalienation of Benefits
Benefits payable under the Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge, garnish,
execute, levy or otherwise affect any right to benefits payable
hereunder, shall be void. Notwithstanding the foregoing, the Plan shall
permit the payment of benefits in accordance with a qualified domestic
relations order as defined under Section 414(p) of the Code.
13.4 Missing Payee
Any other provision in the Plan or Agreement to the contrary
notwithstanding, if the Trustees are unable to make payment to any
Employee, Participant, Beneficiary or other person to whom a payment is
due ("Payee") under the Plan because the identity or whereabouts of
such Payee cannot be ascertained after reasonable efforts have been
made to identify or locate such person (including mailing a certified
notice of the payment due to the last known address of such Payee as
shown on the records of the Employer), such payment and all subsequent
payments otherwise due to such Payee shall be forfeited twenty-four
(24) months after the date such payment first became due. However, such
payment and any subsequent payments shall be reinstated retroactively,
without interest, no later than sixty (60) days after the date on which
the Payee is identified and located.
71
<PAGE>
Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
13.5 Affiliated Employers
All employees of all Affiliated Employers shall, for purposes of the
limitations in Article XII and for measuring Hours of Service and
Periods of Service, be treated as employed by a single employer. No
employee of an Affiliated Employer shall become a Participant of this
Plan unless employed by the Employer or an Affiliated Employer which
has adopted the Plan.
13.6 Successor Employer
In the event of the dissolution, merger, consolidation or
reorganization of the Employer, the successor organization may, upon
satisfying the provisions of the Agreement and the Plan, adopt and
continue this Plan. Upon adoption, the successor organization shall be
deemed the Employer with all its powers, duties and responsibilities
and shall assume all Plan liabilities.
13.7 Return of Employer Contributions
Any other provision of the Plan or Agreement to the contrary
notwithstanding, upon the Employer's request and with the consent of
the Trustees, a contribution to the Plan by the Employer which was (a)
made by mistake of fact, or (b) conditioned upon initial qualification
of the Plan with the Internal Revenue Service, or (c) conditioned upon
the deductibility by the Employer of such contributions under Section
404 of the Code, shall be returned to the Employer within one (1) year
after: (i) the payment of a contribution made by mistake of fact, or
(ii) the denial of such qualification or (iii) the disallowance of the
deduction (to the extent disallowed), as the case may be.
Any such return shall not exceed the lesser of (A) the amount of such
contributions (or, if applicable, the amount of such contribution with
respect to which a deduction is denied or disallowed) or (B) the amount
of such contributions net of a proportionate share of losses incurred
by the Plan during the period commencing on the Valuation Date as of
which such contributions are made and ending on the Valuation Date as
of which such contributions are returned. All such refunds shall be
limited in amount, circumstances and timing to the provisions of
Section 403(c) of ERISA.
13.8 Adoption of Plan by Affiliated Employer
An Affiliated Employer of the Sponsoring Employer may adopt the Plan
and Agreement upon satisfying the requirements set forth in the
Agreement. Upon such adoption, such Affiliated Employer shall become a
Participating Affiliate in the Plan, which Plan shall be deemed a
"single plan" within the meaning of Income Tax Regulations Section
1.414(1)-1(b)(1).
For purposes of Article IX, Employer shall mean only the Sponsoring
Employer and each Participating Affiliate shall be deemed to accept and
designate the Named Fiduciaries, Committee, Plan Administrator, Trustee
Administrator and voter of Units designated by the Sponsoring Employer
to act on its behalf in accordance with the provisions of the Plan and
Agreement.
72
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Article XIII -- Miscellaneous Provisions
- --------------------------------------------------------------------------------
The Sponsoring Employer shall solely exercise for and on behalf of such
Participating Affiliate the powers reserved to the Employer under
Articles IX and XI. However, such Participating Affiliate may at
anytime terminate its future participation in the Plan for the purposes
and in the manner set forth in the Agreement.
13.9 Construction of Language
Wherever appropriate in the Plan, words used in the singular may be
read in the plural; words used in the plural may be read in the
singular; and words importing the masculine gender shall be deemed
equally to refer to the female gender. Any reference to a section
number shall refer to a section of this Plan, unless otherwise
indicated.
13.10 Headings
The headings of articles and sections are included solely for
convenience of reference, and if there be any conflict between such
headings and the text of the Plan, the text shall control.
13.11 Governing Law
The Plan shall be governed by and construed and enforced in accordance
with the laws of the State of New York, without regard to the choice of
law or conflict of law rules recognized by such state, except to the
extent that such laws are preempted by the Federal laws of the United
States of America.
73
<PAGE>
(2 of 2)
AMENDMENT NUMBER ONE
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective
October 1, 1996:
1. ARTICLE I - The first paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentences to the end thereof:
Commencing October 1, 1996, Compensation shall also include commissions
paid to commission-paid Employees. With respect to commission-paid
Employees, Compensation (including any draw against commissions) shall
not exceed thirty thousand dollars ($30,000).
2. ARTICLE I - The second paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentence to the end thereof:
Commencing October 1, 1996, Compensation does not include amounts
(including any draw against commissions) in excess of thirty thousand
dollars ($30,000) paid to commissioned Employees.
3. ARTICLE II - Section 2.1(b)(iii) shall be amended in its entirety to read as
follows:
(iii) classification as (A) a salaried Employee or (B) commencing
October 1, 1996, a commission-paid Employee.
4. ARTICLE II - Section 2.2(a) shall be amended by adding the following at the
end thereof:
however, commencing October 1, 1996, employees compensated on a
commission basis shall be eligible to participate in the Plan;
5. ARTICLE III - Section 3.4(a) shall be amended by adding the following
sentence at the end thereof:
Notwithstanding the foregoing, a Participant who became a Participant
in accordance with Section 2.1(b)(iii)(B) shall be ineligible to
receive a Matching Contribution under this Section 3.4.
6. ARTICLE VIII - Section 8.5(d) shall be amended by adding the following
sentence at the end thereof:
However, commencing on or after September 1, 1996, a Borrower will not
be permitted to make partial prepayments to his or her Loan Accounts.
<PAGE>
(2 of 2)
AMENDMENT NUMBER ONE
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective
October 1, 1996:
1. ARTICLE I - The first paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentences to the end thereof:
Commencing October 1, 1996, Compensation shall also include commissions
paid to commission-paid Employees. With respect to commission-paid
Employees, Compensation (including any draw against commissions) shall
not exceed thirty thousand dollars ($30,000).
2. ARTICLE I - The second paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentence to the end thereof:
Commencing October 1, 1996, Compensation does not include amounts
(including any draw against commissions) in excess of thirty thousand
dollars ($30,000) paid to commissioned Employees.
3. ARTICLE II - Section 2.1(b)(iii) shall be amended in its entirety to read as
follows:
(iii) classification as (A) a salaried Employee or (B) commencing
October 1, 1996, a commission-paid Employee.
4. ARTICLE II - Section 2.2(a) shall be amended by adding the following at the
end thereof:
however, commencing October 1, 1996, employees compensated on a
commission basis shall be eligible to participate in the Plan;
5. ARTICLE III - Section 3.4(a) shall be amended by adding the following
sentence at the end thereof:
Notwithstanding the foregoing, a Participant who became a Participant
in accordance with Section 2.1(b)(iii)(B) shall be ineligible to
receive a Matching Contribution under this Section 3.4.
6. ARTICLE VIII - Section 8.5(d) shall be amended by adding the following
sentence at the end thereof:
However, commencing on or after September 1, 1996, a Borrower will not
be permitted to make partial prepayments to his or her Loan Accounts.
<PAGE>
(2 of 2)
AMENDMENT NUMBER ONE
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective
October 1, 1996:
1. ARTICLE I - The first paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentences to the end thereof:
Commencing October 1, 1996, Compensation shall also include commissions
paid to commission-paid Employees. With respect to commission-paid
Employees, Compensation (including any draw against commissions) shall
not exceed thirty thousand dollars ($30,000).
2. ARTICLE I - The second paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentence to the end thereof:
Commencing October 1, 1996, Compensation does not include amounts
(including any draw against commissions) in excess of thirty thousand
dollars ($30,000) paid to commissioned Employees.
3. ARTICLE II - Section 2.1(b)(iii) shall be amended in its entirety to read as
follows:
(iii) classification as (A) a salaried Employee or (B) commencing
October 1, 1996, a commission-paid Employee.
4. ARTICLE II - Section 2.2(a) shall be amended by adding the following at the
end thereof:
however, commencing October 1, 1996, employees compensated on a
commission basis shall be eligible to participate in the Plan;
5. ARTICLE III - Section 3.4(a) shall be amended by adding the following
sentence at the end thereof:
Notwithstanding the foregoing, a Participant who became a Participant
in accordance with Section 2.1(b)(iii)(B) shall be ineligible to
receive a Matching Contribution under this Section 3.4.
6. ARTICLE VIII - Section 8.5(d) shall be amended by adding the following
sentence at the end thereof:
However, commencing on or after September 1, 1996, a Borrower will not
be permitted to make partial prepayments to his or her Loan Accounts.
<PAGE>
(1 of 1)
AMENDMENT NUMBER FOUR
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective
January 1, 1996:
ARTICLE III - The first paragraph of Section 3.6 shall be amended in its
entirety to read as follows:
Subject to the limitations of Section 3.14, the Employer may, in its
sole and absolute discretion, make Discretionary Employer Contributions
to the Plan for a Plan Year. Prior to January 1, 1996, Discretionary
Employer Contributions shall be credited in an amount determined by the
Board and expressed as a percentage of the Compensation of each
Eligible Employee (a) who has competed one thousand (1,000) Hours of
Service during the Plan Year for which such Discretionary Employer
Contribution is being made, and (b) who is in the employ of the
Employer on the last day of such Plan Year and (c) on whose behalf
Basic Contributions and/or Post-Tax Contributions are being made to the
Plan. Effective January 1, 1996, Discretionary Employer Contributions
shall be credited in an amount determined by the Board and expressed as
a percentage of the Compensation (as hereafter determined) of each
Eligible Employee during the Plan Year, who is in the employ of the
Employer on December 1st of the Plan Year for which such Discretionary
Employer Contribution is being made. Only Compensation for the portion
of the Plan Year during which an Employee is an Eligible Employee shall
be used in determining a Discretionary Employer Contribution hereunder.
Notwithstanding the foregoing, an Eligible Employee who became an
Eligible Employee in accordance with Section 2.1(b)(iii)(B) shall be
ineligible to receive a Discretionary Employer Contribution under this
Section 3.6.
<PAGE>
(1 of 1)
AMENDMENT NUMBER FIVE
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows:
1. ARTICLE VI -Section 6.3 shall be amended by adding the following as the
second sentence thereof and the former second sentence shall follow accordingly:
Commencing July 1, 1997, a Participant or Beneficiary may, at any time,
direct that multiples of ten percent (10%) of the Net Value of any one
or more Investment Accounts be transferred to any one or more of the
other Investment Accounts.
2. ARTICLE VI -Section 6.4(b) shall be amended by adding the following as the
second sentence thereof and the former second sentence shall follow accordingly:
Commencing July 1, 1997, an Employee who is not a Participant may,
subject to the provisions of Section 6.3, at any time, direct that
multiples of ten percent (10%) of the Net Value of any one or more
Investment Accounts be transferred to any one or more of the other
Investment Accounts.
<PAGE>
(2 of 2)
AMENDMENT NUMBER SIX
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective
January 1, 1998 unless otherwise indicated:
1. ARTICLE I -Effective April 1, 1993, the first paragraph of the definition of
Compensation, Section 1.15 shall be amended by adding "and bonuses classified as
"monthly incentive bonuses" immediately following the words "Officer's Bonus
Plan".
2. ARTICLE I - The first paragraph of the definition of Compensation, Section
1.15 shall be further amended by adding the following sentence to the end
thereof to read as follows:
Commencing January 1, 1998, with respect to commission-paid Employees,
Compensation (including draw against commissions) shall not exceed
seventy-five thousand dollars ($75,000).
3. ARTICLE I - The second paragraph of the definition of Compensation, Section
1.15 shall be amended by adding the following sentence to the end thereof to
read as follows:
Commencing January 1, 1998, Compensation does not include amounts
(including any draw against commissions) in excess of seventy-five thousand
dollars ($75,000) paid to commissioned Employees.
4. ARTICLE III - Section 3.4(a) shall be amended by adding the following
sentence to the end thereof to read as follows:
Commencing January 1, 1998, a Participant who becomes a Participant in
accordance with Section 2.1(b)(iii)(B) shall be eligible to receive a
Matching Contribution under this Section 3.4.
5. ARTICLE III - The first paragraph of Section 3.6 shall be amended by adding
the following sentence to the end thereof to read as follows:
Commencing January 1, 1998, an Eligible Employee described under Section
2.1(b)(iii)(B) shall be eligible to receive a Discretionary Employer
Contribution under this Section 3.6.
<PAGE>
(1 of 1)
AMENDMENT NUMBER SEVEN
TO
COHOES SAVINGS BANK
401(k) RETIREMENT SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Cohoes Savings Bank 401(k) Retirement Savings Plan
in RSI Retirement Trust ("Plan"), the Plan is amended as follows, effective
September 1, 1998:
1. ARTICLE VII -Section 7.7(a) shall be amended by adding the following sentence
to the end thereof to read as follows:
Effective September 1, 1998, such lump sum distribution of the vested
interest in the Net Value of his Accounts shall be made to the Employee
within seven (7) days of the Valuation Date coincident with the date of
receipt by the Trustees of the proper documentation indicating that he
incurred a Termination of Service.
2. ARTICLE VII - Section 7.7(c) shall be amended by adding the following as the
second sentence thereof and the former second sentence shall follow accordingly:
Effective September 1, 1998, the thirteen (13) month restriction on lump
sum distributions hereunder, shall no longer apply
3. ARTICLE VII - Section 7.7(g) shall be amended by adding the following
sentence to the end thereof to read as follows:
Effective September 1, 1998, the Trustees shall determine the vested
interest in the Net Value of the Accounts of such Employee as of the
Valuation Date coincident with the date of receipt by the Trustees of the
proper documentation indicating that he incurred a Termination of Service.
Exhibit 10.8
Stock Option and Incentive Plan
<PAGE>
COHOES BANCORP, INC.
1999 Stock Option and Incentive Plan
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" -- means any "parent corporation" or "subsidiary
corporation" of the Corporation, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
"Award" -- means the grant by the Committee of an Incentive Stock
Option, a Non-Qualified Stock Option or any combination thereof, as provided in
the Plan.
"Award Agreement" -- means the agreement evidencing the grant of an
Award made under the Plan.
"Board" -- means the board of directors of the Corporation.
"Cause" -- means Termination of Service by reason of personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties or gross
negligence.
"Code" -- means the Internal Revenue Code of 1986, as amended.
"Committee" -- means the Committee referred to in Section 3 hereof.
"Corporation" -- means Cohoes Bancorp, Inc., a federally-chartered
corporation, and any successor thereto.
"Financial Institution" -- means Cohoes Savings Bank or any successor
entity.
"Incentive Stock Option" -- means an option to purchase Shares granted
by the Committee which is intended to qualify as an incentive stock option under
Section 422(b) of the Code. Unless otherwise set forth in the Award Agreement,
any Option which does not qualify as an Incentive Stock Option for any reason
shall be deemed ab initio to be a Non-Qualified Stock Option.
"Market Value" -- means the average of the high and low quoted sales
price on the date in question (or, if there is no reported sale on such date, on
the last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if on such date
the Shares are not quoted on the Composite Tape, on the New York Stock Exchange,
or if the Shares are not listed or admitted to trading on such Exchange, on the
1
<PAGE>
principal United States securities exchange registered under the Securities
Exchange Act of 1934 (the "Exchange Act") on which the Shares are listed or
admitted to trading, or, if the Shares are not listed or admitted to trading on
any such exchange, the mean between the closing high bid and low asked
quotations with respect to a Share on such date on the Nasdaq Stock Market, or
any similar system then in use, or, if no such quotations are available, the
fair market value on such date of a Share as the Committee shall determine.
"Non-Qualified Stock Option" -- means an option to purchase Shares
granted by the Committee which does not qualify, for any reason, as an Incentive
Stock Option.
"Option" -- means an Incentive Stock Option or a Non-Qualified Stock
Option.
"Participant" -- means any director, advisory director or employee of
the Corporation or any Affiliate who is selected by the Committee to receive an
Award.
"Plan" -- means this Cohoes Bancorp, Inc. 1999 Stock Option and
Incentive Plan.
"Related" -- means (i) in the case of a Right, a Right which is granted
in connection with, and to the extent exercisable, in whole or in part, in lieu
of, an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof.
"Shares" -- means the shares of common stock of the Corporation.
"Termination of Service" -- means cessation of service, for any reason,
whether voluntary or involuntary, so that the affected individual is not either
(i) an employee of the Corporation or any Affiliate for purposes of an Incentive
Stock Option, or (ii) a director, advisory director or employee of the
Corporation or any Affiliate for purposes of any other Award.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members of the Board, each of whom (i) shall be an
"outside director," as defined under Section 162(m) of the Code and the Treasury
regulations thereunder, and (ii) shall be a "non-employee director," as defined
under Rule 16(b) of the Securities Exchange Act of 1934 or any similar or
successor provision. The members of the Committee shall be appointed by the
Board. Except as limited by the express provisions of the Plan or by resolutions
adopted by the Board, the Committee shall have sole and complete authority and
discretion to (i) select Participants and grant Awards; (ii) determine the
number of Shares to be subject to types of Awards generally, as well as to
individual Awards granted under the Plan; (iii) determine the terms and
conditions upon which Awards shall be granted under the Plan; (iv) prescribe the
form and terms of Award Agreements; (v) establish from time to time regulations
for the administration of the Plan; and (vi) interpret the Plan and make all
determinations deemed necessary or advisable for the administration of the Plan.
2
<PAGE>
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Shares Subject to Plan.
(a) Subject to adjustment by the operation of Section 6, the maximum
number of Shares with respect to which Awards may be made under the Plan
is 10% of the total Shares sold in the Financial Institution's conversion
to the capital stock form. As long as the Plan is subject to the
applicable requirements of government regulations, no Participant shall
receive Awards under the Plan that represent in the aggregate more than
25% of the Shares with respect to which Awards may be made under the Plan,
and directors who are not employees of the Corporation or any Affiliate
shall not receive Awards that represent, for any one such director, more
than 5%, or, for all such directors in the aggregate, more than 30% of the
Shares with respect to which Awards may be made under the Plan. The Shares
with respect to which Awards may be made under the Plan may be either
authorized and unissued Shares or previously issued Shares reacquired and
held as treasury Shares. Shares which are subject to Related Rights and
Related Options shall be counted only once in determining whether the
maximum number of Shares with respect to which Awards may be granted under
the Plan has been exceeded. An Award shall not be considered to have been
made under the Plan with respect to any Option or Right which terminates,
and new Awards may be granted under the Plan with respect to the number of
Shares as to which such termination has occurred.
(b) During any calendar year, no Participant may be granted Awards
under the Plan with respect to more than ________ Shares, subject to
adjustment as provided in Section 6.
5. Awards.
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such
additional terms and conditions not inconsistent with the provisions of
the Plan and the requirements of applicable law and government regulations
as the Committee shall determine, including the granting of Options in
tandem with other Awards under the Plan:
(i) Exercise Price. The exercise price per Share for an Option
shall be determined by the Committee; provided, however, that such
exercise price shall not be less than 100% of the Market Value of a
Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by
the Committee, but shall be no greater than 10 years in the case of
an Incentive Stock Option or 15 years in the case of a Non-Qualified
Stock Option.
(iii) Time and Method of Exercise. Except as provided in
subsection (c) below, the Committee shall determine the time or
times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including,
without
3
<PAGE>
limitation, cash, Shares, other Awards or any combination thereof,
having a fair market value on the exercise date equal to the
relevant exercise price) in which, payment of the exercise price
with respect thereto may be made or deemed to have been made.
(iv) Incentive Stock Options. Incentive Stock Options may be
granted by the Committee only to employees of the Corporation or its
Affiliates.
(v) Termination of Service. Unless otherwise determined by the
Committee and set forth in the Award Agreement evidencing the grant
of the Option, upon Termination of Service of the Participant for
any reason other than for Cause, all Options then currently
exercisable shall remain exercisable for the lesser of (A) three
years following such Termination of Service or (B) until the
expiration of the Option by its terms. Upon Termination of Service
for Cause, all Options not previously exercised shall immediately be
forfeited.
(b) Additional Terms of Awards. As long as the Plan is subject to
the requirements of the government regulations, every Award granted
pursuant to this Plan shall vest, beginning not earlier than the one-year
anniversary of the grant date, in annual installments of not more than
20%, and such vesting shall not be accelerated except in the event of
death or disability.
6. Adjustments Upon Changes in Capitalization. In the event of any
change in the outstanding Shares subsequent to the effective date of the Plan by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares and exercise price of the Award, if any, as to which Awards
may be granted under the Plan and the number and class of shares and exercise
price of the Award, if any, with respect to which Awards have been granted under
the Plan shall be appropriately adjusted by the Committee, whose determination
shall be conclusive. Except as otherwise provided herein, any Award which is
adjusted as a result of this Section 6 shall be subject to the same terms and
conditions as the original Award.
4
<PAGE>
7. Effect of Merger on Options. In the case of any merger,
consolidation or combination of the Corporation (other than a merger,
consolidation or combination in which the Corporation is the continuing
corporation and which does not result in the outstanding Shares being converted
into or exchanged for different securities, cash or other property, or any
combination thereof), any Participant to whom an Option has been granted shall
have the additional right (subject to the provisions of the Plan and any
limitation applicable to such Option), thereafter and during the term of each
such Option , to receive upon exercise of any such Option an amount equal to the
excess of the fair market value on the date of such exercise of the securities,
cash or other property, or combination thereof, receivable upon such merger,
consolidation or combination in respect of a Share over the exercise price of
such Option, multiplied by the number of Shares with respect to which such
Option shall have been exercised. Such amount may be payable fully in cash,
fully in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
8. Assignments and Transfers. No Incentive Stock Option granted under
the Plan shall be transferable other than by will or the laws of descent and
distribution. Any other Award shall be transferable by will, the laws of descent
and distribution, a "domestic relations order," as defined in Section
414(p)(1)(B) of the Code, or a gift to any member of the Participant's immediate
family or to a trust for the benefit of one or more of such immediate family
members. During the lifetime of an Award recipient, an Award shall be
exercisable only by the Award recipient unless it has been transferred as
permitted hereby, in which case it shall be exercisable only by such transferee.
For the purpose of this Section 8, a Participant's "immediate family" shall mean
the Participant's spouse, children and grandchildren.
9. Employee Rights Under the Plan. No person shall have a right to be
selected as a Participant nor, having been so selected, to be selected again as
a Participant, and no employee or other person shall have any claim or right to
be granted an Award under the Plan or under any other incentive or similar plan
of the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any employee any right to be retained in
the employ of the Corporation or any Affiliate.
10. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other federal, state or local
securities legislation. It may be provided that any representation requirement
shall become inoperative upon a registration of the Shares or other action
eliminating the necessity of such representation under such Securities Act or
other securities legislation. The Corporation shall not be required to deliver
any Shares under the Plan prior to (i) the admission of such Shares to listing
on any stock exchange on which Shares may then be listed and (ii) the completion
of such registration or other qualification of such Shares under any state or
federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable.
5
<PAGE>
11. Withholding Tax. Where a Participant or other person is entitled to
receive Shares pursuant to the exercise of an Option pursuant to the Plan, the
Corporation shall have the right to require the Participant or such other person
to pay the Corporation the amount of any taxes which the Corporation is required
to withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld. All withholding decisions pursuant to this Section 11 shall be
at the sole discretion of the Committee or the Corporation.
12. Amendment or Termination.
(a) Except to the extent prohibited by applicable regulations, the
Board may amend, alter, suspend, discontinue, or terminate the Plan
without the consent of shareholders or Participants, except that any such
action will be subject to the approval of the Corporation's shareholders
if, when and to the extent such shareholder approval is necessary or
required for purposes of any applicable federal or state law or regulation
or the rules of any stock exchange or automated quotation system on which
the Shares may then be listed or quoted, or if the Board, in its
discretion, determines to seek such shareholder approval.
(b) Except to the extent prohibited by applicable regulations, the
Committee may waive any conditions of or rights of the Corporation or
modify or amend the terms of any outstanding Award. The Committee may not,
however, amend, alter, suspend, discontinue or terminate any outstanding
Award without the consent of the Participant or holder thereof, except as
otherwise provided herein.
13. Effective Date and Term of Plan. The Plan shall become effective
upon the later of its adoption by the Board or its approval by the shareholders
of the Corporation. It shall continue in effect for a term of fifteen years
thereafter unless sooner terminated under Section 12 hereof.
6
Exhibit 23.1
Consent of Silver, Freedman & Taff, L.L.P.
<PAGE>
Exhibit 23.1
October 28, 1998
The Board of Trustees
Cohoes Savings Bank
75 Remsen Street
Cohoes, New York 12047
CONSENT OF SILVER FREEDMAN & TAFF, L.L.P.
Ladies and Gentlemen:
We hereby consent to the references to this firm and our opinions in:
the Registration Statement on Form S-1 filed by Cohoes Savings Bank, Cohoes, New
York, and all amendments thereto; in the Form H-(e)l for Cohoes Bancorp, Inc.,
and all amendments thereto; and in the Application for Conversion on Form 86-AC
filed by Cohoes Savings Bank (the "Bank"), and all amendments thereto, and in
the Notice and Application for Cohoes Savings Bank filed with the Federal
Deposit Insurance Corporation and all amendments thereto, relating to the
conversion of the Bank from a New York State chartered mutual savings bank to a
New York State chartered stock savings bank, the concurrent issuance of the
Bank's outstanding capital stock to Cohoes Bancorp, Inc., a holding company
formed for such purpose, and the offering of Cohoes Bancorp, Inc.'s common
stock.
/s/ Silver, Freedman & Taff, L.L.P.
-----------------------------------
SILVER, FREEDMAN & TAFF, L.L.P.
Exhibit 23.2
Consent of Arthur Andersen
<PAGE>
ARTHUR
ANDERSEN
------------------------
Arthur Andersen LLP
------------------------
1345 Avenue of the Americas
New York, NY 10105-0032
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated August 12, 1998 (and to all references to our Firm) included in or made
part of this Prospectus which is included in the Application for Conversion on
Form 86-AC, the Notice and Application for Conversion for Cohoes Savings Bank,
the Registration Statement on Form S-1, and related Prospectus of Cohoes
Bancorp, Inc., and all amendments thereto.
/s/ Arthur Andersen LLP
New York, New York
October 28, 1998
Exhibit 23.4
Consent of Wertime, Ries and Van Ullen, P.C.
<PAGE>
Exhibit 23.4
[WERTIME, RIES & VAN ULLEN, P.C. LETTERHEAR]
October 28, 1998
The Board of Trustees
Cohoes Savings Bank
75 Remsen Street
Cohoes, New York 12407
CONSENT OF WERTIME, RIES & VAN ULLEN, P.C.
Ladies and Gentlemen:
We hereby consent to the references to this firm and our opinions in
the Registration Statement on Form S-1 filed by Cohoes Savings Bank, Cohoes, New
York, and all amendments thereto; in the Form H-(e)1 for Cohoes Bancorp, Inc.,
and all amendments thereto; and in the Application for Conversion on Form 86-AC
filed by Cohoes Savings Bank (the "Bank"), and all amendments thereto, and in
the Notice and Application for Cohoes Savings Bank filed with the Federal
Deposit Insurance Corporation and all amendments thereto, relating to the
conversion of the Bank from a New York State chartered mutual savings bank to a
New York State chartered stock savings bank, the concurrent issuance of the
Bank's outstanding capital stock to Cohoes Bancorp, Inc., a holding company
formed for such purpose, and the offering of Cohoes Bancorp, Inc.'s stock.
/s/ Wertime, Ries & Van Ullen, P.C.
-----------------------------------
WERTIME, RIES & VAN ULLEN, P.C.
Exhibit 99.3
Marketing Materials
<PAGE>
COHOES BANCORP, INC.
Community Investor Meeting
November xx, 1998
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other government agency. This is not an offer to sell or a
solicitation of an offer to buy stock. The offer is made only by the Prospectus.
<PAGE>
MANGEMENT OF THE BANK
o Harry L. Robinson, President and Chief Executive Officer
o Richard A. Ahl, Executive Vice President and Chief Financial Officer
o Albert J. Picchi, Vice President and Senior Loan Officer
<PAGE>
TOTAL ASSETS
[GRAPHIC OMITTED]
<PAGE>
ASSET MIX
Other
3.4%
Cash and
cash
equivalents
2.7%
As of June 30, 1998
<PAGE>
LOANS RECEIVABLE, NET
[GRAPHIC OMITTED]
<PAGE>
LOAN PORTFOLIO MIX
Other real estate
22.4%
One- to four-family
62.1%
Commercial
3.6%
Consumer
11.9%
As of June 30, 1998
<PAGE>
TOTAL DEPOSITS
[GRAPHIC OMITTED]
<PAGE>
TOTAL RETAINED EARNINGS
[GRAPHIC OMITTED]
<PAGE>
CAPITAL REQUIREMENTS
[GRAPHIC OMITTED]
<PAGE>
AVERAGE RETAINED EARNINGS TO AVERAGE ASSETS
[GRAPHIC OMITTED]
<PAGE>
NET INCOME
[GRAPHIC OMITTED]
<PAGE>
RETURN ON AVERAGE ASSETS
[GRAPHIC OMITTED]
<PAGE>
RETURN ON AVERAGE RETAINED EARNINGS
[GRAPHIC OMITTED]
<PAGE>
NET INTEREST RATE SPREAD
[GRAPHIC OMITTED]
<PAGE>
NET INTEREST MARGIN
[GRAPHIC OMITTED]
<PAGE>
BRANCH MAP
[GRAPHIC OMITTED]
<PAGE>
DEPOSIT MARKET SHARE
Albany County
HC 6/97
Branches Deposits
Holding Company in List ($000s) % of List
- --------------- ------- ------- ---------
1 Fleet Financial Group ........ 16 2,256,635 37.50
2 Keycorp ...................... 28 862,526 14.33
3 Charter One Financial ........ 14 817,837 13.59
4 Trustco Bank Corp of NY ...... 16 752,815 12.51
5 Cohoes Savings Bank .......... 8 320,268 5.32
6 Hsbc Holdings Plc ............ 9 256,572 4.26
7 Pioneer Savings Bank ......... 2 205,135 3.41
8 M&T Corporation .............. 6 201,135 3.35
9 Troy Savings Bank ............ 4 111,189 1.85
10 Banknorth Group Inc .......... 3 53,850 0.89
11 6 Others ..................... 8 178,998 2.96
--------- --------- ------
Total ......................... 114 6,017,550 100.00
========= ========= ======
<PAGE>
DEPOSIT MARKET SHARE
Rensselaer County
HC 6/97
Branches Deposits
Holding Company in List ($000s) % of List
- --------------- ------- ------- ---------
1 Troy Savings Bank .............. 3 326,501 21.80
2 Keycorp ........................ 9 208,637 13.93
3 M&T Corporation ................ 5 184,595 12.33
4 Hsbc Holdings Plc .............. 5 173,848 11.61
5 Trustco Bank Corp of NY ........ 4 128,731 8.60
6 Charter One Financial .......... 3 117,216 7.83
7 Pioneer Savings Bank ........... 1 111,342 7.44
8 Fleet Financial Group .......... 8 105,515 7.05
9 Cohoes Savings Bank ............ 2 54,658 3.65
10 Hudson City Savings Inst ....... 2 47,222 3.15
11 Banknorth Group Inc. ........... 1 39,191 2.62
------- --------- ------
Total ......................... 43 1,497,456 100.00
======= ========= ======
<PAGE>
DEPOSIT MARKET SHARE
Saratoga County
HC 6/97
Branches Deposits
Holding Company in List ($000s) % of List
- --------------- ------- ------- ---------
1 473 Broadway Holding ............ 5 301,502 19.20
2 Fleet Financial Group ........... 5 241,444 15.37
3 Trustco Bank Corp of NY ......... 10 178,264 11.35
4 Keycorp ......................... 6 143,364 9.13
5 Arrow Financial Corp. ........... 4 129,291 8.23
6 Ballston Spa Bancorp Inc. ....... 6 118,620 7.55
7 Hsbc Holdings Plc ............... 3 96,909 6.17
8 Charter One Financial ........... 4 96,122 6.12
9 Banknorth Group Inc. ............ 3 76,278 4.86
10 Troy Savings Bank ............... 2 57,774 3.68
11 Ambanc Holding Co. .............. 4 48,703 3.10
12 Cohoes Savings Bank ............. 3 46,150 2.94
13 Gloversville Fs & La ............ 1 16,017 1.02
14 Pioneer Savings Bank ............ 2 14,013 0.89
15 First National Bank Scotia ...... 1 5,958 0.38
------ --------- ------
Total ......................... 59 1,570,409 100.00
====== ========= ======
<PAGE>
DEPOSIT MAARKET SHARE
Schenectady County
HC 6/97
Branches Deposits
Holding Company in List ($000s) % of List
- --------------- ------- ------- ---------
1 Trustco Bank Corp of NY ........ 12 716,554 34.15
2 Fleet Financial Group .......... 8 639,480 30.48
3 Keycorp ........................ 4 169,561 8.08
4 SFS Bancorp, Inc. .............. 4 147,934 7.05
5 First National Bank Scotia ..... 6 112,709 5.37
6 Pioneer Savings Bank ........... 1 86,447 4.12
7 Charter One Financial .......... 2 60,000 2.86
8 Cnb Financial Corp. ............ 3 36,911 1.76
9 Troy Savings Bank .............. 1 31,192 1.49
10 Ballston Spa Bancorp Inc. ...... 1 24,247 1.16
11 Hsbc Holdings Plc .............. 1 18,187 0.87
12 Cohoes Savings Bank ............ 3 418,138 0.86
13 4 Others ....................... 4 36,612 1.75
--------- --------- ------
Total ....................... 50 2,097,972 100.00
========= ========= ======
<PAGE>
PRO FORMA DATA
15% above
Minimum Midpoint Maximum Maximum
------- -------- ------- -------
Gross Proceeds(000s) ..... $ 59,500 $ 70,000 $ 80,500 $ 92,575
Stockholders' Equity(000s) $104,547 $113,759 $122,972 $133,567
Book Value Per Share ..... $ 17.06 $ 15.78 $ 14.84 $ 14.01
Net Income (000s) ........ $ 5,226 $ 5,432 $ 5,638 $ 5,875
Earnings Per Share ....... $ 0.93 $ 0.82 $ 0.74 $ 0.67
Price to Book ............ 58.62% 63.37% 67.39% 71.38%
Price to Earnings ........ 10.75x 12.20x 13.51x 14.93x
<PAGE>
PREFERENCE CATEGORIES
(1) Eligible Account Holders
(2) Employee Stock Ownership Plan (ESOP)
(3) Supplemental Eligible Account Holders
(4) Residents of Local Community
(5) General Public
<PAGE>
We thank you for your interest in
COHOES BANCORP, INC.
NASDAQ National Market: "XXXX"
<PAGE>
[LOGO]
KEEFE, BRUYETTE & WOODS, INC.
November xx, 1998
To Members and Friends of Cohoes Savings Bank
- --------------------------------------------------------------------------------
Keefe, Bruyette & Woods, Inc., a member of the National Association of
Securities Dealers, Inc. ("NASD"), is assisting Cohoes Savings Bank ("Cohoes
Savings" or the "Bank") in its conversion from a state-chartered mutual savings
bank to a state-chartered stock savings bank (the "Conversion") and the
concurrent offering of common shares by Cohoes Bancorp, Inc.. (the "Holding
Company"), the newly formed corporation that will become the holding company of
Cohoes Savings following the Conversion.
At the request of the Holding Company, we are enclosing materials explaining
this process and your options, including an opportunity to invest in the Holding
Company's common shares being offered to the customers of Cohoes Savings Bank.
Please read the enclosed offering materials carefully. The Holding Company has
asked us to forward these documents to you in view of certain requirements of
the securities laws in your state.
If you have any questions, please visit our Stock Sales Center located at 244 N.
Mohawk Street, Cohoes, New York or feel free to call the Stock Sales Center at
(518) 235-4000.
Very truly yours,
Keefe, Bruyette & Woods, Inc.
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
November xx, 1998
Dear Friend:
We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is
converting from a state-chartered mutual savings bank to a state-chartered stock
savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes
Bancorp, Inc., the newly-formed corporation that will become the holding company
for Cohoes Savings, is offering common shares in a subscription offering (the
"Offering") to certain depositors and our Employee Stock Ownership Plan,
pursuant to a Plan of Conversion.
Because we believe you may be interested in learning more about the merits of
the common shares of Cohoes Bancorp, Inc. as an investment, we are sending you
the following materials which describe the Offering.
PROSPECTUS: This document provides detailed information about operations at
Cohoes Savings and the Offering.
QUESTIONS AND ANSWERS: Key questions and answers about the Offering are
found in this pamphlet.
STOCK ORDER FORM & CERTIFICATION FORM: This form is used to purchase stock
by returning it with your payment in the enclosed business reply envelope.
The deadline for ordering stock is 12:00 noon, Eastern Time, on December
xx, 1998.
As a friend of Cohoes Savings, you will have the opportunity to buy common
shares directly from Cohoes Bancorp, Inc. in the Conversion without paying a
commission or a fee. If you have additional questions regarding the Conversion
and the Offering, please call us at (518-) 235-4000 Monday through Friday from
9:00 a.m. to 5:00 p.m., or stop by the Stock Sales Center at 244 N. Mohawk
Street, Cohoes, New York.
We are pleased to offer you this opportunity to become a shareholder of Cohoes
Bancorp, Inc.
Best regards,
Harry L. Robinson
President and Chief Executive Officer
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
November xx, 1998
Dear Member:
We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is
converting from a state-chartered mutual savings bank to a state-chartered stock
savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes
Bancorp, Inc., the newly-formed corporation that will become the holding company
for Cohoes Savings, is offering common shares in a subscription offering (the
"Offering") to certain of our depositors and our Employee Stock Ownership Plan,
pursuant to a Plan of Conversion.
To accomplish this Conversion, we need your participation in an important vote.
Enclosed is a proxy statement describing the Plan of Conversion and your voting
and subscription rights. Cohoes Savings' Plan of Conversion has been approved by
the Superintendent of Banks of the State of New York and now must be approved by
you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy materials, is your proxy card, located behind the
window of your mailing envelope. This proxy card should be signed and returned
to us prior to the Special Meeting to be held on December xx, 1998. Please take
a moment now to sign the enclosed proxy card and return it to us in the
postage-paid envelope provided. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
The Board of Directors of Cohoes Savings feels that the Conversion will offer a
number of advantages, such as an opportunity for depositors of Cohoes Savings to
become shareholders. Please remember:
o Your accounts at Cohoes Savings will continue to be insured up to the
maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
o There will be no change in the balance, interest rate, or maturity of
any deposit accounts because of the Conversion, unless you choose to
purchase shares using your account balances.
o Members have a right, but no obligation, to subscribe for common
shares before they are offered to the public. Voting for the
Conversion does not obligate you to purchase stock.
o Like all stock, the common shares issued in the Offering WILL NOT BE
INSURED BY THE FDIC.
Enclosed are materials describing the Offering. We urge you to read these
materials carefully. If you are interested in purchasing the common shares of
Cohoes Bancorp, Inc., your Stock Order Form and Certification Form and payment
must be received by Cohoes Savings prior to 12:00 Noon, Eastern Time, on
December xx, 1998.
If you have additional questions regarding the Offering, please call us at (518)
235-4000, Monday through Friday from 9:00 a.m. to 5:00 p.m., or stop by the
Stock Sales Center at 244 N. Mohawk Street, Cohoes, New York.
Best regards,
Harry L. Robinson
President and Chief Executive Officer
THE COMMON SHARES BEING OFFERED IN THIS OFFERING ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY. THIS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SHARES. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
<PAGE>
November xx, 1998
Dear Member:
We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is
converting from a state-chartered mutual savings bank to a state-chartered stock
savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes
Bancorp, Inc., the newly-formed corporation that will become the holding company
for Cohoes Savings, is offering common shares in a subscription offering.
Unfortunately, Cohoes Bancorp, Inc. is unable to either offer or sell its common
shares to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common shares under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell or
a solicitation of an offer to buy the common shares of Cohoes Bancorp, Inc.
However, as a member of Cohoes Savings, you have the right to vote on the Plan
of Conversion at the Special Meeting of Members to be held on December xx, 1998.
Enclosed is a proxy card, a Proxy Statement (which includes the Notice of the
Special Meeting), a Prospectus (which contains information incorporated into the
Proxy Statement) and a return envelope for your proxy card.
I invite you to attend the Special Meeting on December xx, 1998. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Best Regards,
Harry L. Robinson
President and Chief Executive Officer
<PAGE>
November xx, 1998
Dear Prospective Investor:
We are pleased to announce that Cohoes Savings Bank ("Cohoes Savings") is
converting from a state-chartered mutual savings bank to a state-chartered stock
savings bank (the "Conversion"). In conjunction with the Conversion, Cohoes
Bancorp, Inc., the newly-formed corporation that will become the holding company
for Cohoes Savings, is offering common shares in a subscription offering and
community offering (collectively, the "Offering").
We have enclosed the following materials which will help you learn more about
the merits of Cohoes Bancorp, Inc. as an investment. Please read and review the
materials carefully.
PROSPECTUS: This document provides detailed information about
operations at Cohoes Savings and the Offering.
QUESTIONS AND ANSWERS: Key questions and answers about the Offering
are found in this pamphlet.
STOCK ORDER FORM & CERTIFICATION FORM: This form is used to purchase
common shares by returning it with your payment in the enclosed
business reply envelope. The deadline for ordering common shares is
12:00 noon, Eastern Time, on December xx, 1998.
We invite our loyal customers and local community members to become shareholders
of Cohoes Bancorp, Inc.. Through the Offering you have the opportunity to buy
common shares directly from Cohoes Bancorp, Inc., without paying a commission or
a fee.
If you have additional questions regarding the Conversion and the Offering,
please call us at (518) 235-4000, Monday through Friday from 9:00 a.m. to 5:00
p.m., or stop by the Stock Sales Center at 244 N. Mohawk Street, Cohoes, New
York.
Best regards,
Harry L. Robinson
President and Chief Executive Officer
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
FACTS ABOUT CONVERSION
The Board of Directors of Cohoes Savings Bank ("Cohoes Savings") unanimously
adopted a Plan of Conversion to convert from a state-chartered mutual savings
bank to a state-chartered stock savings bank (the "Conversion").
This brochure answers some of the most frequently asked questions about the
Conversion and about your opportunity to invest in common shares of Cohoes
Bancorp, Inc. (the "Holding Company"), the newly-formed corporation that will
become the holding company for Cohoes Savings following the Conversion.
Investment in the common shares of Cohoes Bancorp, Inc. involves certain risks.
For a discussion of these risks and other factors, including a complete
description of the offering, investors are urged to read the accompanying
Prospectus, especially the discussion under the heading "Risk Factors" on page
xx.
WHY IS COHOES SAVINGS CONVERTING TO STOCK FORM?
- -----------------------------------------------
The stock form of ownership is used by most business corporations and an
increasing number of savings institutions:
o The stock form of organization offers many competitive advantages,
including growth opportunities and increased capital levels.
o The Conversion will permit the Bank's customers and members of the local
community to become equity owners and to share in the future of the Company
and the Bank.
<PAGE>
WILL THE CONVERSION AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- ---------------------------------------------------------------
No. The Conversion and Merger will have no effect on the balance or terms of any
savings account or loan, and your deposits will continue to be federally insured
by the Federal Deposit Insurance Corporation ("FDIC") to the maximum legal
limit. Your savings account is not being converted into stock.
WHO IS ELIGIBLE TO PURCHASE COMMON SHARES IN THE SUBSCRIPTION OFFERING AND THE
COMMUNITY OFFERING?
- --------------------------------------------------------------------------------
Certain past and present depositors of Cohoes Savings and the Holding Company's
Employee Stock Ownership Plan are eligible to purchase common shares in the
subscription offering.
HOW MANY COMMON SHARES ARE BEING OFFERED AND AT WHAT PRICE?
- -----------------------------------------------------------
Cohoes Bancorp, Inc. is offering up to 9,257,500 common shares, subject to
adjustment as described in the Prospectus, at a price of $10.00 per share
through the Prospectus.
HOW MANY SHARES MAY I BUY?
- --------------------------
The minimum order is 25 common shares. The maximum amount of shares that a
person may purchase in any particular priority category in the Offering is
generally limited to 25,000 shares. No person, together with associates and
persons acting in concert with such person, may purchase more than 1.0% of the
common shares sold in the Offering.
WILL THE COMMON SHARES BE INSURED?
- ----------------------------------
No. Like any other common shares, the Holding Company's common shares will not
be insured.
<PAGE>
DO MEMBERS HAVE TO BUY COMMON SHARES?
- -------------------------------------
No. However, the Conversion will allow depositors of Cohoes Savings an
opportunity to buy common shares and become shareholders of the holding company
for the local financial institution with which they do business.
HOW DO I ORDER COMMON SHARES?
- -----------------------------
You must complete the enclosed Stock Order Form and Certification Form.
Instructions for completing your Stock Order Form and Certification Form are
contained in this packet. Your order must be received by 12:00 Noon, Eastern
Time on December xx, 1998.
HOW MAY I PAY FOR MY COMMON SHARES?
- -----------------------------------
First, you may pay for common shares by check, cash or money order. Interest
will be paid by Cohoes Savings on these funds at the passbook rate, which is
currently 3.0%, from the day the funds are received until the completion or
termination of the Conversion. Second, you may authorize us to withdraw funds
from your deposit account or certificate of deposit at Cohoes Savings for the
amount of funds you specify for payment. You will not have access to these funds
from the day we receive your order until completion or termination of the
Conversion.
CAN I PURCHASE SHARES USING FUNDS IN MY COHOES SAVINGS IRA ACCOUNT?
- -------------------------------------------------------------------
Federal regulations do not permit the purchase of common shares in connection
with the Conversion from your existing Cohoes Savings IRA account. To
accommodate our depositors, we have made arrangements with an outside trustee to
allow such purchases. Please call our Stock Sales Center for additional
information.
<PAGE>
WILL DIVIDENDS BE PAID ON THE COMMON SHARES?
- --------------------------------------------
The Board of Directors of the Holding Company will consider whether to pay a
cash dividend in the future, subject to regulatory limits and requirements. No
decision has been made as to the amount or timing of such dividends, if any.
HOW WILL THE COMMON SHARES BE TRADED?
- -------------------------------------
The Holding Company's stock is expected to trade on The Nasdaq National Market
under the symbol "XXXX." However, no assurance can be given that an active and
liquid market will develop.
ARE OFFICERS AND DIRECTORS OF COHOES SAVINGS PLANNING TO PURCHASE SHARES?
- -------------------------------------------------------------------------
Yes! The officers and directors of Cohoes Savings plan to purchase, in the
aggregate, $3,100,000 worth of shares or approximately 3.8% of the common shares
offered at the maximum of the offering range.
MUST I PAY A COMMISSION?
- ------------------------
No. You will not be charged a commission or fee on the purchase of common shares
in the Conversion.
SHOULD I VOTE TO APPROVE THE PLAN OF CONVERSION?
- ------------------------------------------------
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
<PAGE>
WHY DID I GET SEVERAL PROXY CARDS?
- ----------------------------------
If you have more than one account, you could receive more than one proxy card,
depending on the ownership structure of your accounts.
HOW MANY VOTES DO I HAVE?
- -------------------------
Your proxy card(s) show(s) the number of votes you have. Every depositor is
entitled to cast one vote for each $100, and a proportionate fractional vote for
an amount of less than $100, on deposit as of the voting record date, up to
1,000 votes.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING?
- --------------------------------------------
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so at any time before such proxy is
exercised by executing and delivering a later dated proxy or by giving written
notice of revocation or in person at the special meeting. Attendance at the
special meeting will not, of itself, revoke a proxy.
For Additional Information You May Call Our Stock Sales Center Monday through
Friday 9:00 a.m. to 5:00 p.m.
STOCK SALES CENTER (518) 235-4000
Cohoes Bancorp, Inc.
244 N. Mohawk Street
Cohoes, New York 12047
<PAGE>
- --------------------------------------------------------------------------------
QUESTIONS
AND
ANSWERS
- --------------------------------------------------------------------------------
Cohoes Bancorp, Inc.
[LOGO]
THE COMMON SHARES BEING OFFERED ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND,
THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SHARES. THE OFFER IS
MADE ONLY BY THE PROSPECTUS.
<PAGE>
PROXY GRAM
We recently forwarded to you a proxy statement and related materials regarding a
proposal to convert Cohoes Savings Bank from a state-chartered mutual savings
bank to a state -chartered stock savings bank (the "Conversion").
Your vote on our Plan of Conversion has not yet been received. Failure to vote
has the Same Effect as Voting Against the Conversion.
Voting for the Conversion does not obligate you to purchase stock or affect the
terms of insurance on your accounts.
The Board of Directors unanimously recommends that you vote "FOR" the
Conversion.
Cohoes Savings Bank
Cohoes, New York
Harry L. Robinson
chairman and Chief Executive Officer
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call (518) 235-4000.
Exhibit 99.4
Stock Order Form
<PAGE>
Cohoes Bancorp, Inc.
Stock Ownership Guide and Stock Order Form Instructions
Stock Order Form Instructions
- --------------------------------------------------------------------------------
Item 1 and 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum number
of shares that may be subscribed for is 25. Generally, each Eligible Account
Holder, Supplemental Eligible Account Holder and Other Member may purchase in
the Subscription Offering not more than 25,000 Common Shares. In connection with
the exercise of subscription rights arising from a single deposit account in
which two or more persons have an interest, however, the aggregate maximum
number of Common Shares which the persons having an interest in such account may
purchase in the Subscription Offering in relation to such account is 25,000
Common Shares. Except for Cohoes Bancorp, Inc.'s Employee Stock Ownership Plan,
which may purchase up to 8% of the total Common Shares sold in the Offering, no
person, together with his or her Associates and other persons Acting in Concert
with him or her, may purchase more than 1.0% of the Common Shares in the
Offering. Cohoes Bancorp, Inc. reserves the right to reject any order received
in the Community Offering, if any, in whole or in part.
For a more detailed explanation of the stock purchase limitations, please see
"The Offerings - Limitations on Common Stock Purchases" in the prospectus which
is incorporated herein by reference.
Item 3 - Payment for shares may be made by check, bank draft or money order
payable to Cohoes Bancorp, Inc. No wire transfers will be accepted. DO NOT MAIL
CASH. Your funds will earn interest at Citizens Savings Bank's passbook rate
which is currently 3.00%.
Item 4 - To pay by withdrawal from a savings account or certificate of deposit
at Cohoes Savings Bank, insert the account number(s) and the amount(s) you wish
to withdraw from each account. If the signature of more than one person is
required to withdraw, each must sign in the signature box on the front of this
form. To withdraw from an account with checking privileges, please write a
check. No early withdrawal penalty will be charged on funds used to purchase
stock. Payments will remain in account(s) until the Offering closes but a hold
will be placed on the account(s) for the amount(s) you show. If a partial
withdrawal reduces the balance of a certificate account to less than the
applicable minimum, the remaining balance will be refunded.
Item 5 - Please check this box to indicate whether you are a director, officer
or employee of Citizens Financial Services, FSB or a member of such person's
immediate household.
Item 6 - Please check the appropriate box if you were:
a) A depositor with $100.00 or more on deposit at Cohoes Savings Bank
as of March 31, 1997. Enter information for all deposit accounts
that you had at Cohoes Savings Bank on March 31, 1997.
b) A depositor with $100.00 or more on deposit at Cohoes Savings Bank
as of September 30, 1998, but are not an Eligible Account Holder.
Enter information for all deposit accounts that you had at Cohoes
Savings Bank on September 30, 1998.
Item 7 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Cohoes Bancorp,
Inc. common shares. Please complete this section as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening phone numbers. We will need to call you if we
cannot execute your order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Subscription
rights are not transferable. If you are a qualified member, to protect your
priority over other purchasers as described in the Prospectus, you must take
ownership in at least one of the account holder's names.
Stock Ownership Guide
- --------------------------------------------------------------------------------
Individual - The stock is to be registered in an individual's name only. You may
not list beneficiaries for this ownership.
Joint Tenants - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
Tenants in Common - Tenants in common may also identify two or more owners. When
stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
Uniform Gift/Uniform Transfer to Minors - For residents of many states stock may
by held in the name of a custodian for the benefit of a minor under the Uniform
Gift to Minors Act. For residents in other states, including Indiana, stock may
be held in a similar type of ownership under the Uniform Transfer to Minors Act
of the individual state. SHARES MAY BE PURCHASED IN THE SUBSCRIPTION OFFERING
UNDER EITHER ACT ONLY IF THE MINOR HAS SUBSCRIPTION RIGHTS. Only one custodian
and one minor may be designated.
Instructions: On the first "Name" line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second "Name"
line. Use the minor's social security number.
Corporation/Partnership - Corporations and partnerships may purchase stock.
Please provide the corporation/partnership's legal name and Tax I.D. To have
subscription rights, the corporation/partnership must have an account in the
legal name.
Individual Retirement Account - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a prearranged
"trustee-to-trustee" transfer. Stock may only be held in a self-directed IRA.
Cohoes Savings Bank does not offer a self-directed IRA. Please contact the Stock
Sales Center if you have any questions about your IRA account.
Fiduciary/Trust - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first "Name" line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first "Name" line. Following
the name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second "Name" line, print the name of the maker ,
donor or testator or the name of the beneficiary. Following the name, indicate
the type of legal document establishing the fiduciary relationship (agreement,
court order, etc.). In the blank after "Under Agreement Dated", fill in the date
of the document governing the relationship. The date of the document need not be
provided for a trust created by a will.
<PAGE>
COHOES BANCORP, INC.
Conversion Center
244 N. Mohawak Street
Cohoes, NY 12047
(518) 235-4000
Stock Order Form
- --------------------------------------------------------------------------------
Deadline: The Subscription Offering ends at 12:00 Noon, EST, on December xx,
1998 (the "Deadline"). Your original Stock Order Form and Certification Form,
properly executed and with the correct payment, must be received (not
postmarked) at the address on the top of this form by the Deadline, or it will
be considered void. Faxes or copies of this form will not be accepted.
- --------------------------------------------------------------------------------
(1) Number of Shares Price Per Share (2) Total Amount Due
[ ] X $10.00 = [$ ]
Minimum - 25 Shares Maximum - See Instructions or Prospectus
- --------------------------------------------------------------------------------
Method of Payment
(3) [ ] Enclosed is a check, bank draft or money order payable to Cohoes
Bancorp, Inc. for $____________.
(4) [ ] I authorize Cohoes Savings Bank to make withdrawals from my certificate
or savings account(s) shown below, and understand that the amounts will
not otherwise be available for withdrawal:
Account Number(s) Amount(s)
________________________________________|_____________________
________________________________________|_____________________
________________________________________|_____________________
________________________________________|_____________________
Total Withdrawal |_____________________
There is NO penalty for early withdrawal.
- --------------------------------------------------------------------------------
(5) Purchase Information (check one)
a. [ ] Eligible Account Holder Check here if you were a depositor with $100,000
or more on deposit with Cohoes Savings Bank as of March 31, 1997. Enter
information below for all deposit accounts that you had at Cohoes Savings on
March 31, 1997.
b. [ ] Supplemental Eligible Account Holder - Check here if you were a depositor
with $100,000 or more on deposit with Cohoes Savings as of September 30, 1998
but are not an Eligible Account Holder. Enter information below for all
deposit accounts that you had at First Federal on September 30, 1998.
[ ]
[ ]
[ ]
[ ]
- --------------------------------------------------------------------------------
(6) [ ] Check here if you are a director, officer or employee of Cohoes Savings
Bank or a member of such person's immediate family (same household).
- --------------------------------------------------------------------------------
(7) [ ] NASD Affiliation - see description on reverse side hereof.
- --------------------------------------------------------------------------------
o These account numbers correspond to the preprinted registration in the
top left hand corner of this form.
o These may not be all of your qualifying accounts.
o You must list any account numbers from other stock order forms you have
received in the mail and any other accounts that you have or have had at
Cohoes Savings Bank.
Account Title (Names on Accounts) Account Number
_____________________________________|___________________________
_____________________________________|___________________________
_____________________________________|___________________________
Please Note: Failure to list all of your accounts may result in the loss of part
or all of your subscription rights, (additional space on back of form).
- --------------------------------------------------------------------------------
<PAGE>
(8) Stock Registration - Please Print Legibly and Fill Out Completely
(Note: The Stock Certificate and all correspondence related to this stock
order will be mailed to the address provided below)
<TABLE>
<CAPTION>
<S> <C> <C>
[ ] Individual [ ] Uniform Transfer to Minors [ ] Partnership
[ ] Joint Tenants [ ] Uniform Gift to Minors [ ] Individual Retirement Account
[ ] Tenants in Common [ ] Corporation [ ] Fiduciary/Trust (Under Agreement Dated ______________)
- -----------------------------------------------------------------------------------------------------------------------------
Name | Social Security or Tax I.D.
- -----------------------------------------------------------|-----------------------------------------------------------------
Name | Social Security or Tax I.D.
- -----------------------------------------------------------|-----------------------------------------------------------------
Mailing | Daytime
Address | Telephone
- ------------------------------------------------------------------------------|----------------------------------------------
Zip | Evening
City State Code County | Telephone
- ------------------------------------------------------------------------------|----------------------------------------------
</TABLE>
Acknowledgment By signing below, I acknowledge receipt of the Prospectus dated
November xx, 1998 and understand I may not change or revoke my order once it is
received by Cohoes Bancorp, Inc. I also certify that this stock order is for my
account and there is no agreement or understanding regarding any further sale or
transfer of these shares. Applicable regulations prohibit any persons from
transferring, or entering into any agreement directly or indirectly to transfer,
the legal or beneficial ownership of subscription rights or the underlying
securities to the account of another person Cohoes Bancorp, Inc. will pursue any
and all legal and equitable remedies in the event it becomes aware of the
transfer of subscription rights and will not honor orders known by it to involve
such transfer. Under penalties of perjury, I further certify that: (1) the
social security number or taxpayer identification number given above is correct
and (2) I am not subject to backup withholding. You must cross out this item (2)
above if you have been notified by the Internal Revenue Service that you are
subject to backup withholding because of under-reporting interest or dividends
on your tax return. By signing below, I also acknowledge that I have not waived
any rights under the Securities Act of 1933 and the Securities Exchange Act of
1934.
Signature: THIS FORM MUST BE SIGNED AND DATED TWICE: Here and on the
Certification Form. This order is not valid if the Stock Order Form and
Certification Form are not both signed. Your order will be filled in accordance
with the provisions of the prospectus. An additional signature is required only
if payment is by withdrawal from an account that requires more than one
signature to withdraw funds.
Signature Date OFFICE USE Date Rec'd __/___/___ Check #________
___________________________ Amount $__________ Catgory________
Signature Date Batch # ________ Order #_________ Deposit $______
___________________________
<PAGE>
COHOES BANCORP, INC.
- --------------------------------------------------------------------------------
Item (5) continued: Purchaser Information
Account Title (Names on Accounts) Account Number
______________________________________|________________________
______________________________________|________________________
______________________________________|________________________
______________________________________|________________________
______________________________________|________________________
- --------------------------------------------------------------------------------
Item (7) continued - NASD Affiliation (This section only applies to those
individuals who meet the delincated criteria).
Check box if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Wihholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for
a period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
- --------------------------------------------------------------------------------
CERTIFICATION FORM
(This Certification Must Be Signed In Addition to the Stock Order Form)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OF
COHOES BANCORP, INC. ARE NOT DEPOSITS OR AN ACCOUNT AND ARE NOT FEDERALLY
INSURED OR GUARANTEED BY COHOES SAVINGS BANK OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of Common Stock are federally insured or
guaranteed, or are as safe as an insured deposit, I should call the
Superintendent of Banks of the State of New York at (xxx) xxx-xxxx.
I further certify that, before purchasing the Common Stock of Cohoes Bancorp,
Inc., I received a copy of the Prospectus dated November xx, 1998 which
discloses the nature of the Common Stock being offered thereby and describes the
following risks involved in an investment in the Common Stock under the heading
"Risk Factors" beginning on page 12 of the Prospectus:
1. Decreased Return on Average Equity and Increased Expenses Immediately After
Conversion
2. Dilutive Effect of Issuance of Additional Shares
3. Interest Rate Exposure
4. Risks Related to Multi-Family and Commercial Real Estate Loans; Geographic
Concentration of Loans
5. Competition
6. Defensive Takeover Provisions
7. Post-Conversion Compensation and Other Expense
8. Absence of Active Market for the Common Stock
9. Year 2000 Compliance
10. Risks Associated with the Establishment of the Charitable Foundation
_____________________________ ________________________________
Signature Date Signature Date
(Note: If shares are to be held jointly, both parties must sign)
THE COMMON SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENT AGENCY.
Exhibit 99.5
COHOES SAVINGS BANK
75 Remsen Street
Cohoes, New York 12047-2892
(518) 233-6500
NOTICE OF SPECIAL MEETING OF DEPOSITORS
To Be Held on ______, 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Depositors ("Special
Meeting") of Cohoes Savings Bank (the "Bank") will be held at the
_______________, located at _______________, Cohoes, New York at _:___ p.m.
Eastern time, on ____________, 1998, to consider and vote upon approval of:
The Plan of Conversion ("Plan of Conversion" or "Plan")
pursuant to which the Bank will be converted from a New York
chartered mutual savings bank to a New York chartered stock
savings bank with the concurrent issuance and sale of all of
the Bank's outstanding capital stock to Cohoes Bancorp, Inc.
(the "Company") and the issuance and sale of the Company's
common stock to the public; and other transactions provided
for in the Plan, including the adoption of the Restated
Organization Certificate and Bylaws of the Bank and the
establishment of the Cohoes Savings Foundation.
The Board of Trustees has fixed _____ __, 1998 as the voting record
date ("Voting Record Date") for the determination of depositors of the Bank
entitled to notice of and to vote at the Special Meeting and at any postponement
or adjournment thereof. Only those depositors having aggregate deposits with the
Bank of $100 or more as of the close of business on the Voting Record Date are
Voting Depositors of the Bank. Only Voting Depositors will be entitled to vote
at the Special Meeting or any postponement or adjournment thereof. The Plan of
Conversion must be approved by the affirmative vote of (i) at least seventy-five
percent (75%) in amount of deposit liabilities of Voting Depositors represented
in person or by proxy at the Special Meeting and (ii) at least a majority of the
amount of votes entitled to be cast at the Special Meeting by Voting Depositors.
If there are not sufficient votes for approval of the Plan at the time of the
Special Meeting, the Special Meeting may be postponed or adjourned to permit
further solicitation of proxies.
Whether or not you plan to attend the Special Meeting, you are
requested to sign, date and return the enclosed proxy card(s) without delay in
the enclosed postage-paid envelope marked "Proxy Return" to ensure that your
vote will be counted even if you are unable to attend.
By Order of the Board of Trustees
---------------------------------
Secretary
Cohoes, New York
___________, 1998
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COHOES SAVINGS BANK
75 Remsen Street
Cohoes, New York 12047-2892
(518) 233-6500
PROXY STATEMENT
FOR THE
SPECIAL MEETING OF DEPOSITORS OF THE BANK
To Be Held On _________, 1998
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S VOTING DEPOSITORS AND THE
SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE
SUPERINTENDENT.
Purpose of the Special Meeting
This Proxy Statement, together with the Prospectus of Cohoes Bancorp,
Inc. (the "Company") attached hereto, constitutes the Proxy Statement for and is
being furnished to Voting Depositors of Cohoes Savings Bank (the "Bank") in
connection with the solicitation by the Board of Trustees of the Bank of proxies
to be voted at the Special Meeting of Depositors of the Bank (the "Special
Meeting") to be held on _____ __, 1998 at the ______________________________,
located at __ __________, ______, New York, at _:__ _.m., Eastern time, and at
any postponement or adjournment thereof. The Special Meeting is being held for
the purpose of considering and voting upon approval of the Plan of Conversion
(the "Plan" or "Plan of Conversion"), pursuant to which the Bank will be
converted from a New York chartered mutual savings bank to a New York chartered
stock savings bank (the "Conversion") with the concurrent issuance and sale of
all of the Bank's outstanding capital stock to the Company and the issuance and
sale of the Company's common stock, par value $0.01 per share to the public; and
other transactions contemplated by and provided for in the Plan of Conversion,
including the adoption of the Restated Organization Certificate and Bylaws of
the Bank and the establishment of the Cohoes Savings Foundation (the
"Foundation") which will be funded with an amount of the Company's common stock
equal to 3% of the Company's common stock sold in the Conversion.
Voting for or against approval of the Plan of Conversion includes a
vote for or against the adoption of the Restated Organization Certificate and
Bylaws of the Bank and establishment of the Foundation.
Voting for approval of the Plan of Conversion will not obligate any
person to purchase any of the Company's common stock and will not affect the
balance, interest rate or federal deposit insurance of any deposits.
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THE BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF
THE PLAN OF CONVERSION.
Voting Rights and Votes Required for Approval
The Board of Trustees has fixed ______ __, 1998 as the voting record
date ("Voting Record Date") for the determination of depositors entitled to
notice of and to vote at the Special Meeting or at any postponement or
adjournment thereof. Only those depositors of the Bank having aggregate deposits
of $100 or more as of the close of business on the Voting Record Date, are
Voting Depositors of the Bank. Only Voting Depositors of the Bank will be
entitled to vote at the Special Meeting or at any adjournment thereof. The Plan
of Conversion must be approved by the affirmative vote of (i) at least
seventy-five percent (75%) in amount of deposit liabilities of Voting Depositors
represented in person or by proxy at such Special Meeting and (ii) at least a
majority of the amount of votes entitled to be cast at such Special Meeting by
Voting Depositors. If there are not sufficient votes for approval of the Plan at
the time of the Special Meeting, the Special Meeting may be postponed or
adjourned to permit further solicitation of proxies.
Each Voting Depositor will be entitled at the Special Meeting to cast
one vote for each $100 such Voting Depositor had on deposit with the Bank as of
the Voting Record Date; however, no Voting Depositor may cast more than 1,000
votes at the Special Meeting. In general, accounts held in different ownership
capacities will be treated as separate accounts for purposes of applying the
1,000 vote limitation. For example, if two persons hold a $100,000 account in
their joint names and each of the persons also holds a separate account for
$100,000 in their own name, each person would be entitled to 1,000 votes for the
separate account and they would together be entitled to cast 1,000 votes on the
basis of the joint account. The Bank's records indicate that as of the Voting
Record Date, there were approximately ______ Voting Depositors entitled to cast
a total of _________ votes at the Special Meeting.
Deposits held in trust or other fiduciary capacity may be voted by the
trustee or other fiduciary to whom voting rights are delegated under the trust
instrument or other governing document or applicable law. In the case of
Individual Retirement Account and tax qualified plan accounts, such as Keogh
accounts established at the Bank, the beneficiary may direct the trustee's vote
on the Plan of Conversion by returning a proxy card to the Bank. If no proxy
card is returned, the Bank, as trustee, will vote FOR the adoption of the Plan
of Conversion.
Proxies
The Bank's Voting Depositors may vote at the Special Meeting or at any
postponement or adjournment thereof in person or by proxy. Enclosed is a proxy
card which may be used by any Voting Depositor to vote on the Plan of
Conversion. The enclosed proxy card may not be used for any other meetings of
the Bank's depositors. All properly executed proxies received by the Bank will
be voted in accordance with the instruction indicated thereon by the Voting
Depositor giving such proxies. If no instructions are given, executed proxies
will be voted FOR the adoption of the Plan of Conversion.
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Revocability of Proxies
A proxy may be revoked at any time before it is voted by filing written
revocation of the proxy with the Secretary of the Bank, by submitting a duly
executed proxy bearing a later date or by attending and voting in person at the
Special Meeting or any postponement or adjournment thereof. The presence of a
Voting Depositor at the Special Meeting shall not revoke a proxy unless a
written revocation is filed with the Secretary prior to the voting of such
proxy. The proxies being solicited by the Board of Trustees of the Bank are only
for use at the Special Meeting or at any postponement or adjournment thereof and
will not be used at any other meeting.
Solicitation of Proxies and Tabulation of the Vote
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, trustees or employees of the Bank, by
telephone or through other forms of communication and, if necessary, the Special
Meeting may be postponed or adjourned to a later date. Such persons will be
reimbursed by the Bank for their reasonable out-of-pocket expenses incurred in
connection with such solicitation. The Company has retained _________________ to
provide solicitation of proxies and other services, for a fee of $_______ plus
reimbursement of reasonable out-of-pocket expenses. The Bank will bear all costs
of this solicitation.
The Board of Trustees has appointed ________________________
("_____") as the independent custodian and tabulator to receive and hold the
proxy cards and to count the votes cast for and against both proposals. Proxies
delivered to the Bank at its branch offices will be deposited unopened and
sealed in containers that are maintained and delivered unopened in a sealed
state to _____ as custodian and tabulator.
Reasons for the Conversion
See "Summary" and "The Conversion -- Purposes of Conversion" and
"--Effects of Conversion" in the Prospectus for discussion of the basis upon
which the Board of Trustees determined to approve the Plan of Conversion. As
more fully discussed in those sections and in other sections of the Prospectus,
the Board of Trustees believes that the Plan of Conversion is in the best
interests of the Bank, its depositors and the communities it serves.
Management of the Company and the Bank
For information regarding the management of the Bank and the Company,
including compensation-related information, see "Management of the Holding
Company" and "Management of the Bank" in the Prospectus.
THE ATTACHED PROSPECTUS IS AN INTEGRAL PART OF THIS PROXY STATEMENT AND CONTAINS
DETAILED INFORMATION ABOUT THE BANK, THE COMPANY, THE FOUNDATION AND THE
CONVERSION, INCLUDING THE RIGHTS OF CERTAIN DEPOSITORS TO SUBSCRIBE FOR SHARES
OF THE COMPANY'S COMMON STOCK. VOTING DEPOSITORS ARE URGED TO CONSIDER SUCH
INFORMATION CAREFULLY PRIOR TO SUBMITTING THEIR PROXIES.
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REVOCABLE PROXY
COHOES SAVINGS BANK
SPECIAL MEETING OF DEPOSITORS
__________, 1998
The undersigned hereby appoints the Board of Trustees of Cohoes Savings
Bank. (the "Bank"), and its survivor, with full power of substitution, to act as
attorneys and proxies for all votes which the undersigned depositor is entitled
to cast at the Special Meeting of Depositors (the "Meeting"), to be held on
__________, 1998 at the main office of the Bank located at 75 Remsen Street,
Cohoes, New York, at _:__ P.M. New York time, and at any and all adjournments
thereof, as follows:
FOR AGAINST
The approval of the Plan of Conversion (the --- -------
"Plan"), pursuant to which the Bank will
convert from a New York chartered mutual [ ] [ ]
savings bank to a New York chartered stock
savings bank, with the concurrent issuance
of all outstanding shares of its capital
stock to Cohoes Bancorp, Inc., (the
"Company") and the issuance and sale of the
Company's common stock to the public; and
other transactions provided for in the Plan,
including the adoption of the Restated
Organization Certificate and Bylaws of the
Bank and the establishment of the Cohoes
Savings Foundation.
In their discretion, the proxies are authorized to vote on any other business
that may properly come before the Meeting or any adjournment thereof.
The Board of Trustees recommends a vote "FOR" the listed proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSALS STATED. IF ANY OTHER BUSINESS IS PRESENTED
AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR
BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF TRUSTEES KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The depositor may revoke this proxy by: (i) filing with the Secretary
of the Bank at or before the Meeting a written notice of revocation bearing a
later date than the proxy; (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Bank at or before the
Meeting; or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy).
The undersigned acknowledges receipt from the Bank, prior to the
execution of this Proxy, of Notice of the Meeting and a Proxy Statement dated on
or about __________, 1998.
Dated: ________________________
_______________________________
PRINT NAME OF DEPOSITOR
_______________________________
SIGNATURE OF DEPOSITOR
IMPORTANT: Please sign your name exactly as it appears on this proxy. Joint
accounts need only one signature. When signing as an attorney, administrator,
agent, corporation, officer, executor, trustee or guardian, etc., please add
your full title to your signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND RETURN ALL
CARDS IN THE ACCOMPANYING ENVELOPE.
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PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE
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